[ad_1]
Within the latest episode of Resilience, Pillsbury’s Shellka Arora-Cox and visitor Adam Hise, Managing Director of Storage Threat Options for Ascend Analytics, dive deep into the evolving world of battery storage, market volatility, and the way corporations are navigating threat in a dynamic power panorama.
(Editor’s notice: The next transcript has been edited for readability.)
Shellka Arora-Cox: Welcome to Resilience, the vodcast the place we discover the challenges and alternatives within the power sector. I’m your host, Shellka Arora-Cox, companion at Pillsbury Winthrop Shaw Pittman. Becoming a member of me right now is Adam Hise, Managing Director of Storage Threat Options at Ascend Analytics. As we speak, Adam and I might be plugging into the world of battery storage tasks, discussing income streams, volatility, and the dangers that maintain the trade—and maybe even Adam—on their toes.
Adam, welcome.
Adam Hise: Thanks for having me.
Arora-Cox: Earlier than we dive into battery storage tasks, might you inform us a bit about what sparked your curiosity in power analytics and the way you got here to imagine your present position at Ascend?
Hise: Reflecting on how I ended up on this discipline, I’ll admit it’s tempting to suppose it was all by design, however truthfully, that’s hardly ever been the case. I’ve been lucky to comply with what felt proper at numerous moments in my profession, which has led me to a place the place I really discover which means in my work day by day.
I grew up in a rural space and spent a number of time open air. That naturally led to an curiosity in understanding nature higher—how we are able to take from it and provides again to it. This led me to pursue research in organic techniques engineering, which targeted on utilizing nature’s processes to create engineered options for our issues. From there, I transitioned into the techno-economics of unpolluted power tasks.
After that, I labored for a wind developer in Colorado, particularly specializing in offtake options—long-term contracts to assist de-risk wind tasks. This work sparked my curiosity in battery storage. By round 2016 – 2017, I noticed that the identical challenges confronted by wind and photo voltaic find offtake options to draw low-cost capital would ultimately have an effect on the expansion of power storage. On the time, there have been different limitations to the expansion of storage, so it didn’t appear to be probably the most urgent challenge. However I felt intuitively that it will grow to be a key problem. That led me to Ascend Analytics. I used to be impressed by their capability to forecast energy market traits, perceive how batteries might take part, and probabilistically assess the long run worth of those tasks. Given their capabilities and established belief within the trade, I felt that Ascend was in prime place to deal with this downside. That was 5 years in the past, and I’ve been engaged on this ever since. It’s been wonderful to see how a lot we’ve completed within the final yr, shifting from idea to actuality. As we speak, we now have practically 1.5 gigawatt-hours of storage both working or beneath development in Texas, supported by our options, that are serving to to safe long-term income contracts. I’m excited in regards to the alternatives that lie forward within the subsequent few years.
Arora-Cox: That’s fascinating, and it appears your instinct actually served you nicely, main you into one of the unstable and dynamic markets right now. Talking of volatility, battery storage tasks thrive—or fail—primarily based on how nicely they handle market dangers. May you share with our listeners how Ascend helps shoppers navigate these swings within the power markets?
Hise: You’re completely proper. The volatility in these energy markets is what makes storage such a worthwhile answer. With out that volatility, a battery wouldn’t present a lot worth. Nonetheless, the character of that volatility varies considerably from market to market and is essentially tied to market dynamics. For instance, in markets like Texas or California, the place renewables make up a good portion of the availability combine, climate performs a serious position in driving volatility. In distinction, in markets which are much less superior of their power transition—similar to within the Northeast, together with ISO New England, New York, or PJM—the connection between climate and worth volatility isn’t as dramatic. These markets are extra influenced by pure gasoline, for instance.
At Ascend, what we do is forecast and underwrite the danger primarily based on an understanding of how these elementary drivers—like climate patterns, renewables penetration and pure gasoline availability—impression volatility. We take a longer-term view on the worth of battery storage, contemplating how volatility will evolve as market situations change.
Our work is made simpler by the interconnection queue, which offers a sturdy understanding of near-term shifts in provide and demand in these markets. Whereas the method could be slow-moving, it permits us to foretell with confidence how extra renewables will enter the market and the way coal and pure gasoline plant retirements will form the long run provide panorama. We are able to have a look at historic traits and observe that as renewable penetration will increase, so does worth volatility. This enables us to anticipate when sure dynamics will play out in particular markets.
Arora-Cox: Proper, and that interconnection queue is actually an understatement of how slow-moving it’s!
Hise: Precisely. It’s a needed final result of the stakeholder enter processes. If this had been a extra top-down planning method, issues would transfer sooner, however there are all the time trade-offs.
The purpose is, we are able to confidently predict that within the subsequent two to 3 years, extra renewables will enter markets which have historically had decrease ranges of renewable technology. Based mostly on techno-economics and regulatory pressures, we are able to additionally estimate the retirement timelines for coal and pure gasoline vegetation in these identical markets. By taking a look at historic traits, we observe that as intermittent renewables more and more provide energy in a market, power worth volatility grows in tandem with the extent of renewable penetration. We are able to draw on this historic precedent throughout numerous markets which have already crossed these thresholds, reaching excessive ranges of renewable penetration and experiencing increased ranges of volatility. This enables us to anticipate when related dynamics will play out in different markets, like ISO New England or New York.
Arora-Cox: You touched on threat evaluation and a complete host of dangers. If we take an instance of a selected threat, let’s take lithium-ion costs—over the previous few years, costs have dropped considerably, however there’s one other threat rising—tariffs. Tariffs on lithium within the non-EV sector are scheduled to rise from 7% to 25% in 2026. This is only one instance of the numerous dangers available in the market, displaying how quickly issues can change.
May you focus on how Ascend approaches threat evaluation when working with builders and shoppers? How do you mannequin the unpredictable, which is not any straightforward activity?
Hise: There are two important classes: the valuation facet, which focuses on assessing the long run worth of an asset, and the operational facet, which addresses the danger of how the undertaking participates available in the market.
On the valuation facet, there are three key parts to contemplate, particularly for battery tasks. First is the market worth: Does the market sign that this asset is beneficial? This consists of capability costs, ancillary service costs and worth volatility. Second is the way you bid the asset primarily based on these costs, predicting real-time worth modifications and leveraging the battery’s state of cost effectively to seize worth. Lastly, there’s technical efficiency threat—in case your battery is offline throughout a crucial worth spike, like in August when a night worth surge might account for a 3rd of your yearly income, you can miss out on vital income, irrespective of how nicely you predicted the worth.
We’ve targeted on managing market and bidding efficiency threat, as there are answers for technical efficiency dangers, similar to liquidated damages from tools suppliers and O&M service suppliers. Although not excellent, they’re enough for many financing pursuits. We’re additionally creating predictive upkeep options with analytics corporations to make sure availability throughout high-value durations. Our main focus is on estimating the worth these tasks will generate over time and implementing efficient dispatch methods to appreciate that worth.
Arora-Cox: And the way precisely do you do this?
Hise: To foretell the unpredictable, we predict by way of envelopes of potential outcomes. We analyze historic traits—like how low pure gasoline costs and delicate climate led to low volatility or how excessive gasoline costs mixed with excessive climate created excessive income alternatives for batteries. We then extrapolate these situations to future markets. As I discussed earlier, volatility is formed by market make-up. As an illustration, Texas in 2018 had completely different dynamics in comparison with 2024, with way more photo voltaic, wind and battery storage, and fewer thermal backup. Trying forward, as grids like Texas in 2025 or NYISO/New England in 2030 evolve with extra variable renewables, increased load and fewer thermal belongings, the potential for very completely different outcomes will increase.
Our market intelligence crew offers anticipated income streams primarily based on thermal retirements, renewable build-out, load development and gas costs. We have interaction with insurers by displaying that there’s a 99% likelihood of incomes greater than 50% of anticipated income, with a 1% probability of incomes over 250% of anticipated income. This probabilistic method accounts for techno-economic dangers, similar to faster-than-expected declines in battery costs or new applied sciences, like fusion, that would drastically reshape the market and scale back volatility. We intention to account for these shifts in market situations, guaranteeing that we anticipate future modifications available in the market make-up and the way they may have an effect on undertaking trajectories.
Arora-Cox: You’ve touched on a lot of components, and I’d prefer to comply with up on a number of. First, predicting the unpredictable. Do you ever get stunned by what the info reveals? It sounds such as you take the numbers from one market, extrapolate them, and predict outcomes beneath completely different eventualities. However have there been cases the place the info stunned you?
Hise: Completely. I feel one purpose we encounter fewer surprises than one may count on is because of the multifaceted and finally interrelated ways in which Ascend participates available in the market. We’re not simply outdoors observers or forecasters; we’re actively dispatching a number of gigawatts of belongings throughout a number of ISOs utilizing our sensible bidder optimization platform. This implies we’re available in the market day by day, forecasting situations from three days prematurely to even longer time horizons—whether or not it’s month-to-month, yearly and even 5 to 30 years.
This integration between a long-term, elementary market view and the short-term market dynamics at play permits us to raised perceive how belongings are capturing worth on an ongoing foundation. It creates a framework the place we are able to see how shifts in ancillary service merchandise and market situations impression income technology. For instance, once we see worth spikes in Texas that dramatically exceed our forecasts, they’re much less shocking than they could be if we had been strictly market observers. Our energetic participation and understanding of the dynamic methods these belongings have interaction with the market allows us to reply successfully to modifications, quite than merely counting on static predictions tied to a single income stream.
Arora-Cox: That’s a terrific segue into the subsequent subject I needed to discover, which is the income streams. May you discuss a bit in regards to the present income streams in a number of the key markets, like ERCOT? What income streams do you see on the horizon? Are they evolving, and do you anticipate any new income streams rising within the close to future?
Hise: My basic perspective is that the income alternative for batteries, given their dynamic and versatile participation available in the market, is much less about how the general pie will develop or shrink in a given yr and extra about the way it will get redistributed. From a storage perspective, that is notably compelling as a result of we’re not restricted to simply participating in power arbitrage or specializing in a single ancillary service. As new ancillary service merchandise are launched onto the market, the result hasn’t been a dramatic discount in alternative. As a substitute, it’s about adapting our method to capturing the brand new sources of worth, because the pie has merely been cut up in a different way.
When folks take into consideration storage, power arbitrage—shopping for low and promoting excessive—is normally the very first thing that involves thoughts, whether or not that’s within the day-ahead or real-time power markets. Traditionally, as renewable penetration will increase, real-time volatility tends to rise as nicely, creating extra alternatives for storage. Nonetheless, this relationship isn’t one-to-one. As an illustration, including another unit of renewables doesn’t robotically create another unit of worth for storage. The truth is, the expansion of storage capability itself can mitigate the volatility created by the extra renewable capability. For instance, including 10 megawatts of storage might counteract the volatility generated by new renewable technology.
We’re forecasting that, over time, in markets like Texas, the place power costs have been supernormal, this has incentivized the deployment of extra storage. However as extra storage comes on-line, it would begin to fight the expansion of volatility that may have been generated by further renewable technology. As such, we take a considerably extra conservative view in comparison with others forecasting future worth. We’re lifelike in recognizing that the worth of storage is not going to proceed to extend indefinitely, because the enlargement of storage itself will start to counteract the volatility and market dynamics that originally created these alternatives.
This extra cautious method is a part of the explanation we’ve constructed sturdy relationships with our insurance coverage and reinsurance companions. They belief our view of the market as a result of we now have a sensible outlook on the eventual stabilization and potential erosion in worth, quite than assuming that the worth will develop exponentially with out restrict.
Arora-Cox: We’ve mentioned income streams, so I’d prefer to shift focus a bit. May you elaborate on the merchandise that Ascend affords to handle income threat, notably in relation to service provider tasks?
Hise: Definitely. After we take into consideration future outcomes for belongings in particular places and markets over time, we intention to grasp each the anticipated set of situations that may yield anticipated revenues for these tasks and the vary of potential eventualities round that expectation. We take a probabilistic method to forecasting how completely different market situations—similar to climate, supply-demand dynamics and gas costs—can change revenues, as they alter the volatility inside the market. For battery, we explicitly have a look at the revenues that may be captured from ancillary service markets and from the power worth volatility that exists. We then work with insurance coverage and reinsurance corporations, who’ve spent the previous 4 to 5 years understanding our capabilities, conducting diligent evaluations, and back-testing how our forecasts have carried out. In consequence, they’re able to write income insurance coverage merchandise that assist handle threat for asset homeowners, banks or tax fairness traders in these tasks. For instance, when market situations—similar to low gasoline costs, temperate climate or modifications within the regulatory paradigm—trigger revenues to be 50% lower than anticipated, we are able to pay an insurance coverage firm to imagine that threat. This offers asset homeowners the pliability to safe the minimal viable money circulate they want from a undertaking to realize an inexpensive return. Whereas they nonetheless hope for higher outcomes, this income insurance coverage ensures a assured minimal, which permits them to safe the environment friendly debt and tax credit score monetization they want with out sacrificing all the upside potential, which is commonly the first purpose for coming into this sector within the first place.
Arora-Cox: There’s been a number of discuss whether or not a bubble is forming in ERCOT, so it’s attention-grabbing to listen to your extra conservative view available on the market and the idea of self-cannibalization that the market may finally expertise. You additionally talked about optimization, which is one thing I’m eager to listen to extra about. In ERCOT, the place costs can spike as much as $5,000 per megawatt-hour beneath tight situations, folks have been chasing that arbitrage and people excessive costs. How does Ascend information shoppers on income optimization, quite than merely specializing in arbitrage?
Hise: We’ve now efficiently gained the arrogance of our insuring companions by demonstrating a whole bunch of years of simulated efficiency utilizing machine learning-based algorithms. These algorithms implement methods which are created and iterated upon by people to forecast and guarantee dispatch efficiency shifting ahead. The insuring companions are actually taking up the danger that our sensible bidder dispatch platform will carry out as successfully because the a whole bunch of years of simulated backcast knowledge recommend. It is a extra easy problem than underwriting the long run efficiency of a human dealer, which entails efficacy threat. This isn’t to recommend that an algorithm will all the time outperform a human, however quite that, on common, it would.
Arora-Cox: That’s attention-grabbing. This brings to thoughts the subject of synthetic intelligence, which is probably barely past the scope of right now’s dialogue. Nonetheless, concerning know-how threat, how does Ascend incorporate this into its assessments, notably to make sure that the know-how used right now doesn’t grow to be out of date tomorrow? That is particularly necessary when evaluating tasks and valuations in rising markets, the place battery storage, regardless of years of expertise, stays an evolving know-how. May you share some insights on the way you method this problem?
Hise: The issue assertion isn’t about choosing a know-how for its 20-year lifespan; it’s about investing resolution right now that ensures a minimal return. As an illustration, in Texas, constructing a two-hour battery could also be cost-optimal now, however by preserving area for potential enlargement, I can later improve capability to 4 hours if market necessities change. This method incorporates hedging, whether or not by means of bodily choices or monetary options, to adapt to market shifts.
As for know-how, it’s nearly sure that the techniques we deploy right now might be outdated inside 10 years. The true problem is knowing the trajectory of technological evolution and the way it impacts the market. For instance, if fusion know-how turns into commercialized in 2028, we have to think about the way it might change power provide dynamics. The issue isn’t simply the falling price of lithium batteries; there’s a lag in how these shifts have an effect on the availability stack and market volatility. We additionally have to consider modifications in techno-economics, regulatory situations and gas costs. Studying curves for storage applied sciences might be 20% off, which means the price of deploying extra storage might be considerably decrease than anticipated. If long-duration storage options, like multi-day or seasonal storage, emerge from labs and enter the grid, it might change the worth of your one-hour period undertaking. Nonetheless, this additionally presents alternatives to reinforce present tasks with longer-duration options, sustaining their worth.
On the monetary facet, we’re seeing extra integration between short-term optimization and long-term hedging. Utilizing algorithmic dispatch methods permits asset homeowners to maximise worth seize whereas leveraging market alternatives, similar to volatility publicity, by means of monetary contracts. This mixture allows payback in only a few years quite than relying on a 20-year outlook.
Arora-Cox: You make it sound comparatively easy—contemplating each the speedy time period and future eventualities. Trying into your crystal ball, what traits do you see shaping the market? Are there any rising analytic traits, shifts in market habits, or components we haven’t but thought of that would considerably impression battery storage tasks and markets?
Hise: You talked about AI knowledge facilities, and this raises an necessary query concerning the extent to which load will materialize in these markets, notably by means of new knowledge heart deployments, reshoring of producing, and the growing electrification of our financial system. There may be appreciable uncertainty round this. In the end, there’s a vital rigidity between all of the technology—particularly renewable technology—making an attempt to enter aggressive energy markets within the U.S. and the load, as they’re typically competing for a similar assets, together with tools and the eye of interconnecting utilities to facilitate connections. It is a dynamic we’re carefully monitoring.
We’re additionally inspecting the potential impacts if ERCOT brings on-line all the info facilities that the hyperscalers plan to deploy. This might create shortage situations, affect supply-demand mismatches and drive market publicity, with substantial implications for battery worth. It’s a difficult dynamic to forecast right now.
On the know-how entrance, there are quite a few improvements, together with numerous chemistries for storage, each lithium and non-lithium, together with multi-day options.
From an analytics perspective, we’re starting to discover the position of distributed power assets (DERs) and digital energy vegetation (VPPs), which maintain nice potential, notably given the aforementioned challenges round interconnecting bigger tasks. This shift might recalibrate the worth of smaller tasks, which might grow to be a compelling alternative for financiers if all the provide chain reorients its considering. For financiers, this shift might assist eradicate arbitrary minimal verify measurement necessities and permit extra environment friendly, skilled financiers to step into the area and scale the chance successfully.
Arora-Cox: It’s about making these belongings extra engaging and driving capital funding. That’s very insightful. As we’re close to the top of our dialog, I do know you’re additionally deeply captivated with studying and writing on how we are able to collectively form a world that our youngsters will thrive in. With that in thoughts, and reflecting on right now’s dialogue, do you’ve got any remaining ideas or phrases of knowledge you’d prefer to share with our listeners?
Hise: I’m motivated by the concept every of us has one thing uniquely worthwhile to contribute to the world. In my journey, I’ve been humbled by the chance to pursue one thing that felt genuine and intuitive to me, and to place one thing into the world that has the potential to profit extra folks than simply myself. Whereas the journey has been personally fulfilling, I consider there’s something inherently good within the work we’re doing—getting extra batteries, wind and photo voltaic constructed.
I’m keen to grasp how the expansion of renewables can’t solely present the chance for extra folks to contribute to the world, but in addition encourage extra involvement in increasing clear power infrastructure. My understanding of what it takes to deliver clear power to India will all the time be completely different from the expertise of somebody dwelling in that atmosphere. Empowering people to be taught, develop and contribute by bringing clear power to their communities will assist establish the boundaries and prospects for additional enlargement.
I feel there’s a sure hubris in assuming that the folks positioned to deliver options into the world right now are all the time the most effective suited to take action. Decentralizing the problem-solving course of and bringing in additional various views is, for my part, probably the most promising path towards a resilient future. Traditionally, the pursuit of dominating and conquering nature has led to an absence of range, which undermines resilience. In distinction, getting extra folks concerned and inspiring creativity from various minds, all empowered by the clear power options we’re engaged on, is the best likelihood path towards a resilient and exquisite future for our youngsters.
Arora-Cox: Sure, I fully agree. I don’t suppose we are able to afford to be complacent. As you talked about, it’s not sufficient to imagine that each one the challenges will merely resolve themselves. Coming from India, I can let you know firsthand that what we do within the clear power sector has a profound impression. It’s not nearly producing clear power; it straight influences folks’s entry to schooling and touches practically each side of society. I’m grateful for that and for the chance to be a part of this work. Thanks a lot in your time right now.
Hise: Thanks.
Arora-Cox: That’s it for right now. Tune in subsequent time for extra Resilience.
PREVIOUS EPISODES
Resilience: Remodeling the Vitality Sector – AI and the Vitality Transition | Episode 1 (10.7.24)
Resilience: Remodeling the Vitality Sector – The Photo voltaic M&A Panorama | Episode 2 (10.23.24)
[ad_2]