Numerous new innovative financing models are enabling more corporations to take advantage of distributed “behind the meter” energy storage solutions in the same “no money down” third-party ownership structure that helped the residential solar industry grow into a $10 billion industry. And venture capital investors and project financiers are seeing big opportunities in the deployment of distributed energy storage.
Green Charge Networks, Stem, and Coda Energy are among those who raised third-party project finance funds last year to finance no-money down behind-the-meter smart storage projects. These systems use software to manage a company’s peak power, deploying stored energy during peak demand times, in order manage ” demand charges.”
That is, in fact, a key driver behind the adoption of these new storage systems: their ability to reduce demand charges, the premium charged to businesses by utilities during peak demand times, which can add 50 percent or more to their bill. And having a source of backup power if the grid goes down during severe weather events is increasingly attractive to small and mid-sized corporations, such as hotels and retail chains that manage thousands of facilities.
GTM Research predicts the U.S. market for distributed energy storage will grow at a 34 percent cumulative annual growth rate to reach 720 MW by 2020. And, according to Navigant Research, worldwide capacity of distributed energy storage will grow from 276 MW in 2015 to nearly 2,400 MW by 2018.
Large corporations are also adopting smart storage, including Thermo Fisher Scientific, a biotech firm with $13 billion in revenue. Its chief austainability officer and v.p. of facilities, Christina Amorim, recently said she is “very excited” about new batteries that “shave off the peak and cut the cost” and is evaluating options from Tesla, Stem and Green Charge Networks.
Smart Distributed Storage Players & Funders
Silicon Valley-based Green Charge Networks is a key player in smart energy storage, combining lithium ion batteries with software to manage power usage in order to reduce demand charges on businesses.
Green Charge was founded in 2009 with $12 million in stimulus money from the U.S. Department of Energy. It also received an investment from EV charging network Chargepoint’s founder Richard Lowenthal in 2013.
Last July, Green Charge raised $56 million in equity project finance capital from K Road Capital to fund its no money down financing packages for businesses, which followed $10 million in debt financing from TIP Capital.
Green Charge employs a shared savings model, where it takes on the upfront capital and installation costs of the system and then shares in the resulting savings with its customers over the next 10 years.
According to Green Charge CEO Vic Shao, its main customer focus is businesses that have the ability to scale the technology to thousands of facilities. Its current customers include 7-Eleven, Walgreens, UPS and Kaiser Permanente. Shao reports growing demand for Green Charge’s smart storage systems from several sectors, including education, industrial, retail and municipalities. And he is looking to expand internationally, as demand charges are prevalent globally, and is speaking to potential partners in Europe and Asia.
Project financing has been an important component to scaling the company, says Shao, and software is their “secret sauce.” Their proprietary web-based software tool analyzes a year’s worth of a potential host customer’s meter data in 15-minute intervals in order to estimate its monthly savings, given the customer’s energy demand, usage profile, and optimal system size.
The company has systems interconnected across five utilities from coast to coast and will soon have “10’s of megawatts” of energy storage assets deployed across the country, says Shao. And the proven financial outcomes of these projects should attract more banks and project financiers to fund the rollout of distributed energy storage systems, he says. The financial returns Green Charge is generating for investors is attractive, says Shao, and “there is no shortage of interest of people with money wanting to get into this space.”
TIP Capital, part of Crestmark Bank, focuses on energy efficiency financing but is increasingly looking at energy storage deals, says Ross Reida, v.p.-National Accounts and an energy efficiency finance expert.
TIP focuses on providing financing for small and middle market companies, and gets economies of scale by doing lots of small deals, he says. The deal size is typically under $2 million and in buildings with less than 100,000 square feet. About 65% of the commercial building inventory in the U.S. falls into this category, yet there is a void in financing players. Because of that, “that is where the business is going to be,” Reida says.
Most distributed storage deals that are closing now are large, multi-million dollar deals with long sales cycles of up to 18 months, he says. However, Reida predicts big growth in small distributed storage deals over the next year, and says he is positioned to finance these deployments, which will be in the $25,000 – $250,000 range, and can close relatively quickly.
Another financier in the space is Clean Feet Investors, an early stage clean tech fund launched in 2010, which focuses on the project financing of operating assets. It does deals in the $3 million – $10 million range. The projects Clean Feet invests in must utilize proven, profitable technologies and generate high cash flows, and be where tax incentives, such as RECs, are available, says Bernie Zahren, the fund’s portfolio manager. It will also take equity positions, in the form of warrants, in the clean tech companies involved in the projects.
Jigar Shah, SunEdison and Generate Capital founder and well-known clean tech industry thought leader, is a “special manager” of Clean Feet, and was a partner in the fund until December 2013.
The fund has had had some portfolio exits, including Solar Grid Storage, a developer of battery projects for solar PV systems, which SunEdison bought in March, and Pure Energies, an online solar customer acquisition platform, which NRG acquired last year.
The fund’s limited partners include family offices and high-net-worth individuals, and it raised $13.4 million for its latest fund last year. Its funds have a 10 to 12 year life span and pays out regular cash distributions to its investors, says Zahren.
Zahren sees a lot of opportunity in funding the deployment of backup energy storage systems and in microgrids. Utilities are increasingly focusing on grid stability, which is driving the adoption of new software and hardware applications to address demand load reduction, such as smart energy storage, he says.
He also is interested in funding energy efficiency retrofits in buildings that can reduce energy demand loads, although the financing of “discreet assets” in these projects is a challenge due to their reliance on PACE financing, where retrofits are assessed on tax bills, he says.
And he says that electric vehicles hold a lot of promise to become energy storage facilities, enabling vehicle-to-grid demand response programs.
Another emerging opportunity that Clean Feet sees is using electric hot water heaters as energy storage in demand response programs. One company in this space is Mosaic Power, which offers proprietary software for intelligent hot water heater power grid controls.
In 2013, Clean Feet provided the first project financing, totaling $5 million, for Stem, a key smart distributed energy storage player. Clean Feet’s project financing was seen as a major industry breakthrough in providing no money down financing packages for energy storage.
Stem, founded in 2009, closed on a $100 million project finance round from New York-based B Asset Manager last September to finance its distributed energy storage systems at commercial and industrial customers. Its contracts with customers take the form of lease payments, similar to how rooftop solar panels are sold, rather than the shared savings model that Green Charge Networks employs.
Stem has also seen a lot of interest by venture capitalists. In April, it raised $12 million in a first tranche of its Series C funding round, led by Mitsui & Co. And in January, it raised $27 million in Series B funding from Constellation Technology Ventures and Total Energy Ventures. Stem has raised over $67 million total in venture capital funding to date.
Stem gains market traction:
In November, Stem was awarded 85 MW in local capacity procurement from Southern California Edison to deploy its storage solution at commercial customer locations in the Western Los Angeles Basin.
In October, Stem partnered with the U.S.-based solar division of Japan’s Kyocera to offer integrated solar-plus-storage to commercial customers in California, New York and Hawaii. That same month, hotel chain Extended Stay America said it is installing Stem’s battery systems in 68 of its hotels in California.
In September, Stem announced that it will provide 1 MW of distributed storage in a “demonstration project” with Hawaiian Electric on the island of Oahu to help stabilize the grid and integrate more rooftop solar.
Green Charge Networks gains market traction:
In April, Green Charge Networks announced a strategic partnership with ITOCHU Corporation, a large Japanese trading house, to deploy its energy storage solutions internationally, beginning in Japan. (Japan plans to invest $700 million to assist factories and small businesses in installing energy storage and efficiency systems, and will launch a demand response program in 2016, which is expected to boost the country’s energy storage market.)
Also in April, Green Charge installed its energy storage system, coupled with NRG’s DC fast-charging electric vehicle charging stations, at the Shore Hotel in Santa Monica, Calif. The project is part of Green Charge’s ongoing partnership with NRG to deploy its eVgo charging stations with integrated energy storage.
In February, Green Charge signed up five California school districts for 1,500 kilowatt-hours of energy storage that includes electric vehicle charging systems on their campuses.
Other companies gain market traction:
Coda Energy, another smart storage company, raised $6.4 million from its parent company, Fortress Investment Group, in March 2014 to finance its no money down smart energy storage systems for commercial and industrial sites in a 10-year shared savings model. Fortress acquired Coda’s assets out of bankruptcy for $25 million in 2013.
In December, Coda announced the interconnection and operation of a 1,054kWh / 510kW behind the meter energy storage system using second life electric vehicle batteries under a contract with South Coast Air Quality Management District (AQMD) and co-funded through California’s Self-Generation Incentive Program (SGIP).
In June 2014, Coda partnered with GELI, an energy storage software system startup, to launch the commercial operation of the first grid-tied, solar-integrated EV fast-charging station optimized by energy storage located at City Hall in the City of Benicia, CA.
And Germany’s Sonnenbatterie, an emerging residential and commercial smart energy storage startup mainly focused on European market, entered the U.S. market last year through a partnership with solar installer SK Solar, opening a battery plant in Los Angeles to serve the Southern California market.
The German startup, founded in 2008, has built a software platform to integrate solar panels, lithium-ion batteries and energy management systems into an “intelligent storage system” to reduce demand charges. It was named to the Bloomberg 2015 New Energy Pioneers list.
And in April 2015 Sungevity, the largest private solar company in the U.S., announced a partnership with Sonnenbatterie to offer Sonnenbatterie’s smart storage systems to Sungevity’s network of residential customers in the U.S. and Europe, starting in the second half of 2015.
In December 2014, Sonnenbatterie raised $9.3 million in Series C venture funding from Munich Venture Partners, Chrysalix SET and eCAPITAL.
Growth of Solar + Storage
Driven by customer demand, innovation, and new business models, distributed storage is increasingly being integrated with solar. To take just a few examples:
SolarCity will incorporate Tesla’s new lithium ion battery into its DemandLogic energy storage system, introduced in December 2013. The system uses software to automate the discharge of stored energy, and offers businesses “no money down” 10-year contracts for solar energy and storage to provide backup power and address demand charges. The service has been adopted by several large retail, biotech and Internet companies in the U.S., including Walmart and BJ’s Wholesale Club.
ViZn Energy and LFC Capital recently inked an agreement to enhance the affordability of solar PV and energy storage to mid-size businesses by providing up to $5 million in funding per project to accelerate installation of ViZn’s Z20 Energy Storage System, a zinc/iron redox flow battery, a recent Forbes report noted. The LFC financing program will involve a traditional operating lease.
Solar+storage developer Solar Grid Storage offers third-party financing of its systems, which enhance solar PV commercial installations with batteries, inverters and proprietary controls. It works with developers to co-locate lithium ion batteries with solar projects in the PJM region, covering the Eastern seaboard through part of the Midwest and has completed four projects on the U.S. East Coast with project funding from Clean Feet Investors. Solar project developer SunEdison acquired Solar Grid Storage in March.
Solar Grid Storage also works with Intelligent Generation, a software platform that aggregates distributed storage assets into a “virtual power plant,” to offer solar and storage combinations in a variety of financing models for businesses.
And distributed storage+solar integration startup Sunverge Energy partnered with SunPowerin December, in an arrangement that offers SunPower’s solar power systems and Sunverge’s Solar Integration System to residential customers and utilities. Sunverge also provided its lithium ion solar and storage systems to a 34 home net-zero energy housing development in Sacramento, CA, which was developed by Pacific Housing Inc. and completed in 2014.
In June 2014, Sunverge raised a $15 million Series B venture funding round from Siemens Venture Capital, Total Energy Ventures and Southern Cross Renewable Energy Fund. The company is currently in the process of raising new venture funding, according to company sources.
The Next Frontier: Microgrids
Microgrid installations — local energy networks that are able to fully separate from the electrical grid during extreme weather events and emergencies — are expected to grow from 866MW in 2014 to more than 4,100MW of installed capacity by 2020, according to Navigant Research.
Indeed, microgrids are the next big thing in distributed energy financing, as “microgrids are the ultimate end game if you own a building that consumes energy ” says TIP Capital’s Reida.
In fact, just last month, $1.7 billion private equity firm Stonepeak Parnters Infrastructure Investors launched a $250 million project finance platform, in partnership with project development firm Energizing Co., to finance microgrid projects. The projects it intends to fund are relatively large “utility distribution microgrids,” with loads of up to 145 MW.
Microgrids are a very ripe area for innovation and investment, agrees Mark Perutz, a partner at DBL Investors, as “there’s so many different things going on, and they are all at the earliest stages.”
According to Rob Day of Black Coral Capital, batteries for backup power systems and microgrids are areas gaining a lot of attention by investors these days. He sees Stem as the leading smart energy storage innovator due to its focus on integrating a variety of energy management software solutions.
Although Day sees a “huge opportunity” for behind the meter energy storage financing, he believes that integrating load control software will be key to “make the numbers work.” That’s because smart facility managers and microgrid project developers will turn to load control software as “virtual storage” and as a first capacity source, and as a result, “they can keep the size of the battery small, making the economics of the entire system pretty attractive,” he says.
Day says that Powerit Solutions is the market leader for load control software because it is “deeply addressing a wide range of loads and also managing the storage resource in response to grid and rooftop conditions.” Powerit received $5.5 million in Series C funding led by Black Coral Capital in 2013, and a Series D funding from Siemens Venture Capital in 2014.
Powerit’s software is in about 100 sites in North America currently, according to Patty Solberg, Powerit’s v.p. of products and marketing. The product has been in the market for over 10 years, and the average sale is in the “hundreds of thousands” of dollars, says Solberg.
The company’s key value proposition is to automate the control of peak loads and for demand response, and to maximize the utilization of a facility’s energy assets in order to reduce cost.
Over the past year, Powerit has seen big growth in demand for integrating its load control software in solar PV deployments, energy storage, and facility microgrids, she says. And the company is working closely with the key distributed storage players, and will be announcing a big partnership with one of them soon, she says.
In addition to offering lease financing, Powerit recently launched a software as a service (ie SAAS) version of its product, called Spara Go, that focuses on the management of smaller, less energy-intensive industrial facilities and commercial buildings.
There’s a lot of innovation happening in the behind the meter storage space, particularly around software and load controls, says DBL’s Perutz, who pointed to GELI and Greensmith Energy Management as key innovators combining energy management software with batteries for this market. Regarding the adoption of energy storage for commercial and industrial markets, “there’s going to be massive growth there,” he says, which will be driven by energy savings and new revenue streams that behind the meter storage solutions can generate.
Greensmith raised $4.9 million in venture capital funding on June 3, after raising $1 million in February, and is currently looking to raise a total of $10 million. It also raised $4 million in May of last year and delivered 23MW of installed systems in 2014. It has delivered 45 grid-scale energy storage and behind the meter systems to 20 customers, including nine utilities, and was named a 2015 Bloomberg New Energy Pioneer. The company, which focuses on providing software and integration services to optimize energy storage, incorporates lithium ion batteries from Aquion Energy and flow batteries from startup ViZn Systems.
Some key microgrid developments:
Samsung joined a recent spate of companies making moves into the battery microgrid space, Investor’s Business Daily reported. Samsung SDI, the Samsung unit that’s the world’s largest supplier of lithium-ion batteries, partnered with ABB, an automation technology provider, to develop and market microgrid systems for energy storage.
Last month, SolarCity and Tesla announced they will work together to build microgrids using Tesla’s new batteries. In fact, Tesla is expected to be a key player in the commercial and industrial distributed energy storage market with the recent introduction of its Powerpack batteries for businesses and utilities, and is expected to provide about half of all batteries that get installed in the U.S. over the next two to three years, according to our industry sources.
In 2014, Green Mountain Power, Vermont’s largest power company, broke ground on a new microgrid project called Stafford Hill Solar Farm located on the city of Rutland’s former landfill. The microgrid will provide resiliency to the city’s high school, which is also an emergency shelter. According to the Department of Energy, the 2.5MW Stafford Hill Solar Farm is the first project to establish a microgrid powered solely by solar and battery back-up, with no other fuel source.
In May 2013, the U.S. Army and Lockheed Martin commissioned the first U.S. Department of Defense grid-tied microgrid at Fort Bliss, Texas.
Last year, Lockheed purchased Sun Catalytix for its patents and new business plan to produce affordable “flow batteries” to incorporate into its microgrid technology, which is being used in U.S. military bases to operate securely and independently from the grid.
There are about 25 military microgrid installations in the U.S using technology from companies including flow battery providers ZBB Energy and Primus Power.
In 2013, development began for a proposed $2.1 million independent microgrid energy system for the University of Connecticut Depot Campus in Storrs, UConn Today reported. Grant funding for the project came from the Department of Energy & Environmental Protection.
In 2012, the National Park System’s Alcatraz Island completed a major commercial scale 400kW solar microgrid project combining solar panels, a 400kW lead acid battery bank, two diesel generators, controllers and inverters to keep the island running completely independent from the grid. The system was designed and is operated by New Jersey-based Princeton Power Systems.
Princeton Power also worked on a microgrid project at the Brooklyn Army Terminal in New York, which was completed in 2014 and included 100kW of solar combined with a 720kWh battery and a building management system.
In January, Massachusetts awarded more than $18 million to 13 microgrid projects across the state to enhance energy resiliency. In 2013, Connecticut announced that $18 million would be used to fund nine microgrid projects.
Last year, New York launched a $40 million competition to help communities create microgrids and plans to approve up to $100,000 in funding for approximately 25 feasibility studies across the state, with a goal of a full microgrid build-out for five to seven projects. It recently awarded its first prizewinners $500,000 in funding for five microgrids across the state.
What’s Next?
Another area in the distributed energy space that is ripe for financing is water efficiency projects, says Tip Capital’s Reida. Controlling the consumption of water will follow the same course as energy efficiency, and it’s becoming a big issue for building owners, he says. A building’s water efficiency improvement projects may include water efficient toilets, fixing water leaks, and installing more efficient boilers. “My next big thing in the energy space is water” he says.
And Black Coral’s Rob Day is also looking closely at funding water efficiency technologies, although on a larger project scale. Black Coral invested in its first water technology deal in late 2013, making a growth equity investment in Canadian firm Newterra, a developer of modular water and wastewater treatment solutions to the industrial and municipal markets, including the oil and gas and mining sectors. Other investors in the round included XPV Capital, Angeleno Group, RobecoSAM, Ontario Venture Capital Fund and West Investments.
(Editor’s Note: water efficiency technology adoption and financing will be the topic of an upcoming CleanTechIQ Executive Briefing.)