Key Takeaways
Driven by lucrative subsidies in the form of tax credits from the Biden-Harris Administration’s Inflation Reduction Act, big companies with large tax bills are cutting them by investing in battery storage companies.
Entrepreneurs are offering to buy power when it is cheap, store it and sell it back to the grid when it is expensive, and are receiving funding from companies eager for the tax credits.
Batteries are increasingly necessary because intermittent renewable energy sources such as wind and solar, which are also subsidized by the Inflation Reduction Act, need backup power or stored energy.
Battery storage comes at a high cost to consumers because it is very expensive.
Battery storage entrepreneurs in California are buying power when solar power is producing energy and keeping power prices low, and selling it when power prices are high after the sun goes down. The batteries charge up during the day when solar power is abundant and when electricity demand rises in the evening, placing pressure on the power grid, the stored power is sold at higher prices. Storage batteries will become even more lucrative as volatility increases due to the energy transition with additional wind and solar capacity forced upon the electric grid by the Biden-Harris administration. Battery storage is needed to stabilize the power grid due to the addition of these intermittent electricity sources, adding additional expense for U.S. electricity consumers. Battery storage is a rapidly growing sector that is being fueled by a surge in solar and wind power and billions of dollars of investment from Washington and Wall Street driven by federal tax credits.
In one of the largest battery storage deals, Intersect Power is raising $837 million in debt and equity tied to tax credits from Morgan Stanley, Deutsche Bank and HPS Investment Partners, which will fund three giant battery storage projects in Texas. Founded in 2016, Intersect Power has raised billions of dollars to build solar projects for Apple, Morgan Stanley and others, and is now turning to battery storage projects. Big companies with huge tax obligations can reduce their taxes by cutting deals providing tax credits. Eos Energy Enterprises, a startup producing zinc batteries that could store energy for longer periods, is getting $315.5 million debt investment from private-equity firm Cerberus Capital Management. A developer called rPlus Energies raised over $1 billion for a big solar and storage project in Utah.
Storage capacity has grown in the United States in recent years. California with 36 gigawatts planned and Texas with 46 gigawatts planned dominate the industry, but projects are in the works in Nevada, Arizona and elsewhere to help meet growing power demand from artificial-intelligence data centers, manufacturing plants, and demand from the Biden-Harris energy transition where electricity demand is expected to double from electric vehicles and increase further due to the administration’s regulations and standards to eliminate hydrocarbon fuels.
The potential of battery storage has recently increased after Hurricane Beryl left millions of Houston, Texas residents without power. Texas has the most installed wind capacity in the country and is increasing its solar capacity. Many homeowners and businesses have been installing batteries to provide power during blackouts, as well as for other grid disruptions that are more common in California and Texas during the summer. Intersect Power has agreed to buy billions of dollars of Tesla Megapack batteries to accelerate installations in California and Texas. Tesla not only makes electric cars, but also smaller energy storage batteries – a market that is expected to grow fast. Having a domestic battery supplier lets Intersect qualify for more subsidies in the Democrat-passed Inflation Reduction Act of 2022. Tax credits are expected to cover about half the cost of the Texas battery projects.
Storage power traders in Texas play a big role in the state’s deregulated electricity market. It is a market where the difference between electricity prices during the day and evening is so consistent that Intersect can include fixed prices in contracts with utilities and other customers. Traders have guaranteed the company a minimum payment for its battery projects, based on the spread of electricity prices between when companies typically charge and discharge batteries. When the spread climbs above that level, Intersect keeps more of the money. In states with more tightly regulated electricity markets, storage companies rely more heavily on other types of revenue, such as payments from utilities when their batteries are used.
The battery storage sector still faces challenges. Other types of batteries that might potentially store energy for longer could make some projects relying on today’s lithium-ion batteries obsolete. The rush of storage installations could also make electricity prices less volatile—and battery projects less profitable. Permitting snags and other challenges hooking projects up to power grids in some states could also hamper growth.
Puerto Rico is Another Market for Battery Storage
The Biden-Harris administration announced $325 million in federal funds for solar and battery storage installations across Puerto Rico as the territory faces chronic power outages. The program, funded by the Biden-Harris Department of Energy, will target community centers and healthcare facilities, as well as subsidized, multi-family housing. According to U.S. government officials, the outages endanger the lives of those who depend on oxygen, refrigerated insulin and dialysis machines.
The southern coastal town of Santa Isabel, one of several towns in the area hit by a power outage in June, left 10,000 customers without power. Another widespread outage in June left about 350,000 customers without power across Puerto Rico, prompting Governor Pedro Pierluisi to order an investigation. Puerto Rico, an island of 3.2 million people, has a more than 40 percent poverty rate and many residents cannot afford a backup generator.
Puerto Rico’s power grid has long been crumbling given a lack of investment and maintenance by Puerto Rico’s Electric Power Authority, which is still trying to restructure more than $9 billion in debt. It was worsened nearly seven years ago after Hurricane Maria pummeled the island as a Category 4 storm, leaving some without power for up to a year. Prior to Maria, renewable energy generation on the island was at 3 percent, and it is now 9 percent. Puerto Ricans have been hit with power bill increases that result in an electricity rate that is 41 percent higher than the average U.S. rate.
The Biden-Harris Department of Energy also announced an $861 million loan guarantee to help build two solar photovoltaic farms in the southern towns of Guayama and Salinas. The guarantee was offered to Clean Flexible Energy, LLC, an indirect subsidiary of AES Corporation and TotalEnergies Holdings USA, Inc.
Conclusion
Entrepreneurs are looking toward battery storage as a lucrative market where they can buy power cheap and sell it at high prices. The losers are American consumers for battery storage is an expensive technology, but is required to stabilize a power grid that has been forced to accept intermittent wind and solar capacity by regulations implemented by the Biden-Harris administration and tax credits in the Democrat-passed Inflation Reduction Act. Battery storage is a rapidly growing sector that is being fueled by a surge in solar and wind power and billions of dollars of debt-equity investment by Wall Street banks. Texas and California dominate the states installing battery storage as they have the highest wind and solar capacity in the country. But, the Biden-Harris administration is also committing funds for solar power and battery storage in Puerto Rico—an American territory plagued by chronic power outages caused mostly by their own mismanagement.
