Storage developer Green Charge has made its first foray into utility-scale projects with a 3-megawatt/6-megawatt-hour deal in Massachusetts, marking an early entry in that state's nascent storage market.
Green Charge made its name with commercial-scale behind-the-meter projects, setting up batteries at 7-Eleven shops in New York that were able to continue to serve customers even through Superstorm Sandy. In 2016, European energy giant Engie bought a controlling stake. With the parent company’s balance sheet and professional network, the storage company was able to increase its scale of operation.
“It’s our biggest announced project,” said CEO Vic Shao. “We’ve got lots of other things in the works right now that we’re not ready to talk about yet.”
When the system comes on-line in April 2018, it will help Holyoke Gas & Electric reduce its annual systemwide peak charge, which ultimately affects the city’s ratepayers.
The project leverages a few sources of funding, and complies with the criteria of the federal Investment Tax Vredit by charging from a 5.76-megawatt Mt. Tom Solar plant Engie built earlier this year.
The government of Massachusetts provided a $475,000 grant, although that isn’t contributing to the economics of the system, Shao said. That money will fund research by the University of Massachusetts at Amherst to study the value of the system for the distribution grid, with a focus on peak reduction.
Most strikingly, the battery system will be owned by a bank, another first for Green Charge.
PNC Bank will own the asset, and lease it back to Green Charge to operate on behalf of the municipal utility customer. This arrangement lowers the cost of capital for the storage system.
“The pure fact that a bank is signing off on and buying storage is a tremendous indication of the maturity of the storage market,” Shao said. “In the past, we’ve had to balance-sheet these kinds of storage assets.”
The leaseback setup means the bank owns the assets and provides money to Green Charge upfront to develop the project. Green Charge will make monthly payments back to the bank with revenue it generates from operating the storage. The bank also nabs the ITC, which places some restrictions on how the battery can operate for the remainder of the tax credit's availability.
Bank interest in owning storage systems is pretty new for the industry, but it bodes well, said GTM Research analyst Daniel Finn-Foley.
"The entry of financial entities into the project ownership ecosystem is an important milestone for any emerging industry, as it truly puts the 'bank' in 'bankability,'" he said. "As financial entities begin putting their muscle behind projects, expect to see assets trading hands and further investment as energy storage capitalizes on its proven track record."
The storage contract with Holyoke is for 20 years, the same time span as the solar contract.
Commercial storage is pretty much a demand-charge game these days, so at first glance, the pivot to utility-scale sounds like a change in direction. But it’s actually more similar than one might think, Shao said.
“Our behind-the-meter experience applies completely in the situation with Holyoke,” he said. “Energy arbitrage is a lot easier. [...] Shaving the systemwide peak on an annual basis requires a whole lot of sophistication.”
In other words, helping the municipal utility avoid paying too much for its annual peak ends up looking like demand-charge reduction on the citywide scale.
The task is similar in cases where the storage system is needed to avoid overloading an interconnection hookup or to defer a transmission upgrade: It’s all about keeping the flow of electricity below a certain threshold.
Without getting too specific, Shao said Green Charge has begun eyeing international expansion, leveraging the resources of its corporate backer.
“Engie operates in 70 countries with 150,000 employees around the world,” he said. “It gives instant credibility when we enter a new market -- and instant resources.”
In the meantime, he envisions more work to be done in Massachusetts. That state has had a few significant storage projects thus far, but policymakers have made an effort to incubate the industry with a procurement target and supporting funds and programs.
This has been the first major movement in the market since the state announced its goal of 200 megawatt-hours by 2020 back in July. That policy didn’t kick off a flurry of storage development just yet, but Shao insists “it’s a market that's primed and ready for storage.”
The express enthusiasm of the governor and legislature certainly helps, as does a customer base with a strong interest in clean energy. The state also happens to be home to a number of other municipal utilities, which have their peak charges to deal with -- and the ability to move quickly and make a storage deal happen.
“Getting the first one across the finish line required a lot of heavy lifting to push and get the deal done,” Shao said. “Now that it’s done, we’re experiencing a lot of customer pull: a ‘Holyoke did it; I want to do it too’ kind of thing.”