Intersect Power to build $837M worth of grid batteries in Texas

The argument in favor of building new data centers closer to locations primed for low-cost solar and wind power development is becoming more appealing, Kimber said. The same goes for as-yet-nascent industries such as green hydrogen and direct air capture, which will require enormous amounts of carbon-free energy to serve their goals of replacing fossil fuels and sucking carbon dioxide from the atmosphere, respectively.

Already, some data center operators are striking deals to secure power directly from nuclear power plants, and a titanium plant being built in West Virginia is building on-site solar and batteries to power the majority of its electricity needs.

“Data centers, hydrogen, direct air capture — these will not be loads that will plug into the grid,” he said.

The new dynamics for grid-connected solar and batteries 

That’s not to say that there isn’t plenty of need for cheap, clean, and reliable renewable electricity on the grid today, he said. But it’s likely that the standard method of financing grid-connected projects — long-term power purchase agreements (PPAs) with utilities or corporate energy buyers — will need to change to enable the next wave of clean energy development.

Solar and wind power developers are struggling with the consequences of their success in driving down the cost of the electricity they produce, Kimber argues. They’re being forced to compete against each other to offer lower and lower prices to buyers, whether those are utilities required to secure a certain percentage of carbon-free or renewable power under state mandates or, increasingly, corporations seeking to meet voluntary carbon-cutting and clean energy goals.

To break free of this dynamic of ever-lower prices, Intersect aims to build grid-connected projects that can secure at least a portion of their revenues by selling power at higher prices in open energy markets — so-called ​“merchant” generation projects. That’s a riskier prospect than signing long-term contracts with a guaranteed buyer, and that heightened risk raises the cost of the capital needed to finance the construction of such projects, Kimber told Canary Media in a 2022 interview. But with the higher risk also comes the potential for higher reward.

This model is particularly important for grid batteries, he said. Power grids with lots of renewable energy — like those in California and Texas — often have more clean power than they need when the wind is blowing and the sun is shining. Batteries can store that power for use when the sun goes down or the wind falters but electricity demand remains high. Clean electrons will generally fetch a much higher price during these times than they will at the moment they’re generated.

But today, energy markets and utility regulatory constructs don’t fully value that time-shifting capability of batteries, he said. Instead, most of the early deployments of batteries focus on supplying high-value ​“ancillary services” — specialty grid services markets that are vital to keeping power grids up and running, but ultimately represent only a limited financial opportunity.

“The biggest issues we have on battery storage right now is that it’s clearly needed, but the markets value it in different ways, depending on what market you’re in,” he said.

Take California as an example. Like most of the country, it requires utilities to secure a certain amount of energy capacity to make up for grid shortfalls during times of extreme demand. In California, that class of grid resource is known as resource adequacy, or RA for short, and it can earn battery project developers significant revenues — if they can secure the grid interconnection and ​“deliverability” rights that guarantee their power will be able to serve the grid when it’s needed.

“That process is limited by the buildout of the grid,” Kimber said. ​“California is short RA because it’s short power lines.” California’s grid operator CAISO has approved major grid expansion plans, but those projects will take years — possibly up to a decade — to be built.

Texas, by contrast, operates an ​“energy-only” market that relies on allowing electricity market prices to spike to far higher levels to incentivize developers to build projects to meet those needs. Texas grid operator ERCOT also allows new projects to interconnect to its transmission grids in a far simpler process than that used in other parts of the country, which has helped speed the pace of clean energy and battery growth in the state.

“In the markets where capacity payments or ancillary services are not the things financing batteries, you have to finance increasingly on peak-to-trough energy arbitrage,” Kimber explained. ​“Uncontracted volatility is what you’re making your money on. That ends up needing different financing tools.”