6 Key Takeaways from the M&A Activity in the Storage Market Panel at the Energy Storage USA Conference

Carl Fleming, a partner in McDermott’s Energy and Project Finance Practice Group and head of its energy storage team, hosted a panel of industry leaders from KKR & Co. Inc., CohnReznick Capital and Pine Gate Renewables that explored the opportunities and challenges currently facing the energy storage market, as well as the future of the market. Below are key takeaways from the discussion:

1. Valuation: The models underlying energy storage projects are complex, consist of a large number of variables and are mainly reliant on third-party data and analytics in an emerging technology. In uncertain times like now, it is critical that storage teams be extremely thorough in their diligence and flexible in their approach to valuations and developing the revenue stack for these projects.

2. Supply Chain Woes: Supply chain issues have altered the outlook of many in the storage sector in 2022. While demand remains robust, the storage sector is facing global supply chain issues (as is the entire industry) and competition within manufacturers as to whether cells will be allocated for storage or electric vehicles (EV). The accelerated growth of the EV market could negatively impact the growth of the storage market—unless suppliers find ways to ramp up production.

3. Buy or Wait: Right now, the cost of modules, cells, commodities and transportation are through the roof. At the same time, the demand for storage is equally high. It remains to be seen whether purchasing storage assets at a time of such volatility will be a winning or losing proposition. Some have speculated that now is the time to buy, while others have suggested staying on the bench for this round. However, based on the higher cost of solar assets from years ago and recent prices for the sale of those assets, it seems sitting out in this market would be a losing proposition.

4. Assets vs. Human Capital: In several transactions, we’re seeing parties more interested in acquiring the human capital and the team behind a platform of assets rather than acquiring the asset solely on its economic merits. The track record and make-up of the development team remains an essential point when buyers are considering the projects they are willing to purchase.

5. Standalone, Hybrid or Conversion: Although certain buyers are targeting a particular area of the energy storage market and standalone storage remains a hot topic, the industry as a whole has ready and willing buyers for all forms of energy storage projects (e.g., standalone storage, storage plus renewable hybrids, storage plus conventional hybrids).

6. Market FOMO: There is a pervasive sense of “FOMO” in the market right now. However, developers and investors need to remain disciplined and stay true to two essential prerequisites for a project to be purchased: line-of-sight on interconnection and line-of-sight on offtake revenues. These can be easy to lose sight of in today’s frothy market and in new markets that have shifting regulatory regimes for storage.

Carl Fleming and his team of energy [...]

Continue Reading




Key Takeaways | Post-Uri Hedge Products for Storage and Renewables

During the latest webinar in our Energy Transition series, Partners Robert Lamkin and Jacob Hollinger hosted Louis Martinsen, vice president, origination at Boston Energy Trading and Marketing, for a 30-minute discussion concerning hedge product opportunities for renewables and storage projects one year after Winter Storm Uri impacted Texas’s power grid.

Below are key takeaways from the webinar:

1. A year after Winter Storm Uri, hedging products for renewables are moving toward “as generated” hedges, meaning the hedge settles based on how much power the renewable project actually generates rather than based on other possible metrics (such as proxy generation).

2. A potential alternative for renewable and storage developers are hedging projects that provide a revenue “floor,” which can be thought of as a minimum level of revenue scaled to ensure that the project will receive a minimum amount of revenue sufficient to meet its operating and maintenance costs, debt service and capital expenditures regardless of market prices for the products it sells or intends to sell.

3. The providers of these hedge products are also changing to include entities serving (directly or indirectly) retail load rather than purely wholesale trading entities.

To access past webinars in this series and to begin receiving Energy updates, including invitations to the webinar series, please click here.




The ESG Opportunity: Hydrogen, CCS and Decarbonization

Carl Fleming, a partner in McDermott’s Energy and Project Finance Group and leader in its Energy Transition Team, hosted a panel of industry leaders from Apex Clean Energy, Leyline Renewables and Pattern that explored the opportunities and challenges for ESG and hydrogen. Here are the key takeaways:

  1. Various companies are looking to the environmental, social and governance (ESG) opportunity, particularly long haul trucking, overseas shipping and airlines, where the fuel needs far exceed those currently available for electrification and where recharging stations are limited or impossible. As a result, we are likely to see a mix of electric and hydrogen going forward where one technology may be slightly more advantageous than another. Or we may see the two complement one another in a larger strategy.
  2. Midstream oil & gas operators are looking to increasingly transition to hydrogen, whether it is green, blue or turquoise hydrogen. Which shade of hydrogen prevails will be determined by the capital costs involved as well as ESG demands.
  3. Transmission congestion is affecting the ability of many renewable energy developer to deliver power from some of the most resource-rich areas. However, hydrogen offers an excellent solution in some cases as it eases the need for transmission in those highly congested areas.
  4. The high costs of hydrogen as well as the need to build out an infrastructure to properly transport are current challenges that are in the process of being overcome by a slew of developers who see the opportunity for hydrogen.
  5. The Biden Administration’s support of hydrogen hubs and billions in hydrogen infrastructure should continue to spur further hydrogen development at a rapid pace.

Carl Fleming and his team in Houston are currently leading a large number of hydrogen transactions for leading developers.  In particular, they are enabling a number of first-in-kind hydrogen transactions utilizing newer technologies and investment strategies.




Development Market Outlook in ERCOT

Carl Fleming, a member of McDermott’s Energy and Project Finance Group and head of its Energy Storage Team, hosted a panel of industry leaders from Vistra, UKA North America and Origis that explored the opportunities and challenges for utility-scale solar and standalone energy storage development in the Energy Reliability Council of Texas (ERCOT). Here are the key takeaways:

  1. A huge wave of solar and standalone storage projects is hitting ERCOT. Per recent reports, as of September 2021, developers had more than 100GW of solar, 42GW of utility-scale battery storage, 22GW of wind and 13GW of natural gas in the queue.
  2. It’s unclear what the future holds for the market due to transmission congestion, the impact of so much solar going online and its effects on the power price curve, as well as supply chain issues.
  3. Transmission congestion is affecting the ability to deliver power from some of the most resource-rich areas. However, ERCOT remains more predictable than certain other markets that have recently announced temporary pauses in processing the transmission pipeline queue.
  4. The large increase of solar on the system in such a short period of time is already having impacts on the power price curve. However, certain corporates in their efforts to meet environmental, social and governance (ESG) goals are willing to build for more than purely economic reasons and can help offset that volatility to a degree.
  5. Supply chain issues continue and are expected to worsen, resulting in increased risks around projects costs and completion. While this has resulted in a number of developers having to revisit their power purchase agreements, those with robust procurement programs were able to mitigate this risk in advance and have been able to continue business as usual.
  6. The use of quantitative analytics or “quants” in project development is growing and has enabled certain developers to optimize energy storage project location in ERCOT as well as optimize their project outputs. The key, however, is properly integrating the quantitative data into the project development decision making process.

Carl Fleming and his team in Houston are currently leading a large number of solar, wind and storage transactions across ERCOT for leading developers and private equity funds. In particular, they are enabling a number of first-in-kind battery storage transactions utilizing newer technologies and investment strategies.




Key Takeaways | Energy Storage Opportunities and Challenges

What are the opportunities and challenges facing those in the energy storage sector? During the latest webinar in our Energy Transition series, Partner Jim Salerno hosted Perfect Power’s CEO and President Alan Dash and Chief Commercial Officer Douglas Sherman for a 30-minute discussion where they opined on the importance of battery storage and the differences between regulated and unregulated markets within the energy storage industry.


Below are the key takeaways from this discussion:

1. Utility-scale battery storage is necessary for transitioning the grid from fossil fuels to renewables. The surge of renewables across grids has resulted in unpredictability, volatility and intermittency in the energy market, creating a need for a new form of peaking. Batteries are becoming the ideal peaking units as their fast ramping capabilities allow them to adapt to shortfalls in the grid and create stability.

2. Battery storage, unlike renewables, provides capacity as well as ancillary services. This concept is known as “value stacking.” In addition to storage capabilities, ancillary services allow batteries to manage volatility and uncertainty in the grid by providing tools that keep the system in balance and establish the ability to arbitrage the Real Time Market while creating predictability in the Day-Ahead Market.

3. The current regulatory and merchant markets are evolving to facilitate renewables and storage project development. In unregulated markets, such as Texas, the integration of renewables into the grid has grown organically because of the efficiency, speed and economic benefits that are derived from renewables and battery storage. Meanwhile, highly regulated markets, such as California, are focusing on resource adequacy, market certainty and incentives to promote capital investment in the clean energy space—including battery storage.

To access past webinars in this series and to begin receiving Energy updates, including invitations to the webinar series, please click here.




STAY CONNECTED

TOPICS

ARCHIVES