Key Capture Energy in early stages of exploring new markets beyond Texas

In an interview with NPM, Key Capture Energy VP of Market Operations and Development Joel Turkheimer walked through the early stages of the firm’s explorations of markets beyond storage hotbeds like Texas and California.

Some of the firm’s earliest exploits in these new markets, like its 20 MW pilot project with Talen Energy in Maryland on a retiring coal site, have already been made public. But Turkheimer says the majority of these discussions with potential offtakers like utilities are still very early.

In particular, he says Key Capture is keeping a close eye on New York where the state is currently finalizing the implementation of an incentive program called the index storage credit. Full program details aren’t yet finalized, but Turkheimer says he expects it to be similar to the “TB4 plus RA” deals that have been done in California by PG&E. Under this concept, the seller hedges their energy spread, the difference between the highest and lowest priced hours and equal to the revenue associated with energy arbitrage, and their capacity price.

For a deeper dive on the Index Storage Credit, please read this piece that appeared in NPM on April 26th.

Beyond New York, Turkheimer says Key Capture is still largely “trying to figure out the next two to four markets.” NPM is tracking 800 MW of projects from Key Capture across MISO, which Turkheimer says corresponds with “a handful of projects.”

“We will evaluate our development efforts in MISO as the market continues to evolve,” Turkheimer said.

Although Turkheimer said the firm would “always look at attractive opportunities” for asset recycling, but that it doesn’t have any specific programs in place and would reserve that for “times where it makes sense.”

“We would explore asset recycling if, for example, our prospecting was more successful than expected and we ended up above target weight in a market,” Turkheimer said.

Part of the issue is a lack of cohesive interest in offtakers and counter parties. Although Turkheimer says many potential utility partners are interested, others are more risk averse.

“A lot of utilities see these decarbonization mandates by, say, 2040 and see energy storage as a piece toward getting there,” Turkheimer said. “But they also often have risk aversion to their first deal. It can be a process getting these people comfortable.”

While Key Capture currently helms a range of project sizes from 3 to 100 MW, Turkheimer says the firm is trending toward projects in the 20 to 100 MW range with a preference for projects 50 MW or larger, particularly in Texas where he says he’s seeing the market moving in that direction.

Turkheimer says he spends a lot of time “on the analytical front” with project siting in Texas. Unlike renewable projects which have historically been sited in the West, Turkheimer says there isn’t a “singular hotspot” for storage in the state.

For instance, while Key Capture has experience developing in the Houston zone, which is perhaps the closest thing Texas has to a hotspot, Turkheimer says it is often the highest priced zone thanks to high growing demand and transmission constraints. As a result, a big part of Key Capture’s strategy has been diversifying projects across major areas like West Texas and the Gulf Coast.

“We like to keep a diversified set of beds because different places have different values under different market conditions,” Turkheimer said. “Certain areas or projects may experience better than average opportunities at different times, so having a diversified portfolio can have more stable returns than just focusing on one area.”

NPM is also tracking a number of battery storage asset sales across the state, which Turkheimer says Key Capture is engaging in at both ends.

“We’re always interested in attractive opportunities and that goes for both buying and selling,” Turkheimer said.

Even as the firm explores new markets, Turkheimer says he doesn’t expect to move away from the Texas market anytime soon, provided new legislation doesn’t force the firm out. Without the typical offtake contracting and interconnection queue structure that bogs down project development in other areas, Turkheimer says you can essentially “move as fast as you can get stuff built” in Texas once investor capital is lined up.

The flip side of that equation is he’s unsure about the utility of the standalone ITC included in the IRA in the state.

“Tax equity historically focuses on contracted revenues with investment grade counterparties,” Turkheimer said. “Since this favors more utility agreements, it’s unclear whether it will be broadly useful for merchant storage projects in Texas.”—this is also a very good point, does he see transferability making that bit easier?

On the other hand, Turkheimer says he does see “significant benefit” from having the tax credit transferability option available to developers.

“It’s not the same quantum of benefit as a tax equity deal, where all tax benefits can be fully monetized, and there’s still uncertainty until the IRS formalizes guidance, but it still looks like developers will be able to monetize the majority of the value of the ITC through transfers if they choose,” Turkheimer said.

Beyond tax credits, Turkheimer says he is also bullish on the 10 percent ITC adder for developing in energy communities, which early projections show could include the majority of Texas. But as this incentivizes new entrants into the Texas market, Turkheimer predicts it will “make the game a little more difficult.”

“You don’t just want a good node for energy volatility, you want to capture that 10 percent adder,” Turkheimer said. “10 percent is big.”

He also is considering the amount of space designated as an energy community in the state may decrease once unemployment rates are factored in. “Texas does not generally have above average unemployment,” Turkheimer said. “That’s going to be factored into the final mapping.”

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


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