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

Intersect Power CEO Sheldon Kimber has a vision: A world where energy-hungry industrial facilities can connect directly to massive solar and battery projects, skipping the interminable line to plug into the U.S. power grid.

But for now, his clean energy development firm is focused on more conventional projects. This week, the company unveiled a major expansion of its storage plans targeting the red-hot Texas grid battery market.

On Wednesday, Intersect Power announced $837 million in financing commitments for three battery projects in Texas, totaling nearly 1 gigawatt-hour of energy storage capacity. The financing includes portfolio-level construction debt and term debt financing from HPS and Deutsche Bank as well as tax equity financing from Morgan Stanley. It comes on top of the roughly $5 billion in project financing the Beaverton, Oregon, company has raised to date.

The three Texas battery installations — Lumina I, Lumina II, and Radian — are expected to be up and running in 2024. They will store solar power already flowing from Intersect’s 640 megawatt Lumina project and its 320 megawatt Radian project in Texas, helping provide additional flexibility to a state that outpaced California in solar deployment as of last year and is forecasted to beat California in energy storage deployment in 2024.

Intersect has already built two solar-battery projects in California — the Oberon project, with 500 MW of grid generation capacity and 1 gigawatt-hour of co-located storage, and the Athos III project, with 224 MW of grid generation capacity and 448 MWh of co-located storage. The firm’s portfolio includes seven other projects in California and Texas in operation or under construction, which adds up to 2.2 GW of solar capacity and 2.4 GWh of storage.

“We’re ramping our battery growth much more quickly than we thought we ever would,” Kimber told Canary Media. ​“We’ve built the equivalent of one of the largest battery developers within our company in a year.”

Intersect’s vision for solar- and battery-powered industry

To be clear, the Texas projects that secured financing this week don’t fit into the ​“deep decarbonization” concept that Kimber sees as the future of clean energy. Kimber articulated that idea in a 2022 manifesto that calls for co-locating solar and batteries with electricity-hungry industries including green hydrogen production, direct air capture of carbon dioxide, electrification of industrial thermal loads, mass EV charging, water desalination, and transport.

To date, the only project that Intersect has proposed that fits into this structure is its Meitner Power Project in Texas, which aims to build 340 MW of solar and 480 MW of wind generation to supply power to a 400 MW hydrogen electrolysis facility. Excess electrons would go to the grid. It’s one of a number of efforts in Texas and the broader Gulf Coast region to build clean power for green hydrogen production.

But Kimber sees a growing need for clean energy and battery developers to work directly with large customers and bypass the power grid, with its long interconnection backlogs and its increasingly challenging energy market economics.

“The grid is broken. Load will have to come to generation — at least some of it,” he said.

Clean energy developers and energy market analysts agree that the U.S. grid isn’t being expanded quickly enough to build ever-cheaper solar, wind, and battery capacity at the pace needed to meet electricity demand. Nor is it moving fast enough to reduce carbon emissions in line with the country’s Paris Agreement goals.

Outside of Texas, energy project developers across the country face years-long wait times just to win the rights to interconnect to transmission grids. Even after the wait, those interconnection rights often come along with grid upgrade fees so high that developers opt to walk away from their proposed projects.

These grid bottlenecks have become a potential threat to meeting the surging electricity needs from data centers, factories, and other sources of power demand in the U.S.

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.”