• Potential impacts of FEOC requirements include the quality of components for storage development in the US
• Possible end of the ITC benefits could result in fewer projects in MISO as developers may be unwilling to pay higher fees instituted by the grid operator over the last 18 months

Despite uncertainty regarding the potential impacts of the Foreign Entities of Concern (FEOC) requirements written into the federal budget bill, Spearmint Energy is still pushing forward with its pipeline expansion in Texas and newer storage markets in the Midwest.

In an interview with NPM, Spearmint’s Chief Development Officer Pete Rood said the firm is currently unable to make any definitive decisions based on the budget bill’s potential FEOC requirements considering the “spread between the Senate and House bills,” though he did say he considers the Senate version, which at least includes ITC benefits for storage projects, “seems to be a bit more reasonable and realistic.”

Rood says the desire from the current and former administrations to onshore battery manufacturing in the US “has been heard loud and clear” by the industry, but he argues “the trick is going to be how to do that in a way that also allows projects to continue to get built.”

This is a potentially serious issue depending on how FEOC is defined and enforced with Rood noting products from China and Korea are “not only cost-effective” but also notes “a lot of the IP related to cell manufacturing is held by non-US companies.”

Beyond the potential financing ramifications of FEOC, Rood says he is also concerned that the policy could lower the overall quality of components for storage development in the US. He argues “high quality cell manufacturing at scale is essential not just for cost, but [also for] reducing the chance of thermal runaway.”

“The ability to manufacture defect-free cells is the best way to mitigate fire risk,” Rood argued. “For companies unable to utilize the latest in cell manufacturing technology and IP, it will be important to determine that their cells are safe and free of thermal quality problems.”

As for domestic manufacturing, while Rood says some of the efforts to onshore battery production shows “a lot of promise,” for now he says, “there has yet to be US manufacturing of Tier 1 batteries.”

Rood notes FEOC requirements could also stretch beyond impacts to the battery storage industry, as well, particularly highlighting his concerns about the availability of substation equipment. He notes “some of the largest suppliers” of substation equipment are in China, “where there are significant manufacturing capabilities.”

“If you restrict access to those supply chains too quickly, I think we will see some of the equipment shortages we saw two years ago,” Rood said.

Ultimately, Rood argues “the best outcome” for federal policy is to add incentives for onshoring storage development “in a way where there’s still a reliable and clear way to build projects at a reasonable cost with high quality equipment.”

“It’s totally doable, but there’s got to be a transition period to ensure the industry is not slowed down or stopped by restrictions kicking in too early,” Rood said.

Pipeline

In the meantime, Rood says Spearmint is pushing forward with its pipeline of projects in Texas and in newer markets like Minnesota and Indiana, bolstered by increasing capacity demand from data center load growth pushing utilities and grid operators to look for dispatchable capacity that can be built relatively quickly.

Rood says Spearmint has “pretty substantial holdings” in both MISO and SPP, largely built from the firm’s greenfield development efforts that he characterizes as “early stage.” However, he says the firm also has some “late-stage projects that we’ve collected over the last several years.” He notes all of these projects the firm is pursuing in the Midwest are “large utility-scale projects, which we feel is the right approach for these markets, at least initially.”

Several of the firm’s developments are in Minnesota, including 150 MW Midwater Storage in Freeborn County and 150 MW Snowshoe Storage in Olmstead County. Rood notes permitting in Minnesota is unique and squarely within the state PUC’s jurisdiction which requires all projects to navigate state-issued environmental assessment, which is reviewed by an administrative law judge and ultimately ratified by the PUC along with any conditions they deem appropriate.

At the same time, the firm is continuing to advance projects in Texas where it recently secured a USD 250m financing package to fund its Tierra Seca and Seven Flags storage projects. Rood says he expects these projects to be operational “in a few months” with “some other projects that are close to maturity in MISO and SPP as well as a pretty deep portfolio of projects in various stages in Texas.”

Some of the firm’s projects, particularly in the Midwest where battery storage development is less common than battery-rich Texas, are facing what Rood describes as “reasonable concerns” from communities, including some local pushback.

For instance, Midwater Storage has faced resolutions adopted by both the local township and county opposing the establishment of the project’s site over fears the project will cause human and environmental impacts, particularly with regards to the Shell Rock River located near the currently proposed project site.

Rood says Spearmint has “done a lot of work to understand hydrology in the area,” isn’t concerned about impacts to the river, and “welcomes the opportunity to demonstrate that belief through an environmental assessment.” For now, he says the project is at the scoping stage for its upcoming evaluation, which he says is “the last step to finalize the assessment’s scope,” after which the state will prepare the assessment. The public process will continue after it is completed and will be invited to comment on the results.

Spearmint has faced similar opposition with its 400 WM Pumpkinvine Storage project in Kokomo, Indiana, prompting the firm to consider a site move for the project to help alleviate some of the local concerns. However, Rood says the project has been bogged down in the MISO DPP queue, specifically in the DPP 2 study phase, for longer than anticipated, which has brought progress to a standstill.

“We expected we would receive study results and move onto the next phase in January,” Rood said. “Now it’s July and MISO still hasn’t wrapped up its work yet.

Rood notes the “frustratingly slow pace” of interconnection studies is one of the challenges the firm has encountered with projects outside of ERCOT and says he wonders if the potential end of the ITC benefits in the current budget bill may result in fewer projects in MISO with developers unwilling to pay the higher fees instituted by the grid operator over the last 18 months.

“It’ll be interesting to see how the industry reacts given the uncertainty of the IRA and if it will be willing to post the same level of deposits,” Rood said.