ERCOT developers discuss the acceleration of the distribution-level storage market

Armed with a new standalone storage ITC, the already active US storage market is poised to make big strides over the next several years. But in ERCOT, particularly in the highly active distribution-level sub-market, the storage explosion is already well underway.

The ERCOT market is unique in that developers often focus on one of two asset classes within storage development; projects greater than 10 MW and those less than 10 MW, delineated by those active in the market as transmission-connected assets vs. distribution-connected assets. While large storage projects are certainly being developed in ERCOT by firms like Broad Reach Power and Jupiter Power, an increasing number of developers are prioritizing the distribution-connected assets as these projects are able to avoid additional layers of interconnection studies.

Back in April 2021, Hunt Energy Network formed a partnership with Manulife Investment Management called HEN Infrastructure to focus specifically on this sub-market; the venture currently has a target of developing 500 MW of ERCOT storage made up of entirely of distribution-level assets. The focus on this specific asset class, where each project is the same size and avoids regulatory wrangling, sets the firm up for a “template approach, which we’ve gone to great lengths to develop and optimize” according to Hunt Energy Network CEO Pat Wood.

When NPM last connected with Wood and his team, they had 30 MW of storage active in ERCOT. That number has already increased to 90 MW and Wood says they expect to get an additional 200 MW of distribution-level storage operating by the end of next year. Although he says his team is “always looking for new opportunities in ERCOT,” their primary focus remains on completing its planned 500 MW buildout.

“We have an efficient approach, and every project provides learning opportunities to optimize further,” Wood said.

According to Wood, a big part of that approach is a “proprietary model” the HEN team has developed that “mimics the ERCOT planning model with different scenarios.” This model informs which distribution level nodes to connect to as the firm seeks to maximize its pipeline.

HEN Infrastructure’s activity, which was financed in bulk, is bolstered by its financial backing from Manulife. Available Power, another firm active in this space, is also working through the distribution-level approach to ERCOT storage development in lieu of other options. Although President Ben Gregory says his team wishes it could enter into “attractive hedges or offtake agreements” on its storage projects, he says these types of financing structures remain a challenge for the “nascent” reality of current standalone storage markets. The good news is some “early-stage precedents are being set” through insurance, tolling agreements and energy trades,” said Gregory.

However, the new standalone storage ITC included in the federal Inflation Reduction Act has the potential to make larger scale projects much more feasible. Standalone storage projects will be able to capture a 30 percent ITC at a minimum, with the potential to increase that to 50 percent through project siting and the use of American manufactured materials. Gregory says this, coupled with the attractive state of the ERCOT storage market pre-IRA, has already led to a “massive increase in new developers in the market,” though he says “many of them will not end up getting assets in the ground thanks to the “arcane and glacial interconnection processes managed by utilities” for transmission level projects.

“The bottleneck in ERCOT is not the volume of developers and interested financiers, but in finding viable, high-performing projects,” Gregory said.

Wood meanwhile is hoping to see new technologies born out of the IRA, particularly related to the advanced battery manufacturing PTC that could lead to longer duration storage development.

“The need for longer duration storage will only grow as renewables replace base load and we expect to see innovative, home-grown technologies emerge that capitalize on stretching a battery’s duration,” Wood said.

*This story was originally published exclusively for NPM subscribers last month.


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