A new company backed by an experienced oil and gas investment firm wants to revitalize the choppy commercial storage market.
The Energy Transition team at Houston-based EnCap Investments is funding Catalyze, a group that develops, owns and operates distributed energy projects, including storage. Predecessors in the commercial and industrial (C&I) storage market have struggled to make sustainable returns, given the lengthy sales cycles and often bespoke project designs. But Catalyze takes a standardized approach, offering preset storage configurations and seeking customers based on a software platform that analyzes where the assets make the most sense.
“We’re building a new operating system for how a distributed utility sources projects, builds projects and operates projects,” CEO Steve Luker told Greentech Media.
In its first year, the company invested more than $40 million, signed contracts for 300 megawatts of distributed capacity and acquired 37 MW. Catalyze typically does most of its design and engineering work in-house, hiring local installers to carry out construction. It has partnered with groups including a real estate firm, a food manufacturer and a national hospital chain to build projects across the customers’ portfolios.
EnCap takes a more hands-on approach to investing than does the typical cleantech VC firm. The leaders of the Energy Transition team have picked areas where they see an opportunity, then found leaders they trust and given them money to start something. That approach spawned Broad Reach Power, a utility-scale storage developer launched last year that is already building some of the biggest batteries in Texas.
Whether it’s possible to profitably scale a commercial storage business nationwide remains to be proven. But the Catalyze founders believe they’ve learned from the first wave of the market and have the resources to do things differently.
Break from the past
Anyone with money could start assembling a distributed storage empire. But it’s not easy.
“The market is very, very fragmented and takes a lot of local knowledge," Luker said.
Selling storage to businesses requires learning local rate structures, building relationships with customers, and pursuing sales that may take months or years, all to build batteries that aren’t especially large.
An early cohort of startups pitched batteries for demand-charge management in California, boosting revenue by selling distributed capacity to utilities there. But balancing AI-predicted customer usage with the dispatch needs of the broader grid proved difficult. That model never achieved widespread uptake, and early adopter AMS pivoted to software, while Stem focused more on helping solar developers add storage.
Battery costs have come down far enough that Catalyze has ditched the grid-services revenue stream, allowing it to focus entirely on serving its customers. And instead of building complex machine-learning algorithms to predict load patterns, Catalyze starts with small building blocks of storage, assesses customer savings, then adds more if necessary.
Catalyze works with battery suppliers to produce standard configurations of capacity, discharge duration and AC- or DC-coupled architectures. Buying in bulk from an established menu of sizes keeps costs below $200 per kilowatt-hour, Luker said — a fraction of the typical costs for commercial-scale batteries. The company also sources rooftop wind turbines, electric vehicle chargers and other grid edge devices as needed.
Tying all these projects together is the software platform. Catalyze wanted to build a “galvanizing” technology platform to cover each phase of a distributed energy project, from site selection to execution and operation.
“You can do a lot of smaller projects if you can automate the processes as much as possible,” Luker said.
If that sounds like the kind of platform that rooftop solar companies like Sungevity and Sunrun used to organize their geographically diverse activities, that’s true. Catalyze CTO and co-founder Steve Atherton previously led software engineering at both of those companies.
$100 million for starters
The very difficulty of the C&I market creates business opportunities, Luker said.
There are only a handful of large companies taking a serious look at the distributed storage market, he said, but the market potential is massive.
Large-scale storage is quickly becoming commoditized, leading to lower returns, Luker said. And residential storage is taking off, but involves more customer risk; he’d rather deal with customers that are established businesses with a large footprint. They have pain points around their energy consumption, and helping them solve those problems can generate attractive returns for Catalyze’s ownership.
Utility subsidiaries can use their low cost of capital to buy later-stage distributed projects and still make money, Luker said. But he’s interested in making more profit by entering earlier in the development cycle.
Catalyze is just one of the bets placed on the future of energy by EnCap’s Energy Transition team. EnCap hired renewables industry veterans Jim Hughes, Shawn Cumberland, Tim Rebhorn and Kellie Metcalf to oversee the practice. They previously had been doing business under the name Prisma Energy at energy investor Yorktown Capital, which retains minority stakes in the group's ventures.
EnCap is interested in proven clean-energy technologies, such as wind, solar and batteries, said Cumberland, a veteran of Enron and Quinbrook Infrastructure Partners. He and his colleagues want to invest in experienced management teams that have real assets and a good opportunity for growth.
“They’re primed to grab a really interesting market share,” Cumberland said of Catalyze. “It’s a highly fragmented industry; there are hundreds and hundreds of developers, but most of them are not heavily capitalized — they’re really regional.”
Those regional developers are now potential acquisitions for Catalyze, given its abundant supply of capital. EnCap originally allocated $100 million for Catalyze to invest in development and acquisition, but now it looks like it will need to increase that target, Cumberland noted.
