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ENERGY-AS-A-SERVICE: Balancing risk and reward

Argonaut Power takes an Esco-type approach to fully funded, behind-the-meter energy storage. Managing director Roberto Castiglioni believes the firm can strike a transparent balance of risk and reward. Brendan Coyne reports.

Argonaut Power launched late last year to provide battery storage as a service. Nine months later, the Ingenious Infrastructure-backed firm is getting its first behind-the-meter deals over the line.

Managing director Roberto Castiglioni admits countless firms – largely ex-renewables developers – now tout funded battery solutions. He says Argonaut’s approach differs in the way it constructs a “clear, transparent proposition” tailor-made to each site that appropriately balances risk. That’s why it’s taken almost a year to transact.

Storage: not like solar

Castiglioni says the crucial difference with behind-the-meter (BTM) storage versus renewables deployment is putting the customer “at the heart of the transaction” and understanding that each business has unique requirements. But he says investors also need appropriate returns for risk. Striking that balance is key.

“Storage is not like renewable generation; solar and wind didn’t require much structuring,” says Castiglioni. “A PPA and heavily subsidised revenue is quite simple. Here the game is totally different. You need to ensure that merchant risk is properly mitigated.”

Behind the meter, risk is mitigated because of defined customer needs, such as cutting consumption and carbon and increasing resilience.

However, Castiglioni agrees with those that suggest merchant risk should not be feared, provided people know what they are doing. “At the beginning of this century, merchant risk was totally acceptable. But the market went from merchant to subsidies – and for more than a decade we have been spoiled,” says Castiglioni. “It’s time to return to the good old merchant profile, but we need to help investors make that transition.”

Behind the meter that goes back to understanding customers, he says. “We structure the energy savings or the revenue share in a way that is quite interesting for the customer,” says Castiglioni. “We believe we have a solution that gives a good offer to the customer but at same time, makes it bankable. That is key; often it can be skewed on one side or the other.”

Castiglioni claims Argonaut has “turned down a few opportunities because we didn’t believe the risk was appropriately allocated”, but thinks it has laid the foundations for growth. It aims to deploy 50MW of storage by the end of 2019 and 150MW by the end of 2020. While much is made of falling battery prices, Castiglioni thinks first mover advantage will be important – and prices may not fall as fast as some predict.

“Behind the meter, the best customers will go first. So if you [wait for battery price declines] you might not get the customers you want. Battery prices will fall over time. But not in the short-term and delivery times are already 6-7 months versus 3-4 months when we started,” he says.

“So the sooner you start, the more data you collect, the more experienced you become, the better you can manage the battery and stack the revenues.” However, Castiglioni does see an opportunity for immediate cost reductions: the firm is packaging second life batteries under 30-year contracts. That duration requires “the right kind of customer” and a thorough understanding of each business case. But Castiglioni believes that should be true of every storage contract. “Yes, that can be time consuming,” he says. “But for the right customers, it is only right to put in the time.”

Article is from the August/September 2018 edition of theenergyst - theenergyst.com

Robbie Castiglioni