Engie Storage has formalized a much-discussed but little-practiced revenue stream for energy storage projects: wholesale market value-stacking.
Under a new product offering, Engie won't just design, supply and operate energy storage plants for customers. The company will also pay developers upfront for dispatch rights to use their batteries in the ISO New England wholesale markets.
This gives storage developers and their financiers an additional source of secure revenue, while shifting the tricky merchant risk onto Engie, which feels confident in handling it.
This is not the first time energy storage has entered wholesale markets. Utility-scale batteries piled into PJM's frequency regulation market years ago, and at least one storage facility is diving into Texas' competitive ERCOT market. (Some storage technically participates in CAISO via California's Demand Response Auction Mechanism pilot, but that is, in fact, a pilot).
What's different here is the containment of merchant risk, which scares off those financiers who are otherwise comfortable with storage investments at this point.
In the past, developers built merchant battery plants, but that all but dried up when PJM's storage market cooled off. Major battery plants these days need solid, contracted revenue streams to line up financing; if they can sprinkle in a little merchant activity, that's great, but it's gravy.
This means that the famous ability of storage to perform multiple tasks has not extended as far into the wholesale markets as is technically feasible.
"Everybody’s been talking about this, but this is it," Engie Storage CEO Christopher Tilley told GTM. "This is real, and there’s real value-stacking that can significantly improve the economics of projects."
Unpacking merchant risk requires certain competencies that Tilley's team has access to as part of French energy conglomerate Engie, with a trading desk and experience managing the full range of energy assets. Its recent acquisition of Genbright, which aggregates distributed energy devices for wholesale market participation, further expands the tool belt.
Using those internal resources, Engie will take on the risk of projecting years' worth of future market earnings, then cut a check to the developer based on those calculations. For the developer — Engie's customer — this turns merchant risk into contracted revenue.
The developer gets paid upfront, financiers don't have to worry about merchant risk messing with their payback, and Engie takes responsibility for dispatching the plant to make good on its predictions.
This isn't just a theoretical announcement. Engie has a first customer in private equity firm Syncarpha Capital, which signed up for the full offering for six community solar plants paired with energy storage, totaling 19 megawatts/38 megawatt-hours. Those projects, expected online this year or next, will claim the Solar Massachusetts Renewable Target incentive and the federal Investment Tax Credit.
On top of those two incentives, Engie is paying Syncarpha to use the batteries for the ISO New England markets for capacity, reserves and frequency regulation. Tilley declined to specify how lucrative the wholesale payments are, but said they represent "a substantial amount of money."
In practice, this requires balancing several sets of compliance requirements and then pushing for additional revenue.
"We’re essentially guaranteeing to everyone that we can operate the battery so it complies with the programs and the financial arrangements you have," Tilley said. "On top of that, you say, 'What can we do after that to stack additional revenues in the merchant market?'"
So far, this offering only applies in ISO New England territory, which Tilley described as the most advanced at allowing storage to participate with multiple revenue streams.
"The rules and the way to do it are established — you're able to do something today in ISO New England," Tilley said. "I don't know that we can say the same in a broad sense for the other [independent system operators]."
It's not an accident that San Francisco-based Sunrun, the leading U.S. rooftop solar installer, won its first aggregated wholesale capacity contract in ISO New England rather than closer to home.
Engie will expand the program elsewhere when possible, he added. The offering pairs well with the larger, utility-scale projects that have become a growth area for the company that started life as Green Charge Networks, a commercial-scale storage pioneer. But, Tilley noted, it could still be used to enlarge revenue for behind-the-meter, customer-sited batteries.
Greentech Media readers may recognize New York-based Syncarpha from news earlier this month: The firm partnered with Stem for that company's first foray into utility-scale storage, also with a multisite portfolio in Massachusetts that will stack the ITC, SMART incentive and wholesale market participation.
The risk management approach differs between the two portfolios: Syncarpha will own the Stem projects, taking on the merchant risk, whereas the Engie portfolio is financed, with Engie taking on the merchant risk.