LS Power ranks among the leading owners of operational grid batteries, even with just two projects.
The company, which invests private equity funds in energy infrastructure as well as developing its own projects, quietly built up a pipeline of some of the biggest battery projects in the country. When we started the Top U.S. Storage Owner series, profiling the companies that own the most front-of-the-meter battery storage operating today in the U.S., LS Power didn’t make the cut. Its Vista project in San Diego County held the U.S. record for power rating, at 40 megawatts. But the other companies profiled had more than that in their operating fleets.
Then LS Power energized the first phase of its Gateway project, also in San Diego County, and added 62.5 megawatts/62.5 megawatt-hours to the roster. That broke the record for megawatt capacity in the U.S. It also catapulted LS Power ahead of AES and just behind NextEra in terms of operational U.S. grid battery capacity, and it has more on the way soon.
LS Power doesn’t spend much time telling the world what it’s up to. The privately held company doesn’t need to file quarterly reports, as NextEra and AES are required to, and it doesn’t seek media attention the way venture-backed storage companies tend to. The Vista project came online without fanfare in 2018.
Whether or not it seeks out the spotlight, LS Power is making a mark on the energy storage industry, earning it a spot in the top battery owner series.
Embracing "high barriers to entry"
Like the other leading battery owners, LS Power came to this technology after years of owning and operating other types of heavy grid infrastructure.
Chairman Mike Segal founded the New York-based company in 1990 as a greenfield developer.
“We were a very small shop at that time, focused on projects with high barriers to entry,” he said at a Norton Rose Fulbright event in 2016. “The reason to like those deals is there is limited competition for them, and they usually offer the best rewards.”
The initial team pooled its resources to develop projects with limited dilution from outside investment, he explained. They built $3 billion of project value, and sold that portfolio, such that the company entered the new millennium with “a very enviable cash position.”
“We never needed any more development capital because we had a pretty strong balance sheet,” Segal said.
The company now says it has built or acquired a portfolio totaling 42 gigawatts, including coal plants, gas plants, transmission lines, pumped hydro, and, more recently, wind, solar and batteries. It also raised a series of private equity funds to acquire existing power assets and improve their performance.
Get in early on California
California utilities started awarding storage contracts back in 2014 to prepare for the retirement of the San Onofre nuclear power plant and start working toward a state storage procurement mandate.
But LS Power didn’t win any of those, nor did it participate in the emergency Aliso Canyon procurement of 2016. Instead, it started developing on a much larger scale than was common at the time, anticipating that the state’s need for battery-based capacity would increase.
The developer applied for interconnection for the Vista plant back in April 2014, according to the records of California grid operator CAISO. The project came online in June 2018 without any apparent utility contract, making it something of an internal pilot project, albeit one with more megawatts on hand than any other battery in the U.S. The years of runtime in the CAISO market can now inform operations on the much bigger plants as they fulfill their obligations and seek profit in the markets.
LS Power won its first utility contract in 2017: 50 megawatts at Diablo Energy Storage in the East Bay. But the company stacked more wins in the spring of 2020 as California’s need for storage took on official urgency in spectacular fashion.
The regulators at the California Public Utilities Commission were taken by surprise when several long-awaited changes in the power supply threatened to constrain the state’s capacity.
Retirement of old coastal gas and nuclear plants, plus the rise of solar generation, prompted the CPUC in November 2019 to require 3.3 gigawatts of new capacity. This build-out would have to start within two years, meaning projects needed to be decently far along in development already. And the state would frown upon natural gas as a fuel source, given the longer-term decarbonization law.
That’s when the “build it and they will come” strategy paid off. LS Power had multiple developments of 100 megawatts or more moving toward completion. Its Gateway battery nabbed a 100-megawatt contract in Southern California Edison’s procurement in May. Later that month, Pacific Gas & Electric awarded three more 50-megawatt contracts to Diablo, plus a 50-megawatt contract for Gateway. All of those systems are required to come online by late 2021.
“LS Power, the developer of the Diablo Energy Storage project, is a very experienced energy project development company, with substantial development experience in California and in other markets in the U.S.,” notes PG&E’s filing about the contract.
Gateway may be the first major battery project contracted to two different utilities. That structure allows for efficient use of resources, because the investment in getting one site interconnected and built pays off with multiple customers. And it’s much easier to add capacity to an existing structure than to start from scratch for a new procurement.
Prime real estate for batteries in New York City
In California, LS Power rivals NextEra and Vistra Energy in terms of the amount of storage capacity each firm has coming online in the next year or two. Vistra built up its pipeline by converting old fossil peaker plants into newfangled battery peaker plants at Moss Landing and Oakland.
Now, LS Power is taking that strategy to the Big Apple.
LS Power’s private equity arm acquired the 2,200-megawatt Ravenswood Power Plant from TransCanada Corporation in 2017. Situated on the East River in Long Island City, Queens, Ravenswood plays an essential role in powering the metropolis from within.
Like California, New York City’s thirst for battery capacity is growing due to market dynamics and policy. In New York’s case, the city consumes a ton of power but has limited space for generation within its borders, as well as constrained transmission to import power from upstate. On top of that, the Indian Point nuclear plant up the Hudson River is shutting down early due to a political compromise, further straining the supply/demand balance.
Meanwhile, Gov. Andrew Cuomo made storage a pillar of his clean energy overhaul, mobilizing hundreds of millions of dollars to support early installations. His administration also designed an air pollution regulation to force the dirtiest peaker plants to switch to lower-emission resources, such as batteries.
Given that environment, LS Power prepared to convert 16 combustion turbines onsite at Ravenswood into a 316-megawatt battery facility. The turbines are about 50 years old, and only two of them still operate occasionally. The conversion could turn a lackluster peaking asset into a far more lucrative one, while eliminating a source of carbon emissions.
That project won approval from the state utility regulator, but it still has to lock down a business case. A promising opportunity arose in November 2019 when utility Con Ed called for proposals for bulk storage capacity to be online by 2022. Con Ed was looking for at least 300 megawatts, which lined up nicely with Ravenswood’s plans.
But the solicitation came and went, and Con Ed has yet to announce any winners. It only offered contracts for seven years, shorter than typical for successful contracts of this scale. And New York’s wholesale markets have very little track record of profitable battery operations, making it difficult to model merchant revenue for the assets after the seven-year mark.
There’s reason to believe some kind of contract will come together. There just aren’t that many available sites for large-scale batteries within New York City that come prewired for large-scale power exports.
In a signal of the long-term direction of the power plant, LS tapped Clinton Plummer to serve as CEO of Ravenswood in February 2020. He previously shepherded the first U.S. offshore wind plant to fruition off Block Island, Rhode Island and helped Ørsted win 2 gigawatts' worth of U.S. offshore wind contracts. The subtext was clear: He’s a leader who can break barriers for novel clean energy projects in New York, which is exactly what a Ravenswood battery plant needs to do.