Stem, Inc director breaks down roots of ERCOT’s standalone storage market

Despite supply bottlenecks threatening to delay projects, Stem Director of Product Marketing Neat Clark says the ERCOT standalone storage market is only growing with no imminent end in sight.

Although Clark acknowledged ongoing storage component supply issues, which have been affecting the industry since late 2021, he says he is still “seeing a ton of interest” in the standalone storage space with ERCOT as a particularly hot market. NPM is tracking over 340 storage projects in ERCOT alone, and while developers like Hecate and Broad Reach are developing major, multi-hundred MW projects, Clark says the key market in ERCOT is smaller projects.

This is also where Stem has worked most closely with ERCOT developers through its Athena smart energy software, which allows developers to optimize and control storage systems in concert with other energy assets.

The key to understanding the ERCOT storage market, Clark says, is understanding that it’s different than any other storage market in the US. While CAISO, another historically strong storage market, is looking at prioritizing 4 MWh and longer duration storage to shift solar capacity to higher priced evening hours, ERCOT is a lot more focused on shorter duration, two-hour systems that are being paired with renewables and can easily respond as different resources come on and offline throughout the day.

“The ERCOT market is just different from anywhere else,” Clark said. “It’s an energy only market structure with a systemwide cap but no capacity structure, which allows for market volatility. That’s what a lot of storage developers are finding really attractive.”

Clark says the “magic number” for many developers, like Broad Reach and Jupiter Power, is developing multiple 9.9 MW projects that connect to different nodes on the ERCOT grid. This not only allows for diversification of assets, it puts each project below ERCOT’s 10 MW threshold for expedited interconnection, allowing projects to get on the grid fast, a particularly useful benefit given the ongoing volatility on the supply side. On the other hand, if projects are larger than 10 MW, developers must complete a full interconnection study, elongating the process, significantly.

“Tons of developers are approaching us interested about this space, and we’re seeing tremendous pipeline growth,” Clark said. “It’s a pretty compelling thing. You can deploy 10 9.9 MW assets at 10 different nodes that you can optimize across; that’s a really solid business model.”

Pairing and other technologies

Although the standalone storage market is ERCOT’s hottest segment right now, Clark says he still expects continued growth in the solar sector, as well. In particular, Clark says favorable market dynamics in ERCOT like access to favorable sites and favorable solar prices compared to alternatives like natural gas will likely help sustain ERCOT’s solar growth.

“ERCOT has the advantage of still having really strong solar pricing,” Clark said. “So, while we might see postponed projects, ultimately a lot of solar is going to be built as long as prices can support that development. It’s not an if question, it’s a when question.”

Additionally, both Clark and NPM are tracking an uptick in wind + storage installations from firms like Engie, Pattern Energy and ConnectGen, which Clark mainly attributes to an interest in firming up capacity from wind developers.

“Wind developers are seeing a storage need because they’re seeing an awful lot more basis than they expected,” Clark said. “With some PPAs settling at the hub or zone price adversely impacting connection nodes, developers are seeing a lot of upside in being able to firm the wind output with supplementary storage.”

As discussed in NPM’s podcast with Wartsila earlier this week, the possibility for further supply issues through the continued demand for storage, particularly with the rise of EVs, may threaten to staunch some of this market growth. But although he thinks the implementation of new alternative storage technologies to lithium ion may still be “a couple of years out,” Clark is optimistic their implementation could lead to further growth and risk mitigation for developers.

“It’s a good thing that people are exploring it,” Clark said. “These alternative technologies could help us diversify at least a portion of the commodity pricing risk and mitigate the geopolitical risk of the consolidation of those commodities, which would be really positive for the market as a whole.”

As for the standalone storage ITC, which Stem as a firm is still hopeful for, Clark says that for markets like ERCOT, the boom period has already arrived regardless.

“From what I’ve heard, the standalone storage ITC has been kind of brought back into talks recently, which may be something to look into,” Clark said. “But in a place like ERCOT with the shorter development cycles and cheaper interconnection of the 9.9 MW projects, you can still make a pretty good return. An ITC on top of that would just be juice that would move us even further forward.

*This story was originally published exclusively for NPM subscribers last month.


New Project Media (NPM) is a leading data, intelligence and events company dedicated to providing origination led coverage of the renewable energy market for the development, finance, advisory & corporate community.