This is your SolarWakeup for June 2nd, 2021

PJM Auction Results. With the PJM capacity auction results coming this week, expect headlines countering a renewables trend. Under the MOPR developed by the Trump administration, gas and some coal plants are expected to clear the auction and gain another round of survival. This is a policy driven result that does not mean anything for the future of renewables both from a cost or regulatory perspective. As you read the headlines, make sure you counter the argument that baseload is a real thing. In reality, we are transitioning to a power market that will value all parts of energy generation, transmission and regulation at a much more granular level which provides real value to energy storage assets in a power market (PJM) where storage has yet to really gain traction. Stay tuned…

Bus and Fleet Market. BYD and Proterra are the EV buses that you all know and more are coming. There will be no shortage of manufacturers that either OEM their own or use 3rd party technology, commercial fleets and buses will electrify. The opportunity is going to be segmented in two additional follow ons besides selling and servicing the hardware. First and more interestingly is the 3rd party ownership of those fleets, especially as it comes to transit groups and schools districts. If I weren’t fully involved at FlexGen with energy storage already, I’d be looking to finance electric school bus fleets. Taking the capital cost away from cash strapped school districts and financing them like we did with solar is a great capital deployment opportunity. Second is the contract to provide the electricity that the buses need, a fuel contract that is likely driven to actually be a renewable electricity contract as districts look to reach their environmental goals.

Distributed Congestion. There is another aspect to fleet electrification. Whether it’s a fleet of buses or delivery vans, they tend to drive a predictable route during the day and sit dormant at night. This means that fleets will have to charge in a small window of time, at the same time. By creating a new local peak for energy and capacity, the cost curve of the local market could react, actually creating an inconvenient supply and demand situation. Depending on the node, a large enough peak, charging a high power rates (like buses do) could create congestion pricing that is also not currently happening. In every problem lies an opportunity especially for the financier of the fleets, to control the energy contract and add a grid damper in the form of energy storage at the fleet charging location. By being a market maker and not a price taker (my coined phrase highlighting the value of storage), the fleet location could become a dynamic source of congestion or relief depending on how the asset is utilized, potentially creating additional arbitrage revenue opportunity for the finance company/asset owner. All of this backed by the school district cash flow on the bus financing, neatly packaged in an investment grade contract.

Buying Pipelines. Oil majors versus utilities, basically corporate giants that have 50 years corporate bond capital at sub 2% cost, are coming for the generation. That generation is being acquired earlier from developers, like BP acquiring 9GW pipeline from 7X Energy and putting it through their Lightsource platform. Pipelines are the valuation of opportunities that have real estate (or options), interconnections (or application/queue positions) and revenue streams (or power market pricing). The majors, as we outlined a few weeks ago, are well positioned to, potentially better than most utilities, to maximize the revenue streams from these pipelines. They are already managing the book of contracts for many retail energy providers plus getting into retail energy themselves (like BP did a few weeks ago). And if you remember what I wrote at that time, I highlighted the need to be offering retail energy contracts to fleets that are electrifying so they don’t lose the revenue stream when those fleets go from fuel to energy. This entire day of news is connected, and interconnects serviced by energy storage are the glue that hold the thesis together. 

 Opinion

Best, Yann