EnCap Investments has directed about $37 billion in venture investment into oil and gas companies over its 30 years in business. Now, it’s making its first investments into clean energy, with a goal of developing up to 2 gigawatts of utility-scale energy storage, either on its own or linked to solar, wind and peaker plants.
This week, the Houston-based upstream and midstream oil and gas industry investor announced that it’s “pursuing opportunities created by the global transition to a lower-carbon energy system.” To get there, it has hired an all-star team, including Jim Hughes, First Solar’s CEO from 2012 to 2016, and Tim Rebhorn, First Solar’s former senior vice president of the Americas, along with former Pattern Development senior director Kellie Metcalf and former Quinbrook Infrastructure Partners head of North America Shawn Cumberland.
On Wednesday, EnCap joined energy-focused private equity firm Yorktown Partners in its first “energy transition” investment in Broad Reach Power. The newly created independent power producer has already acquired a portfolio of small solar projects in the Pacific Northwest, but it’s primarily targeting California and Texas for a much bigger push into lithium-ion battery energy storage systems, CEO Steve Vavrik said in an interview.
With its undisclosed investment from EnCap and Yorktown, Broad Reach intends to develop more than 2 gigawatts of capacity by 2021, including both standalone storage power plants and combinations with wind, solar or existing natural-gas power plants.
“Certainly standalone storage is part of our pipeline. But we see more immediate opportunities in hybrid projects,” said Vavrik, who has spent the last two decades developing and managing more than $4 billion of investments with companies including GE, Enron, First Wind, SunPower and Apex Clean Energy.
This could include large-scale solar-plus-storage projects of the kind that have been cropping up at increasingly competitive prices across the country’s key solar markets such as California, Nevada and Arizona. It could also include pairing wind farms with batteries in key markets, although these are more challenging to finance, given the lack of a clear tax credit mechanism to include batteries with wind, as exists with the federal solar Investment Tax Credit.
But the most immediate opportunities Broad Reach is considering involve adding batteries to existing natural-gas peaker plants, Vavrik said. “You think of a peaker that runs at only a 5 to 10 percent load factor. If you combine that with a battery, you can make that peaker run more efficiently.”
This approach to pairing the fast responsiveness of a battery with the relatively low cost of an efficiently run natural-gas plant was pioneered in the U.S. by AES Energy Storage, the business unit of utility and power plant owner AES Corp., which has since launched the Fluence joint venture with Siemens. But Vavrik sees “dozens more targets out there that we want to pursue."
As for markets, Broad Reach is looking for opportunities across the United States, but the company sees “California and Texas presenting the biggest opportunities. What we’re seeing in California, and more and more in ERCOT, is this need for energy-shifting. But the ancillary services” — or grid services that require resources to react in minutes or seconds — “are going to be the exciting products in those markets.”
Broad Reach’s executive staff includes Vavrik’s former renewable energy developer partner, COO Mark Klein, as well as CFO Josh Prueher and CTO Doug Moorehead, who previously developed a battery system now in use at U.S. military forward operating bases, now commercialized for oil and gas industrial backup power.
