In this episode of CleanTech Talks, I had the pleasure to speak with Mariko McDonagh Meier, Chief Strategist with one of America’s first movers and biggest players in battery storage, Convergent Energy + Power.
Meier has a global backstory. She was born in Singapore to an American father with Irish roots and a Japanese mother, studied in Paris, did volunteer work in Peru, and speaks four languages. Her educational background includes a Harvard MBA, and she currently lives in Boston with her husband, two daughters, and a three-legged cat.
Her Peruvian volunteer work was done under the auspices of an externship from McKinsey, where she started her career. Her time in Lima working with Technoserve on base of the pyramid economic inclusion led to her speaking Spanish. In her third year with McKinsey in California in the mid-2000s, she seized the opportunity to focus on cleantech.
That led to a strategic projects position with Southern California Edison, where she met the founder and CEO of Convergent, Johannes Rittershausen. Together they wrote a prescient 100-page whitepaper on the role of energy storage in the transformation that was already starting.
Her Harvard MBA brought her to the east coast, and then to EnerNoc, which was subsequently acquired by the Enel group and rebranded as Enel X, which describes itself as the largest provider of demand response worldwide and products and services aimed at energy transformation at home, city, and industrial level. She rose rapidly through positions in energy markets, regulatory strategy, utility bill management, and marketing. She worked closely with PJM, the major grid operator for the mid-Atlantic states, helping clients manage energy during peaks, avoiding high prices or getting paid for demand reduction.
She kept in touch with Johannes over the years. Both had moved to the east coast, with Johannes based in New York, with his spouse, a Broadway actor, and their child. Every conversation ended with “Do you want to move to New York?” but her life was in Boston and she wasn’t interested in moving. COVID changed all that. A conversation ended with “You don’t need to move to New York,” and so she joined Convergent in the summer of 2021 as Chief Strategist.
Convergent was an early mover in the energy storage space, founded a decade ago. It owns and operates storage assets for its clients, not only executing significant projects, but also having long-term stable revenue streams. It was one of the first firms in Ontario to help major industrial clients manage their general adjustment peak electricity cost challenges.
A bit of backstory, as I know Ontario well, having lived there for roughly half my life in multiple towns and Toronto. Ontario is a unique energy market in North America. It’s a heavy nuclear energy jurisdiction, with 55% of its annual demand met by CANDU reactors. They committed to shutting down all coal generation in the early 2000s, and succeeded, eliminating 37 megatons of CO2 emitted annually, and bringing hazardous air days in the Greater Toronto Area down from 55 a year to zero.
And they started building a lot of wind and solar under a feed-in tariff, as well as starting to pay off the hangover of $20 billion in nuclear debt. But all good deeds are punished eventually, electricity rates increased to the median for North America, and the province elected an anti-renewables conservative populist administration, who used legislation to tear up 758 renewables contracts without contractual recourse for the people who had entered into them in good faith. The administration also cancelled two wind farms, one of which was almost fully built, and doubled down on nuclear generation.
The nuclear fleet is both inflexible and oversized for the peaks and troughs of demand in the province, and surplus baseload generation conditions are endemic, requiring the province to pay neighboring jurisdictions to take their excess electricity. Among other things, this led to forcing wind farms to feather their turbines, and the expansion of a Niagara Falls region pumped hydro storage facility.
The general adjustment falls most heavily on organizations which exceed peak electricity demand during the worst periods, with industrial clients seeing 50% to 75% of their bills being the adjustment line.
All of this is to explain why it’s a strong market for behind-the-meter storage, and why Convergent has clients such as Shell New Energy and an office on King Street in the business district. Convergent is building 10 MW / 20 MWh storage facilities for Shell at sites in Sarnia and Brockville, making them the largest behind-the-meter storage facilities in North America.
Convergent is poised for growth as COVID winds down. It has $350 million in capital projects either built, under construction, or committed. Its choice is to both own and operate the facilities on behalf of its clients, giving the clients reliability electricity and cost savings as a service. Among other things, the company sees that when the storage assets retire in 20 to 25 years, there is still significant residual value in the grid connection and other aspects of the facilities, and want to be able to realize that value.
Convergent also sees that storage will be increasingly valuable in future years, with more revenue opportunities rather than fewer. I was discussing this with European storage and energy executives in recent weeks, participating in projecting the types of revenue that storage assets will be able to realize in coming decades through the transformation. It’s a hot topic, as markets are being created and regulatory regimes shifted to provide the economic conditions for building storage.
Convergent has three types of projects it builds for four types of customers. It will build standalone battery storage, solar and storage, and solar alone if storage is very likely to be added within 1-3 years. Its customers are commercial and industrial firms like Shell New Energy, utilities looking for non-wire alternatives to avoid transmission costs, municipalities and coops seeking to avoid transmission costs, and communities building solar and storage. It has projects in development in 40 of the US states where capacity is valued per the regulatory and market structures, and has projects in operation or construction in Ontario, New York, California, Massachusetts, New Hamphsire, Vermont, Ohio, Maryland, and Pennsylvania.
These are not simple and obvious transactions. The sales process is long, and the business relationship persists after the sale. The depth of work Convergent puts in and its knowledge leads to repeat business. It has a very sticky business model.
In part this is because it uses its proprietary PeakIQ machine-learning enabled software to manage the storage, getting the level of storage right and dispatching it at the right times to manage costs. In Ontario, they accurately predict 80% of summer peaks.
And the company does offer to take risk in its deals. Shared savings contracts, something some customers are interested in, and others not. Its perspective is that it is only making money if its client is making money.
Convergent considers three macro trends to be key to the ongoing growth of the storage market: decarbonization, decentralization, and digitalization. While COVID has shifted timing and balance, accelerating decentralization of demand as city business districts hollowed out in the past two years, it hasn’t changed these major elements. Supply is shifting constantly, with solar on rooftops and in community solar farms making distribution grids a two-way street.
From Convergent’s perspective, storage is the lynchpin of transformation. The entire grid needs to be more intelligently dispatched and flexibility is key.
And its addressable market has shifted rapidly. While initially it was clients such as the Ontario ones where cost savings were paramount, and firms in expansionary models uninterested in having discussions with them, now C-suite executives are increasingly focused on decarbonization. If it doesn’t cost them anything, or saves them money, that’s a bonus, but ESG attention is a Board-level item now.
And so ended the first half of our talk. Stay tuned for the summary of the second half, coming soon.