Stem is jumping from behind-the-meter energy storage into the grid-connected battery realm. 

The decade-old startup, known for using batteries to help commercial customers manage demand charges, just stepped to the front of the meter market. Stem will build 28.2 megawatts/28.2 megawatt-hours of solar-paired energy storage across five sites in Massachusetts, working with private equity firm Syncarpha Capital, which develops, owns and operates solar plants.

The partnership, announced Tuesday morning, reflects two recent trends in Stem's evolution since the early days of commercial storage.

After years of developing storage projects internally, and even building its own battery enclosures back in the early days, Stem shifted course recently to deliver more projects through partnerships with solar installers. The strategy takes advantage of growing interest in storage development among local and regional commercial solar installers, while reducing customer-acquisition costs for Stem.

The company laid off workers at the end of April amid the shift to prioritize partner-driven business.

At the same time, Stem has targeted larger-scale projects to deliver better economies of scale on distributed storage installations. It went into the Ontario market last year, where large industrial customers have begun installing megawatts' worth of storage to deal with a provincial Global Adjustment charge.

Even the standalone commercial projects that form the bulk of Stem's business are regularly hitting or exceeding the 500-kilowatt mark, a far cry from the 18-kilowatt systems the company initially went to market with.

"Our project sizes are definitely trending up, without a doubt," said Chief Revenue Officer Alan Russo in an interview Monday. "Ultimately, I think the bigger the project, the more value we can deliver, so obviously that's attractive to us."

Today's announcement offers both a specific example of the channel partner approach and the company's first public instance of storage connected directly to the distribution grid, rather than being sited behind a customer's meter.

Fellow behind-the-meter commercial storage pioneer Green Charge made a similar foray into utility-scale storage in 2017, the year after it was acquired by French energy conglomerate Engie. Its first project in that larger category was a 3-megawatt/6-megawatt-hour deal to help municipal utility Holyoke Gas & Electric — also in Massachusetts — reduce its annual systemwide peak charge.

State incentives played a role in both projects. Massachusetts Governor Charlie Baker, a Republican, has pushed for rapid energy storage adoption as part of a cost-effective clean energy agenda. Green Charge received a $475,000 grant to research its project's effect on peak reduction; Stem's project will benefit from the state's SMART incentive, which rewards solar projects and includes an adder for storage-paired systems.

Both systems should also qualify for the federal Investment Tax Credit, which requires that batteries predominantly charge from solar generation. Just over 26 megawatts of solar will accompany the Syncarpha projects, the companies confirmed.

Syncarpha Capital will develop and own the five projects, a departure from Stem's usual financing approach. With customer-sited projects, Stem uses several hundred million dollars of project finance funding to offer zero-money-down service packages. With a front-of-meter system, there is no host customer in the usual sense; Syncarpha fronts the money and takes on the risk of this relatively novel structure.

The systems will participate in the New England ISO wholesale markets, using Stem's Athena software to govern economic dispatch while maintaining the performance requirements of the state and federal incentives. That puts the projects on a merchant footing, another rarity in today's storage industry, where financiers look askance at projects that lack contracted revenue.

The nature of Syncarpha's private equity status matters here: The team only has to convince itself, not the conventional set of risk-averse storage financiers. That freedom to operate helped the firm become an early entrant in the rapidly growing Massachusetts solar-plus-storage market.


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