Convergent Energy + Power
An interview with Johannes Rittershausen, CEO at Convergent Energy + Power
How did you become interested in cleantech? What led you to start an energy storage company?
I started my career at Southern California Edison, which is a progressive utility on these cleantech topics. I started working more and more with new technologies—I was on the plug-in vehicles team and the renewable procurement team, and then I ended up in the advanced technologies team, specializing in energy storage. I really came at it from a utility perspective--how you incorporate new technologies into the legacy grid. When the Convergent opportunity came along in 2011, I thought “Okay let’s give this is a shot.” In my mind, the question was not “Is energy storage going to be a thing?” Even at the time, I hadn’t met anybody who didn’t believe that. The question was when.
How exactly did the Convergent opportunity come about in 2011?
At the time, California was considering mandates to force the investor owned utilities to purchase energy storage. We at the utility were trying to get our arms around what that meant, but we realized there wasn’t good information. We ran a year-long strategic project looking at all the technologies, doing interviews with the whole sector. We decided to publish it as a paper, which I was a lead author on. Next thing you know, I was invited to speak at conferences and all the things. A group of investors approached me at one of the conferences and said they had some money and that they wanted to back a company that would be a third party developer of energy storage assets. So when they asked me, I thought “Did you read the paper?” It was funny, because the conclusion of the paper was the technology is too expensive for the value. We talked, and they advised that you want to be 2 years too early, not 2 year too late. Certainly 2011 was a couple years too early. That timing issue ended up being in our favor, because we had a chance to get our act together before the market started taking off. I was one of the first two employees of the company, which is partly why I ended up as CEO.
How would you describe what Convergent does to a lay-person?
For context, the electricity grid is an incredibly inefficient system. It’s built for the peak hour of the peak year of the peak decade. The infrastructure is sized that way because traditionally there hasn’t been storage outside of some pumped hydro, which is still de minimus. Storage allows you to more selectively use the slack capacity in the system. If you do it right, you can reduce costs for customers, have a profitable project, and create broader benefits for society—all while avoiding emission based generation. You rarely get that in life—where everybody wins if you do it right. This is possible because the value we’re creating comes from reducing inefficiency. At Convergent, we have two primary types of customers: large industrial businesses and utilities. Industrial customers are charged based on peak period consumption, and utilities want to be more resilient to an evolving electricity grid.
Which energy storage technologies does Convergent specialize in?
We are a technology-neutral developer. That means we see the technology space as a toolkit. We have flywheels in our portfolio, and we have several different types of lithium-ion in our portfolio. We have lead acid batteries, and we’re doing some work with flow batteries^. We are the largest owner-operator of grid flywheels in the world. It’s a bit of de-facto title, because there are not that many flywheels out there. That said, we do have a lot of expertise in that technology—it’s a short duration^ technology. We also have 1,2,4, and 6 hour batteries in our portfolio, so we’re comfortable at all different durations. That’s a long-winded way of saying it’s “horses for courses” in the technology space.
Do you pair your storage systems with renewables like wind and solar?
We traditionally focused on stand-alone storage. A few years ago we started doing more integration, though our projects tend to be led by the storage side of things. For example, we have a few solar plus storage projects we’re bringing online. We are looking at a bunch of different integration projects right now but we still focus primarily on the storage. Our sweet spot is $2-$20 million. When you get larger than that, typically you get to very large developers where the entrepreneurial flexibility that we bring to the table is less important than “I have a huge battleship and can plow straight ahead and get something done at a super low cost.” We’re also not doing homes and small businesses. We’re not doing 100 kW systems, because those are much more retail based products, like a residential solar model.
Convergent is the largest independent operator of energy storage in North America--Can you unpack that? Who are the other major players in the storage space?
There are large scale developers for whom storage a tiny part of their overall portfolio including NextEra and AES. Of the independent developers (i.e. pure play energy storage), Convergent is the largest.
How would you characterize the current state of the energy storage market?
We’re at the very beginning of it. It says something that we have a little over 70 Megawatts and we’re the largest independent operator of energy storage in North America right now. I mean that’s a tiny amount of capacity in the broader grid, so we’re definitely at the beginning. There are a lot of answers to why we’re just at the beginning. We’re projecting 13x growth in global storage over the next decade. Another study I like to reference is one done by Goldman Sachs on the total addressable market size. They’re looking at $100-150B in the U.S. alone as the addressable market. Are the opportunities there? Yes. Is the value on the grid there? Yes. So now it’s up to the regulatory space and the developer space to create the value. Another point is that the technology has matured quite a bit. When we started Convergent, the cost of an integrated lithium-ion battery was somewhere between $1,500-$2,000 / kWh. Now we are routinely building below $500 / kWh. The pricing on these systems has gone down drastically and it will continue to fall. If you think about economics, the value curve continues to go up and the cost curve is coming down. We’ve already hit that intersection point in many applications where it makes sense to use storage.
You touched on cost as a barrier to energy storage, but we also discussed how costs have fallen dramatically. I still can’t quite get my head around why we don’t have more operating energy storage systems out there. What do you think is responsible for the slower uptake of energy storage?
I think it comes down to something that’s a little more philosophical. Storage projects are solutions to specific problems. Almost every storage project is a bit of a sculpture. It’s integrated into a customer site or a particular utility context. It’s not necessarily custom built, but it’s built for a tailored purpose. It’s not as cookie cutter as solar and wind where you contract for the value, order the system from one of many similar vendors, do your permitting, and you put it up—though I realize I’m over-simplifying a more complex process. For storage, what you’re doing is defining a customer problem, you’re choosing from a bucket of possible technologies, and you’re working to meet the customer’s needs. You could have neighbors with very different needs, which end up having very different projects. That necessary customization and complexity, I think, is what has held the storage industry back. And I know it may seem obvious that I would say this because we are one of them, but there is a lack of professional developers who can jump in and design the solutions to meet customers’ needs. Customers can’t just go to the market and buy something off the shelf—that’s not how the industry works. And the financiers who typically like to support this industry don’t have the expertise. It’s also not a retail space. You can’t cold call people and sell them T1000s. There are a lot of other costs and regulatory issues, but those are slowly being addressed.
What are your thoughts on the rumblings of stand-alone storage becoming ITC eligible^?
As you hinted, some batteries paired with an ITC qualifying asset already receive the credit; solar plus storage assets mostly qualify, for example. It would make financing more complicated, but it would improve the value proposition because we could source lower cost tax equity. I don’t know if I 100% believe it will happen. People have been talking about the ITC encompassing storage for about a decade now, and it hasn’t happened. Plus the state of our politics doesn’t lend itself to this kind of bold action.
How is the Convergent team organized?
We have three teams: business development, project development, and asset management. Business development puts the projects together commercially. Project development builds the projects. The asset management team manages the projects. In storage, if you don’t press the button at the right time, the storage system is a paperweight (unlike wind or solar where they’re creating value based on whether or not the sun in shining or the wind is blowing). There’s a lot of collaboration across these three teams. We’ve recently been on quite a hiring spree; we doubled the size of those three teams across the last 9 months. We now have 35 people, but you really need to check the numbers monthly now.
What made you choose New York for Convergent’s main office?
We ended up in New York because we offer fully-financed solutions. Our pitch to the industry is you don’t have to own or operate the systems yourself; let us take that risk off your plate. We’re going to be responsible for creating the value and then you’re going to contract for it or share it. To do that requires having a lot of money behind you. If you want a lot of money, New York is the place to be. Our initial angel investors were here as well.
Is there a piece of cleantech news over the last few months that has really excited you?
I wouldn’t reference a specific article, but the general trend of articles around the pricing of renewable energy. Even renewable energy plus storage capacity—we saw 3.5 cent PPAs for solar plus storage in the Southwest. We’re at the beginning of a revolution where renewable sources of electricity combined with storage and other load management systems is the way we are providing energy for the future. I don’t care what politics are in play or whether or not you have an ITC. Once the economics work on their own merit, that’s an unstoppable freight train.
Notes from Watts Up:
^ Flywheel, lead-acid, flow, lithium-ion: See here for an overview on different types of storage technologies.
^ ITC eligible: The ITC is a 30 percent tax credit for solar systems. The credit is a dollar-for-dollar decrease in the income taxes that a person, company, or utility would otherwise pay the federal government. The 30% is calculated on what is “ITC eligible” in the solar system. It’s complicated, but basically some costs such as most roofing and financing fees are ineligible.
^ Duration: the amount of time a storage device can discharge consecutively without recharging.