Insight: Texas battery rush: Oil state's power woes fuel energy storage boom

Stem

31/05/2023 11:00

By Nichola Groom and Laila Kearney
    May 31 (Reuters) -    BlackRock, Korea's SK, Switzerland's
UBS and other companies are chasing an investment boom in
battery storage plants in Texas, lured by the prospect of
earning double-digit returns from the power grid problems
plaguing the state, according to project owners, developers and
suppliers.
    Projects coming online are generating returns of around 20%,
compared with single digit returns for solar and wind projects,
according to Rhett Bennett, CEO of Black Mountain Energy
Storage, one of the top developers in the state.
    "Resolving grid issues with utility-scale energy storage is
probably the hottest thing out there,” he said.
    The rapid expansion of battery storage could help prevent a
repeat of the February 2021 ice storm and grid collapse which
killed 246 people and left millions of Texans without power for
days.
    The battery rush also puts the Republican-controlled state
at the forefront of President Joe Biden's push to expand
renewable energy use.
    Reuters drew on previously unreported data and interviewed
more than a dozen executives from private equity firms, utility
companies and energy storage providers involved in some of the
biggest battery storage deals for this report. They described a
rush to  take advantage of the high returns before they erode.
    Power prices in Texas can swing from highs of about $90 per
megawatt hour (MWh) on a normal summer day to nearly $3,000 per
MWh when demand surges on a day with less wind power, according
to a simulation by the federal government's U.S. Energy
Information Administration.
    That volatility, a product of demand and higher reliance on
intermittent wind and solar energy, has fueled a rush to install
battery plants that store electricity when it is cheap and
abundant and sell when supplies tighten and prices soar.
    Texas last year accounted for 31% of new U.S. grid-scale
energy storage, according to energy research firm Wood
Mackenzie, second only to California which has had a state
mandate for battery development for a decade.
     LEADER IN ENERGY STORAGE
     And Texas is expected to account for nearly a quarter of
the U.S. grid-scale storage market over the next five years,
according to Wood Mackenzie projections shared with Reuters.
    Developers and energy traders said locations offering the
highest returns -- in strapped areas of the grid -- will become
increasingly scarce as more storage comes online and electricity
prices stabilize.
    Texas lawmakers this week voted to provide new subsidies for
natural gas power plants in a bid to shore up reliability. But
the legislation also contains provisions that industry groups
said could encourage investment in battery storage.
    Amid the battery rush, BlackRock acquired developer Jupiter
Power from private equity firm EnCap Investments late last year.
Korea's SK E&S acquired Key Capture Energy from Vision Ridge
Partners in 2021 and UBS bought five Texas projects from Black
Mountain last year for a combined 700 megawatts (MW) of energy
storage. None of the sales' prices were disclosed.
    SK E&S said its acquisition of Key Capture was part of a
strategy to invest in U.S. grid resiliency.
    "SK E&S views energy storage solutions in Texas and across
the U.S. as a core technology that supports a new energy
infrastructure system to ensure American homes and businesses
have affordable power," the company said in a statement.
    UBS and BlackRock declined to comment.
        
    
    U.S. energy storage companies attracted $5.5 billion in
investment last year, according to Mercom Capital Group. The
U.S. is projected to install 65 gigawatts (GW) of grid storage
over the next five years, 15 times the 4 GW added last year,
according to Wood Mackenzie, buoyed by a 30% tax credit for
energy storage in Biden's Inflation Reduction Act (IRA).
    The Electric Reliability Council of Texas (ERCOT), which
operates the grid that serves most of the state, has 3.2 GW of
energy storage capacity, according to its own data.
    The authority said in a statement that more storage was in
development. It has pending requests to connect to the grid from
plants offering more than 96 GW in storage, according to ERCOT
data. ERCOT declined an interview request.
   
    'CLOAK AND DAGGER'
    "It's cheaper to build there, the revenue is higher, and the
problems are real," said Andrew Waranch, president of Spearmint
Energy, which acquired about 1 GW of Texas projects in the last
year.
    While some investors have focused on specific locations with
maximum volatility, more than 80% of the revenue comes from the
Ancillary Services Market, which seeks to stabilize power supply
across the grid, according to David Miller, vice president of
business development at Gridmatic, which uses artificial
intelligence to optimize battery use.
    Miller said he expects ancillary market prices to "collapse"
as more battery storage comes online.  
    Average energy storage revenue already fell about 18% last
year, according to a Gridmatic analysis.
    Waranch said battery storage plants coming online in 2025
could take up to eight years to break even compared with four or
less for plants that come online in 2023.
    The urgency has helped fuel a rush to install projects that
can get faster regulatory clearance.
    Stem Inc  STEM.N  and other developers said they are
focusing on small projects of under 10 MW because they face
fewer regulatory requirements.
    The diminishing returns have also intensified competition
for sites in areas with the wildest wholesale power price
fluctuations, industry executives said.
    "We want to get maximum volatility," said American Enerpower
Chairman Dick Lewis, who scours Texas for plots of land near
constrained parts of the grid to develop battery plants.
"Placement is very important."
    So is timing, said Andrew Tang, vice president of energy
storage and optimization at Finland's Wartsila, which has
supplied about a third of the Texas battery market. 
    "There's a little bit of cloak and dagger secrecy," he said.
"If they think they've seen a trading opportunity that exists in
the marketplace, they don't want to openly brag about it because
someone else will jump in and therefore get rid of the arbitrage
opportunity," he said.
    Chris McKissack, CEO of storage developer GlidePath, said
that batteries will likely remain a good bet for a long time --
even if Texas is seeking to bolster traditional forms of energy
like natural gas.
    "If no new generation is built and all you've got is old
generation and load growth, you've got even more volatility,"
McKissack said. And that, he said, could lead to more
opportunity for storage.

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Texas expected to draw a fifth of US battery storage projects   
https://tmsnrt.rs/439K02U
US energy storage poised for investment surge    https://tmsnrt.rs/426AvQG
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Nichola Groom and Laila Kearney; Editing by
Richard Valdmanis and Suzanne Goldenberg)