Investors and Revenue Streams in the DESS Market

In April 2019, Swiss fund manager SUSI Partners entered the US market with the acquisition of a 50% stake in Advanced Microgrid Solutions’ (AMS) Southern California portfolio of distributed energy storage systems (DESSs). The fleet of DESSs, located at various sites in Los Angeles and Orange counties, will be used for capacity resources and demand management by Southern California Electric (SCE) and certain commercial, industrial water, and university customers. As of March 2019, AMS had brought online 27 MW and 142 MWh of energy storage capacity at 40 sites within SCE territory. While institutional investors have mostly steered clear of DESS projects, SUSI’s introduction into the market demonstrates the growing interest in the technology.

History of California Energy Storage

In 2014, the winners of SCE’s 250 MW energy storage procurement were mostly well-known companies with a history of projects in the ground, with the exception of AMS. The newcomer secured a 50 MW contract to provide large-scale, behind-the-meter (BTM) DESS projects across the west Los Angeles basin by working with SCE to identify the optimal amount of load-shifting it could use at local stress points.

Fast-forward to 2019. The combination of lower battery prices and balance-of-system (BOS) costs, favorable market power rules, clearly defined contracted revenue streams, and a greater understanding of project risk have enabled Macquarie’s Green Investment Group—brought on as a partner by AMS in 2016 to bring the portfolio through the development phase—to sell 50% of its stake to SUSI for long-term ownership. This shows that the investments in DESSs have evolved from being considered primarily a strategic outlay to an investment that mirrors economic returns typically expected of traditional energy assets.

Other Energy Storage Market Developments

While the commercial and industrial (C&I) energy storage market remains highly concentrated in California, which has passed numerous supporting policies over the past decade, Massachusetts and New York are entering the fray by creating their own supporting policies, which are expected to lead to a storage boom in the Northeast in the coming years. According to Guidehouse Insights, as energy and sustainability managers seek greater control over their energy use, C&I energy storage annual capacity deployments are projected to grow from 732 MW globally in 2019 to 10,861 MW in 2027.

Distributed Storage Financing Innovations Give Vendors an Edge in the Market

In today’s DESS market, significant competition is emerging among project developers in search of commercial debt lending and equity investment partners. To seize a competitive edge, DESS developers must ensure their projects have a strong level of guaranteed revenue to increase the likelihood of attracting potential debt and equity companies.

Further, as battery prices and BOS costs decline, DESS developers need to focus on operational efficiencies to remain competitive. Consequently, new market participation models that use storage’s inherent flexibility to capture multiple value streams are attracting increasing attention. Stakeholders are also focusing on government incentives that enhance the bankability of DESS projects and enable DESS project value chain participants to reduce costs and drive better project performance.

Investigating the Opportunity

A recent Guidehouse Research report, Distributed Storage Financing Innovations Give Vendors an Edge in the Market, explores the fundamentals and challenges of financing DESSs. The study examines innovative DESS project financing asset classes, new market participation and government policies that improve the bankability of DESS projects, and solar PV plus storage power purchase agreements and holistic energy management. It also provides guidance for DESS stakeholders on implementing lean practices, taking advantage of real-time integrated control software, and other ways to lower project costs.