Smart Energy Finances: How the faltering grid drives investment

August 11, 2023 Editor

This week’s Smart Energy Finances looks at how grid challenges continue to drive investment within the energy sector.

Namely, a new battery energy storage fund has been announced in the US, which will be used to establish multi-year offtake contracts for asset owners in Texas and California.

And in Europe, TenneT and Alliander have announced their H1 results, both citing the grid as a key investment theme.

Gridmatic, a US-based power marketer, has launched its first Energy Storage Fund.

They will use the $50 million fund to oversee the management of up to 500MW of battery capacity in the ERCOT (Electric Reliability Council of Texas) and CAISO (California Independent System Operator) markets.

The fund is divided into two tranches, with the initial one successfully completed through a $24.95 million investment from an energy investor.

Using the fund, Gridmatic will establish multi-year offtake contracts with asset owners to operate energy storage using its AI algorithms.

Gridmatic has already begun operating a 50MW/100MWh battery storage system in Texas using the fund.

Announcing the release, Gridmatic cites its ability to ensure secured revenue streams for developers’ projects through offtake agreements, enabling them to obtain necessary financing.

This, in turn, empowers storage developers to recycle their capital into the development of additional storage systems.

Gridmatic is then able to maximise the returns of the contracted storage systems via its AI-enabled optimisation, they state.

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The company references their storage report, showcasing a 46% increase in revenues when back-tested against actual results for storage systems in the ERCOT market in 2022.

“By decoupling project development and active management of the batteries, this structure derisks the operational phase of a project for storage owners and supports the growth of the energy storage industry,” states the company in a release.

The fund is also hoped to open a new asset class for investors, with the sector’s growth set to be further accelerated by the Inflation Reduction Act.

The fund is proof that new kinds of investment opportunities are on the rise as the battery energy storage market is maturing. This is fuelled by extreme market volatility due to the growth of renewables and extreme weather and an increased need for grid stability.

Grid investment driving H1 results

After the first six months of 2023, companies and utilities have been releasing their quarterly and half-yearly results to demonstrate their successes or disappointments.

H1 results from TenneT and Alliander in particular are of interest, as they show the allocation of funds into grid systems. TenneT has been heavily investing in the grid to ensure security of renewable supply in the wake of the war in Ukraine, while Alliander has been reinforcing power lines as the grid continues to falter.

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TenneT

In the first half of 2023, TenneT invested €3.5 billion ($3.9 billion) in grid expansion and replacement, almost double the investment they made for the same period last year.

The Dutch-German TSO’s underlying EBIT increased by €351 million ($387.5 million) to €930 million ($1 billion).

In announcing the results, TenneT is calling the first half of 2023 “marked by solutions and partnerships for the medium and long term economies of scale.”

TenneT’s ‘economies of scale’ is reference to completion of large and long-term framework agreements to develop high-voltage infrastructure, including framework contracts for 14 grid connection systems, each with 2GW capacity and valuing a total of more than €40 billion ($44.2 billion).

Stated TenneT CEO Manon van Beek: “The huge grid expansion and maintenance task we carry out for the energy transition does not take place overnight. With our hundreds of projects, both onshore and offshore, now and over the next two decades, we are realising the electricity system of the future with a clear end picture in mind: Target Grid 2045.

“Achieving economies of scale, innovating together with the market, international cooperation and timely and governmental supported long-term infrastructure planning are key in making a carbon-neutral energy system feasible and affordable for households, industries, suppliers and TenneT itself.”

Alliander

The first half of 2023 saw network company Alliander invest €60 million ($66.2 million) more into expanding and maintaining the gas and electricity network than in the same period last year.

However, despite the significant investment figure, the company has also stated how “it is impossible to keep up with the pace of the energy transition” calling on companies for flexible use of the electricity grid to relieve congestion pressure as the Netherlands continues to experience bottlenecks.

Alliander’s net result in the first half of 2023 amounted to €109 million ($120.3 million), €2 million ($2.2 million) higher than last year. Operating income for the first six months increased by €275 million ($303.6 million) to €1.37 billion ($1.51 billion).

However, total operating expenses increased by €258 million ($284.9 million) in the past six months, mainly due to higher costs for grid losses because of rising energy prices. Operating costs also rose due to rising purchasing costs at TenneT.

In the first half of 2023, 595 new transformer houses were built with 1,084km more cable laid than in the first half of 2022 (918km).

Are your investments plans guided by the need to expand and secure a reliable grid? Let me know.

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Cheers,
Yusuf Latief
Content Producer
Smart Energy International