Sometimes an energy storage deal comes around that’s groundbreaking enough to make you stop what you’re doing and ponder awhile.
The standard for that keeps getting tougher to meet, as 100-megawatt battery contracts become more and more common. But 2020 kicked off with an outlier deal that could portend a whole new storage market.
Tech giant Google wants to procure clean power for a $600 million data center in Henderson, Nevada, which is expected to begin operations in the first half of 2020. It turned to local utility NV Energy to supply it with clean power, as has become the norm for tech giants. But this time, Google broke into new territory, as GTM reported recently.
Google wants to match its consumption to clean production on an hourly basis, rather than an annual basis. Shifting renewable generation over time is a job for energy storage.
And here we have it: the first corporate deal for solar-plus-storage.
Not only does this inaugurate a new genre, it’s a truly colossal project in its own right: 350 megawatts solar capacity and storage capacity between 250 and 280 megawatts (megawatt-hour energy capacity undisclosed). That battery will be bigger than anything proposed in the U.S. besides Florida Power & Light’s 409-megawatt gas-killer and Vistra's Moss Landing project.
NV Energy and Google also went out of their way to make this a win for everyone, including the rest of the customer population. Essentially, Google is paying down a major clean peak capacity resource, and NV Energy can use it for grid balancing in addition to supplying Google’s operations.
A Google spokesperson declined to elaborate on the deal, as it still awaits approval by the Public Utilities Commission of Nevada. But the filing to the PUCN contains shiny nuggets of insight amid the murk of redactions. We’ll mine them for this week’s Storage Plus.
Corporate procurement comes to energy storage
Google already matches its global electricity consumption with renewable energy purchases. This has spurred the construction of dozens of clean power plants adding up to 5.5 gigawatts of capacity. Corporates in the U.S. alone have contracted 31 gigawatts of renewables deals by one count.
But there’s a conundrum lurking behind the leading tech companies’ triumphant declarations of 100 percent renewable power. Wind and solar purchases alone do not create a viable carbon-free grid; those companies still depend on fossil-fueled plants to keep the grid running when the wind and solar farms aren’t generating credits and positive news coverage. Indeed, if everyone followed these companies’ example and exclusively purchased renewables credits, the system would break.
Google, to its credit, recognizes the gap between rhetoric and reality, and has a plan to close it. The company wants to source carbon-free electricity for every hour of consumption at all of its facilities. The Nevada deal marks the first attempt to put this principle into practice.
The deal is structured with two goals:
- Deliver carbon-free power to Google for every hour of every day “to the greatest degree possible.” The contract stipulates that at least 70 percent of hours in the year must come from carbon-free power. That said, the exact mechanism for aligning battery operations with Google's hourly consumption has not been made public, nor is it clear what hard obligation exists beyond the 70 percent mark.
- Add additional clean capacity to the Nevada grid for the summer evenings, when customers use the most electricity.
Most of the juicy details are redacted, but a white paper filed with the application reveals that Google will pay “a fixed, blended price” for dispatchable clean power from the solar-battery plant. The companies describe this price as competitive relative to other options. At the same time, Google will receive credit from NV Energy for providing it with a summer peak capacity resource and for excess solar production that flows to the broader grid.
“Google will not only significantly offset the carbon impact of the electric service its data center utilizes in southern Nevada, but it will offset significant carbon impacts of all other customers,” the document notes.
The plant is getting built because Google wants it; it will be sized to match production to the data center’s consumption on an annual basis. But Google won’t need it all the time, and the utility can use the plant for the system at large when it’s available. It’s like Google’s buying a vacation home that Nevada ratepayers can use at a discount when summertime rolls around. And the more Google consumes, the more it pays NV Energy, and the better deal the utility’s other customers get.
That arrangement is expected to save NV Energy customers $19 million to $165 million over the contract lifetime, depending on how much power Google ends up consuming. That’s a pretty wide range, but the key takeaway is that customers stand to benefit from Google’s investment.
How big an opportunity is this?
Corporate procurement has proved itself a prominent driver of wind and solar procurement — nationally and, increasingly, internationally. Can it drive as much investment to the storage sector?
First, corporates need to show interest in it. Historically, they haven’t; it’s a lot easier to tell a story about your 100 percent renewable power than to explain how a grid needs to instantaneously balance supply and demand. But batteries keep getting cheaper and becoming more standard paired with major solar projects in desert regions.
Google broke the seal; now other companies can follow it. Then other utilities need to follow NV Energy's example. That shouldn't be too hard: Recent history shows that nothing inspires innovation at utilities quite like a data center company in search of clean energy contracts.
New data centers promise a rare source of load growth in the U.S. But utilities also like these deals because they lock in predictable, stable load for years to come. This predictability derives from the nature of renewables: They don’t need any fuel and thus have no exposure to commodity markets once constructed.
“Indeed, without the ability to base the [energy supply agreement] upon a fixed-price resource, such as a renewable solar and battery energy storage resource, it is unlikely that the Parties would have effectuated the successful negotiation of an ESA for such an extended period of years,” the white paper states.
As solar penetration increases and floods the grid at midday, storage has the potential to improve corporate project economics. Storage makes the typical corporate contract for differences less risky, noted Jigar Shah, co-founder and president of investment firm Generate Capital. Generate has a broad portfolio of storage investments but has not yet participated in corporate storage deals.
“Right now, the power gets sold directly into the wholesale market and clears at whatever the price/hedges provide,” he said in an email this week. “Over time, having storage will provide more flexibility for profit maximization.”
Google’s deal illustrates this principle: Google gets compensated for delivering power to NV Energy’s network during the summer evening hours; a standalone solar plant could not earn that compensation.
Ability to spread this concept depends on the laws and regulations of each state — that is, whether or not they share “Nevada's rich history of addressing needs for electric service with unique contractual rate arrangements,” as the filing puts it. Alternatively, deregulated states could allow for direct contracts between corporates and developers, cutting out the regulated utility.
At the moment, there’s no hard evidence to quantify how much storage investment will come from corporate deals.
“Because offsetting with standard renewables is financially more viable and serves the general PR or corporate citizenship initiatives of most corporations, I doubt it will catch on except among the more climate-aggressive companies,” said Daniel Finn-Foley, energy storage director at Wood Mackenzie.
For now, then, the market value of corporate energy storage is “whatever Google is willing to pay,” he added.
Then again, what Google is willing to pay could cover a battery plant that single-handedly beats all the front-of-the-meter batteries installed in the U.S. in 2019.