Mariko McDonagh Meier is the Chief Strategist of Convergent Energy + Power, and has had energy regulatory and strategy roles across the United States. That gives her an excellent vantage point to view the patchwork of regulatory regimes spread across the US and even Canada, and to articulate where the pockets of the future are.
In the first half of our discussion, we talked about the personal journey that led Meier to her role with Convergent, about the reasons why Ontario has a particularly strong requirement for behind-the-meter storage for larger commercial customers, the types of customers and projects Convergent provides, the importance of intelligent storage management for maximizing value, and the macro trends of decarbonization, decentralization, and digitalization.
In the second half of our discussion, Meier steps back to outline some core concepts.
The first is why solar and storage go so well together, and how they are different than storage alone. When you have a storage asset on site, it isn’t generating electrons, but is taking them from the grid when they are abundant, cheaper or cleaner, or some combination of the three. In many jurisdictions, utilities will charge you less for the electrons, or even pay you to take them. A small utility might save on transmission charges or get local distribution relief, reducing their overall costs. As an example, a customer in Maine had a remote population center that had turned into a daytime tourist destination, and was seeing very high peak electricity usage compared to nighttime use. Instead of the very expensive proposition of increasing the capacity of the wires leading to the remote site, it made fiscal sense to put storage assets there instead.
With solar plus storage, however, you are generating new electrons on site, and adding storage can make sense to maximize usefulness of them. Obviously it provides the ability to shift the time of day for use of the electrons, but you can also increase the size of the solar without having to increase your grid connection capacity. For example, a commercial facility might be able to put in a megawatt (MW) of solar without storage, as that will play well with the size of their connection when they feed electrons back to the grid. With storage, they could make the solar asset 2 MW, have close to 100% of their electrons coming from the solar assets, smooth delivery of energy to operations, and avoid grid connection upgrades.
Meier points out that there are many solar developers who will throw a battery into the mix, but that if they aren’t providing software that optimizes its use, it’s not really helping. Caveat emptor, as always.
As the first half recounted, Convergent enters into long-term relationships with its customers, thinking of them as partners. As an example, Meier cites a current solar plus storage co-op customer in the PJM catchment area where they are just completing the first project, and are already developing three more for them. Sales cycles are typically slow, as utilities and co-ops are not fast moving organizations, and as the regulatory and fiscal structures can vary so much between clients. It makes a great deal of sense to expand the footprint with a current client, as several barriers have already been overcome.
Convergent isn’t facing the same headwinds from the owner-tenant conflict, even though many of their customers lease their facilities and land for the solar. Due to the nature of large consumers with higher equipment capital costs, they are on longer lease cycles, so it’s more worth their while to invest in assets like solar and storage.
Meier’s history includes working with demand response and efficiency organizations, and, triggered by our brief discussion on Carbon Lighthouse, whose CEO Brendan Millstein I spoke to earlier this year she observed that it was always difficult to make a sale due to the challenges in committing to results. Further, customers typically didn’t want to cede control of their facilities, preferring to have their staff have hands on the controls, leading to significant challenges in getting demand response actions managed, as onsite staff typically had no idea who was calling them, why, or any incentives to comply. The difference for Convergent is that the results are baked in, and Convergent is not messing with operations, in fact is often optimizing operations instead.
Meier draws out three challenges in the space. The first is the patchwork of regulatory structures across the federal, state, and municipal levels. Every state has its own regulatory body and the choices it made, often decades earlier, about how to manage them. Even where a local regulatory structure values capacity, it values it in different ways and at different levels, so neighboring customers may require different commercial terms, or one might not be able to use storage at all.
The second is that along with the geographical uncertainty, there’s time uncertainty. Regulatory structures have inertia, but can change substantially, and lobbyists for various special interest groups are working to their own advantage. This inserts risk into deals that Convergent has to identify with its client and share.
The third is that there is a narrative that’s used, in which new technologies all want incentives, and want frameworks changed just for their benefits. What’s actually true is that the regulatory structures of 20-40 years ago, when the grid was much simpler and less intelligent, need to be adapted to make them level playing fields for all technologies. This is something Jesse Jenkins of Princeton focused on in his assessment of how it would assist the US nuclear fleet to bridge to retirement to allow them to bid on the day ahead reserves market, reducing reliance on coal and gas, reducing CO2 emissions, and reducing curtailment of wind and solar. The regulatory structures that constrain nuclear to purely baseload, an increasingly obsolete concept in our flexibility-oriented electrical grids, also harm wind and solar. The request isn’t for subsidies, but to allow the value that new technologies bring to markets to be monetized.
There are similar challenges globally in financing pumped hydro storage, a technology I’m close to and have looked at in North America, Europe, and central eastern Africa. As I’ve pointed out, pumped hydro constitutes 160 of the 170 GW of operating grid storage, and 60 of the perhaps 65 GW of storage in construction today. However, those are grid-scale strategic assets, and Meier’s background and Convergent’s focus is in distributed assets, a burgeoning space where there are different value propositions, although they can be aggregated to deliver larger grid-scale value, as she points out, and I similarly asserted for V2G demand management opportunities earlier this year.
What Convergent thinks makes sense in terms of regulatory frameworks are to value capacity, to provide regulatory certainty, and to be transparent with load. Not all US jurisdictions value capacity, so a capacity market or capacity charge is foundational. It is obvious that a kilowatt-hour (kWh) at 2 AM is not as valuable as a kWh at 2 PM, yet many monopoly utilities don’t structure markets to value time.
While individual consumers are only somewhat influenced by time-of-use billing, for example, commercial customers are run off of spreadsheets, and spend much more time in what Kahneman and Tversky called system 2 thinking, or thinking slow. This means that Convergent is able to have good business discussions with the organizations that they deal with, and find deals that deliver mutual business value.
In terms of pockets of the future, Meier points to Massachusetts and New York state. Massachusetts has been an innovator in regulatory and market structures that favor storage, solar and solar+storage, and neighboring states are looking at the model they’ve implemented. I was aware of Massachusetts as an innovator in another, unrelated market, a high-energy consumption agricultural sector, but as a mea culpa, in the discussion I conflated those two areas of innovation with Delaware’s long-standing leadership in corporate structures and governance. (Apologies to all Delawareans and corporate governance wonks like me who listen to the podcast and spot my error.) New York state is valuing capacity, but doing it differently, and has had different circumstances, especially with its Indian Point nuclear power station closing permanently in April of 2021, its long-standing importing of electricity from Quebec and the NIMBYism that is making new transmission and renewables projects challenging.
By contrast, PJM values capacity in the 13 states it covers, but not at the same level as Massachusetts and New York. And some utilities such as Duke don’t even expose their loads, never mind value capacity, keeping markets opaque, and making storage a very hard sale.
Meier was new to her Chief Strategist role in Convergent when we spoke, only two months in. She sees her top priority as maintaining focus in a time of tremendous change and growth. The mid-market area that Convergent plays in with storage and solar+storage projects is expected to see 40-60% compounded annual growth rates in the coming years. It’s going to be hard to fail in this space because demand will be so high. Convergent is very well positioned, with a track record of delivering, reference-able clients, and proprietary software to optimize storage fiscal return. They are good at building mid-market projects for commercial clients and coops, and don’t want to become distracted. They are lucky, as there is a lot of growth in their core areas, and have no need to hunt growth in adjacent markets. They are owned by a private equity firm that wants to deploy capital, so have a lot of fiscal capacity to grow as demand grows.
As always in these discussions, I like to provide the people I speak with an opportunity to speak directly to our global audience, provide them with a message of value. Meier’s message is that the climate crisis becomes increasingly obvious, rapid and terrifying, it requires us to rethink everything we do from energy to agriculture to our investments and personal decisions. If she were queen of the world, she’d wave her magic wand and ensure that the transformation would include more policies to reduce the impact on the global poor. She isn’t queen and has no wand, but is proud that what Convergent is doing matters in context of climate action.
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