Change is on the horizon for the energy industry and this change will not be gradual. In fact, the change we will see, and currently see, will be significant thanks in large part to the capabilities of energy storage and its ability to ensure renewable energy sources are competitive with coal and gas generation.
I’m sure you’ve heard the term “market disruptor” and energy storage is doing exactly that – disrupting the current electricity generation mix by augmenting generation from renewable sources like wind and solar. Once thought of as having only intermittent dependability, when paired with energy storage, wind and solar now become a reliable and stable source of electricity particularly during the shoulder portions of the day now subjected to peak pricing due to the “duck curve”. This profound technology allows system operators to tap into their sources of renewable electricity during peak demand times and reduce the risk of blackouts and shortages with competitive pricing.
In a study by Bloomberg New Energy Finance (BNEF), the cost of lithium ion battery storage has dropped a tremendous 76% since 2012. Currently, energy storage is only a small subset of the energy industry, however, with falling prices and more and more megawatts of storage being added to regional markets, these prices will continue to fall over the coming years and become more attractive to power providers, grid operators, battery manufacturers, and most of all, the consumer.
Many states across the U.S. are continuing to establish ambitious climate and renewable energy policies with energy storage being a key tool helping to reach those goals. For example, California has a goal of zero net carbon emissions by 2045, New York and New Jersey have policies in place that require 50% of their energy to be derived from renewable sources by 2030, and the state of Vermont has a goal of 75% energy from renewables by 2032.
Recently, Ormat Technologies Inc. (Ormat), a Reno, Nevada-based owner and operator of geothermal power projects, was looking for a solution to help finance its storage pipeline which includes two projects providing frequency regulation services in the Pennsylvania-New Jersey-Maryland Interconnection LLC (PJM). Energy storage financing requires an experienced lender and with three years of analysis and activity within the battery storage field, Siemens Financial Services (SFS) had the opportunity to become the strong ally Ormat was looking for.
In the particular instance of the PJM projects, the main challenge is that the PJM frequency regulation market is ancillary to the traditional power and capacity markets and does not have an easy means of contracting revenue. This is when SFS stepped in to collaborate with Ormat and successfully recapitalize their Plumstead and Stryker projects upon completion of construction with a senior secured term loan. By providing debt capital to these projects, SFS will enable the financially attractive development of frequency regulation resources, and a greater penetration of intermittent renewable resources will now be possible for the region.
By financing an energy storage project with one of the strongest owner-and-operators of power projects globally, SFS proved its commitment to be at the forefront of this industry revolution which will assist states to meet their ambitious renewable energy goals.
For more insight from myself and other industry experts on battery storage, click here to read the Battery Storage Roundtable 2019 hosted by Power Finance & Risk.
By John O'Brien, Director, Siemens Financial Services, Project and Structured Finance