The DOE picked a winner in the now bankrupted Beacon Power flywheel energy storage, says its new owner, Rockland Capital.
Changes in electric power regulation can have a disruptive effect, unleashing billion-dollar markets overnight. One example of such a new market is the one being created by the new FERC Order 755, about to take effect in the United States in October of this year.
“The price of renewable energy technologies will continue to drop, while the price of natural gas will rise,” said commission member John Norris of the U.S. Federal Energy Regulatory Commission (FERC) in telling state regulators that the FERC goal is to aid states in staying the course on renewable energy, for even more than climate reasons.
The FERC rule is designed to enable much more solar and wind on the US grid by offering better compensation for providers of frequency regulation that provide the faster-ramping storage technologies needed to do that.
Gas plants currently provide most peaker power in most states, but they can only ramp up in the order of minutes. Currently, most of the ISOs give frequency regulation resources five minutes to respond.
The grid now needs frequency regulation that can ramp up in seconds.
One company that trail-blazed exactly the kind of faster storage that the new FERC rule incentivizes had spent $200m designing, patenting and building a fast-responding 20 MW capacity mechanical balancing system that can ramp up in seconds, based on familiar flywheel technology. But it’s bankrupt.
Ahead of its time
Bankruptcies are usually an indication that a company is offering a product that is behind the times: something the market no longer needs. But in the case of Beacon Power’s bankruptcy the opposite has thought to ocurred largely because it was ahead of its time, but only by twelve months.
For those of you who may not know much about Beacon Power it had been the recipient of $43m from the U.S. Department of Energy (DOE) Section 1705 loan guarantee programme for the world’s first ever flywheel energy storage project it built in Stephentown, New York.
SmartGridUpdate spoke to Scott Harlan, who heads up Rockland Capital, the private equity firm that bought the company after it went bankrupt last October, because of the game-changing nature of its disruptive technology.
“Beacon can respond in five seconds that a regular resource like a gas combined cycle would take five minutes to provide” he told SmartGridUpdate. “So it’s a step change improvement in the speed of the response.”
The company’s bankruptcy was directly caused by the company just needing “maybe ten million dollars to cover till the new FERC pricing kicks in.”
Normally for a company that has been recognized on that scale with the US government backing a loan guarantee, finding that additional funding would not be a problem, but for Beacon, in the political climate following Solyndra’s bankruptcy, funding those extra months of the lower FERC payments became impossible.
Beacon had been the second DOE loan guarantee recipient after Solyndra.
Solyndra was being milked by the Republican congress as a poster child for a conviction that clean energy “doesn’t work” so bankruptcies are inevitable, and DOE investment a waste of money.
That made Beacon a natural illustration as the next chapter in the yarn being spun by the opposition to Obama administration clean energy policies.
“In addition to Solyndra, Beacon Power and First Wind Holdings offer examples of other instances in which the federal government backed risky and financially unstable firms,” Republican congressman Paul Ryan was telling financial reporters in September, “using taxpayer money to fund an ideologically driven pursuit of unproven energy sources.”
As a member of the party that had been pouring over the minutiae of the loan guarantee program for months as part of a Solyndra witchhunt, it’s hardly likely that Ryan was unaware that the upcoming FERC rule ensured profitability for the company he described as “financially unstable.”
Within weeks, FERC issued its more fair "pay per performance" 755 rule, to take effect in October of 2012. But at the time, rattled by testifying before the first onslaught of Solyndra hearings, the DOE told Former Beacon CEO Bill Capp that it could no longer make the next scheduled funds disbursements.
By the end of October, Beacon was bankrupted. Rockland bought the company at a “very good price” and assumed most of the DOE debt and injected the “few million” needed to complete the Stephentown project, and the “ten million or so” to keep the company going for 12 months.
And now, in two months, FERC Order 755 kicks in ”when we’ll be able to not only service the debt, but also give us a return on the investment that we made.”
Public opinion manipulated for political gain?
"Whether or not we would have survived without this series of events, I don't know,” Capp told AOL Energy last month. “But it certainly had a profound impact.”
"Through all the things that Solyndra stimulated, the Congressional reaction, the media reaction, the financial market reaction - I don't know but I assume that was part of the Department of Energy's decision to stop making loans to us."
“Things reported in the press can have a huge effect on your ability to raise money,” agrees Harlan. “The value of a publicly traded company can be very volatile. You’re at the mercy of public opinion - and relying on individual investors.”
Beacon was dependent on the ability of regular investors to keep faith in the benefit of the technology despite a very concerted political campaign to discredit the clean energy recipients of DOE funding.
It is different with a private equity company like theirs, Harlan says. “We make decisions based upon facts. We can make rational decisions, we are not at the mercy of public opinion like you are when you’re a public company traded on the stock exchange.”
An old tech gets a new use
Flywheels have been around a long time. Using flywheels as a buffer, constantly moving power on and off the grid for frequency regulation is what’s new.
The grid needs to be balanced on a second by second basis, explains Harlan. “Otherwise the frequency of the system deviates from 60.0 Hertz. So the operators are constantly trying to adjust the supply and match it up with the demand.”
“These flywheels can store energy as kinetic energy and convert the energy in the flywheel into electrical energy and inject it into the grid to increase the supply on the grid and if there's an oversupply they can suck electricity off of the grid and use it to spin the flywheel faster and store up energy for the next time they have to inject.”
Better than fossil energy sources
“These flywheels can change directions every 5 seconds, and go from injecting 20 MW to absorbing 20 MW. Even peaker plants can’t do that,” he points out. “They barely even start moving in five seconds."
It used to be that you got credit for whatever capacity you could provide within five minutes, Harlan explains. “But the signal is sent out every six seconds. The renewable grid of our future must respond in under six seconds."
Even batteries have limited cycle life: “If you’re going to jerk a battery around like that: discharge it one minute, then completely recharge it the next - you’re going to lose a lot of life on your battery, whereas a flywheel can go back and forth very quickly and endure.”
Rockland Capital, which retained 75 per cent of the original employees, now sells the Beacon Energy flywheel frequency regulation on a hourly basis into the New York system ISO market, and with the FERC pricing about to kick in, is actively looking to expand the flywheel technology nationwide.