Developing BESS - from greenfield to grid with Ravi Sharma (Director of Development - Energy Storage @ Deriva Energy)

Hello, everybody, and welcome back to Transmission. It's me, Quentin. And this week, we've got Ravi Sharma, director of development for energy storage at D'Areeva Energy. So for the energy transition to work, we're only just getting started with batteries. We need tens and tens of gigawatts in each region.

And so the job of the developer is a very important one, selecting sites, finding contractors, getting grid connections, all that stuff. And so in this conversation with Ravi, we talk about strategies for developing sites and choosing the right places and some of the regulatory changes and hurdles that are on the horizon. So I really enjoyed this conversation.

Ravi knows his stuff, and we go down a few rabbit holes.

If you like this, hit like, subscribe, and all the good buttons. It means we can increase our reach and do more awesome stuff for a bigger audience. And now let's jump in.

Hello, Ravi, and welcome to the podcast.

Yeah. Thanks for having me. Happy to be here.

So Dereva Energy, can you just tell our audience what is the company and what do you do?

Yeah. So, we've been around for about a year and a half, which doesn't sound like a lot, but we have a legacy behind us. So we were originally Duke Energy, which is one of the largest utilities in the US. So we were their IPP arm. So we developed commercial renewables across across the US, whereas they are regulated utility.

And so about you know, the the team's been around for developing renewables for about seventeen years. So I've been in the space for a while.

And about back in twenty twenty two, there was an announcement that that we were gonna be for sale. And in twenty twenty three, we were acquired by Brookfield. So they're a big private equity and and asset manager, so that's a bit about us.

And so what's it been like in the last year and a half with new ownership?

Yeah.

What does that mean for you?

What does it mean for the business with I mean, Brookfield are absolutely gigantic. Right? So I'm assuming this means a capital injection, and you can really get to the races.

Yeah. Yeah. Definitely. You know, I'll say it's always there's always, like, changes, right, as as you start with an a new organization. But but it's really been it's really been great. So I believe that they are one of the largest investors in battery storage. Globally, I think they've made some pretty big announcements recently on on acquisitions.

And what's really cool about them is, you know, they're kinda creating this ecosystem, I'd say, of different portfolio companies that that they that that they own and where where we can kind of exchange ideas in terms of best practices or maybe some market. I won't say market, like, competitive intelligence, but more around, you know, if there's activity or or new business models coming out in Australia, maybe that's a precursor to what we may see in the US. Right? So kind of sharing, those ideas. And then just around procurement and scale of things. So we can kinda play at a bigger scale, whereas we may not may not be able to if we were just all all alone.

And so before we move on specifically to developing assets, what's your role there? And what's the bigger company look like? The the wider company, how many people are there, and could you talk a little bit about your activities? So which markets you're in and some of the milestones you guys have already met.

Yeah. So I'm a project developer. I lead our energy storage development team. We're relatively small, but we've got a couple of folks.

We, as a company, were about a little over five hundred people. It's broken up. I mean, we do a lot of wind and solar development and, of course, storage.

But other divisions, right, are more kind of within the finance organization, within the operations organization. We have a pretty large operations team. We've got six gigawatts out there and operating. And so they were fully kind of capable to to maintain our assets and even offer third party services to to other operators out there.

And which which regions do you focus on?

So we are pretty widespread across the the US. In terms of storage, we're in we're in ERCOT. We have a little bit of activity in in Kaiso, PJM, Maiso, and and some of the the southeastern markets also have a little bit in WEC. I'd say we're we're not. Right? Because you can't be everywhere and be good at everything. So we are, you know, oftentimes not or we're not in the northeast.

You know, those are good storage markets, but, you know, I think it really boils down to where where your team has expertise and and, you know, making sure that that you're kind of leveraging our expertise.

Okay. So, Ravi, in this episode, we are gonna have a go at talking through how you actually develop a site in the United States. So everything from choosing a site, selecting the best place, and good connections and whatnot, all the way through to construction and deployment and getting into the markets. And so I'm excited about this conversation because you and your team do this. This is your bread and butter day in, day out, and we're gonna have a go at talking through each each step in quite a bit of detail. So can you just give us a the ten thousand foot view? What does it mean to be a developer, and what are the steps?

So I like to think of of development really in kinda three phases. Right? Very simply, early stage, mid stage, and late stage. Now some developers in the US focus on just one one one stage. So you may have a developer, that that that their specialty is land acquisition and siting and getting into a market really early, and their thesis is really then to to flip their projects to right, other developers that will carry a project through through later stages and eventually construction and operation.

So we kinda span the the whole spectrum. We also do, right, acquire from from others or or at times, we may sell projects.

But within each of those stages, there are then different different disciplines. Right? So are there different areas within kind of the project team? You know, you could have, right, engineering interconnection, permitting, and environmental functions. You may have local affairs, folks that that understand the kind of what the the local dynamics are in terms of zoning and and ordinances and and and moratoriums in some cases.

But as a developer, right, our our role fundamentally, I I believe, is is to manage risk and uncertainty. And there's there's a lot of that as you're taking a project from a pure, as we call greenfield or blank slate, all the way to an asset that, you know, you may be deploying hundreds of millions of dollars, and it's an asset that's gonna be in operation for twenty plus years. Right? So, you know, I think our role is to, as we advance projects, to derisk them.

Right? And so a lot of uncertainty is thrown at us. There's a lot of uncertainty in the market right now, and we discover risks. We figure out how to mitigate them.

And as we do that, right, the project value essentially increases. Right? I mean, risk and return. So as we derisk and advance a project through its phases and milestones, we are creating value, and we can choose to exit a project at a particular time, or we may choose to keep that project for ourselves and operate it right for for twenty plus years.

But maybe let's start through the phases. Right? So, you know, early early stage, a developer and some some shops have their own strategy teams, and they figure out where across the US, right, they might want to position themselves and leverage their strengths. So, you know, once you've kind of decided on what market you wanna target and market in this context doesn't have to be just an ISO or RTO.

Right? It can be a state or even a sub a utility region. But we start with site acquisition. Right?

And there's a prospecting effort where, right, a team of of analysts or GIS specialists will, right, kind of comb through mapping and and and will look at various layers and and factors or, criteria in order to to identify sites that that could be be valuable.

You know, once we've kind of honed in on a site that we wanna pursue, there's a real estate effort, of course. Right? I mean, it's it's really, you know, engaging landowners. There could be a land agent that is, you know, sending out mailers or phone calls.

Right? It it down to that level. Some some people even knock on doors. Right? And so it's it's securing land and then starting to derisk that land within the early stage.

So so we may do some engaging with, like, a local planning board to understand ordinances, which will kind of define maybe some of the restrictions we have on the site or a moratorium, which is basically you cannot build this technology for maybe a period of of of time.

We need to understand some of the permitting that could be done through what's called a permit matrix or environmental constraints analysis.

And, you know, all that kind of leads up to, you know, more of the interconnection and and grid studies. Right? So we'll look at, line capacity. We'll try to get estimates for, you know, maybe what network upgrades could be for a particular size project. That's kind of, a real guesstimate. It's a really complex process.

We'll look at interconnection and and see if see maybe what the cost might be for interconnecting to a particular substation or if you're line tapping, it's off an higher expense.

And then, you know, once we file an interconnect application and we get in the queue in in most in most parts of the US, that kind of ends the early stage, right, phase of a project.

As we go to mid stage, it's it's really more about digging into the weeds. Right? So we wanna get into details around you know, start advancing the engineering design for the project. We are gonna be ramping up permitting efforts for the project.

You know, there could be cases where we need what's called a discretionary permit that may be referred to as, like, a conditional use permit. And and so that that could be a a situation where we we need to engage with a with a planning board or with a a, you know, board of county commissioners, things like that. So, you know, to really get permission to build a project subject to certain conditions and and mitigations that we make sure we're doing things the right way. You know, I would say it's also advancing the economics picture and the business side of of each project. So, you know, you'll be running financial models. You'll be trying to understand which customers you wanna you wanna target if you're going that route.

And and and putting together that that commercial picture and and investment thesis.

It's interesting you describe them as customers. I've never really thought about it like that.

Yeah.

But but they are customers.

It is it's a it's it's like a I don't wanna diminish it at all. It's a incredibly valuable and tricky and high risk and an exciting, challenging thing to do to be a developer. But it is a bit like a factory. Right? You're you're you're prospecting, and you're you're working in materials through a funnel from greenfield parcels of land all the way through to package for a customer to buy. Never really thought about it like that before.

Yeah. And and, you know, customers, I think, we can refer to in different context. Right? So maybe I should use the term like your your commercial contract or your offtake contract.

But, you know, in markets as you probably know better than I do, you know, in a market like ERCOT, there's different financial products that you can put on, you know, a battery. But in other markets, you know, a customer could refer to a utility counterparty that right? They are you know, they're who we we're we're serving under a fifteen or twenty year tolling agreement. Right?

And so so they really are our our customer. And and, you know, I think we I think the industry probably should should treat them that way. Yeah.

So Can I just zoom in on one part there?

So, well, there's so much you talked about, but specifically finding good grid connections.

Right? How how do you know whether a site's gonna be a go? I say you've you've got your Wellington boots on and you're going stomping the land somewhere out in California.

And, you think this is a this is a marvelous piece of land. It totally makes sense. We're right next for substation.

How do you then figure out whether that's a good substation without spending a load of money?

Well, it's a it's a great question, and I'd say it's it's it's a really tricky thing to do because, you know, there there are tools that can help us think through that analysis in terms of how much line capacity might be available.

And there are tools that that can, you know, help us think through what potential network upgrades, which means upgrades to the system as a result of you putting that that battery there to try to estimate what that that cost allocation may be. Though that is a very challenging thing to do because in, like, a cluster queue process, things are constantly moving through the phases. You can have generators dropping and and cost being reallocated.

Using consultants is another one. And and and some some organizations, right, also have kind of an in house team that that will run that will run analysis on on understanding the the cost. And if I would just say one one more thing on that. Is it that is a critical piece.

Today, probably more than ever because the the upgrades that projects can be assigned in certain markets can be massive. Right? So you can end up with as as you're already advanced the project to some mid stage, you've already poured money into this project, and you can be allocated as a result of of a study if you get it wrong. Right? Tens or even hundreds of millions of dollars in upgrades, which makes a project, like, not feasible anymore. Tens, maybe you can work with, but depending on the size, hundreds, maybe not.

I've got this idea in my head that I don't know. A decade ago, you could get a new truck and drive around, and you'd you'd you'd happen upon a substation.

And there would just be a spare transformer base out there, you know, and a couple of hundred MVA kicking about and a big beautiful piece of land with no flood risk and no, you know, no dwellings, no no houses or, businesses for miles.

Was it like that? And do they do you ever find them like that? Or have all has all the low hanging fruit gone, and we're now into, like, the really hard technical stuff?

Yeah. I think you hit it ahead. So, like, the industry has has changed. There's a lot of competition these days.

I'll I'll give the example of, you know, when you're out there prospecting and actually starting to engage with with landowners, it's almost difficult to find a site. Like, if if it's a good site, then odds are five other people have looked at it already or or or will as you're kind of trying to engage. And so I think, you know, we see competition around us all the time. So I think that drives developers maybe to less desirable locations or or sometimes line taps, things like that.

And and look, it it it's it's a it's a lot of decisions. So everyone has their own strengths and and view of of the market. And I think, you know, people have to make tough decisions, and you kind of pick your poison in in which one you wanna, you know, you want work through and which one is a fatal flaw for you.

So let's say, hypothetically, you're you're looking at three options. Options are bad words here because of options to lease and whatnot. But let me say three opportunities for developed for developing sites. How do you you know, what's your decision making process?

How do you figure out whether something is worth the time? How do you decide you know, you must have a sixth sense for this now where you just know what good looks like in the same way that, you know, a property developer has a sixth sense for, you know, where there's gonna be good value creation. So how do you think about that problem, Ravi? What what's your what's your spider sense look out for?

Yeah. You know, so as I mentioned, like, we look at a lot of different criteria, some matters more than others.

And and, you know, I think it's really you know, first and foremost, are there fatal flaws with the site? So sometimes you may find something like a high risk up in the environmental side. You may also, you know, see results from your tools that, you know, that say there's a a large net network upgrades estimated.

And, you know, I'll say personally, but, you know, as an organization as well, like, you've run enough financial models, right, where you kinda get a sense of, you know, what buttons and knobs and dials, right, are going to in financial terms, right, there's obviously the fatal flaws. But in financial terms, kind of dial you into a price tag or or target return, right, that is within market and something that that you would you would be willing to accept. So having the tools available is helpful, but if after you run quite a few of them, you kinda get a sense for what really matters and and what you can work through.

So if you are pitching your company, Dereva, and you're saying, hey. This is what we're really good at. Right? We we of of course, you have scale.

Right? You're you're a very large company, and you have financial backing. So that's that's a good start. That's actually quite rare for developers.

So congratulations to you and the team for that. But what what what's your secret sauce? Like, what's the edge that you guys have? How how what's this what's the thing that you do better than everyone else?

I think it's really you know, we leverage our team's experience. I think that that's a big one. And I think some of that collaboration that I mentioned earlier, like, we are extremely collaborate collaborative within Doreba. So, you know, while we are you know, have scale, as you mentioned You know, I've heard from friends of mine or others in the industry who maybe have worked at at very large, like, I'll say, much larger development shops, and they're extremely siloed.

And so, you know, I think where we fit is kind of in that in that middle ground where, you know, we're not so big that, you know, our our processes and procedures will strangle us to death, and we can't move that quickly. And and we can't talk to each other that readily, and we have to put something in a workflow, and I can't just, you know, ask for something. So I think that's really where, you know, where we feel or at least I feel on the on the storage and development side where we're strong. We do have other strengths, I believe, like in our financing team and our operations team that I mentioned earlier.

Now I'm gonna ask you about some of the challenges.

So what gets in the way? What gets in the way of getting these projects developed?

Fatal flaws get in the way. Right? So if you missed something through your diligence, right, that that can can get in the way. But I'll I'll share, you know, I think, I think there are there's one that's common to developing all technologies and that's, you know, that's being able to navigate the interconnection queue.

You've probably heard that from plenty of plenty of people. Right? There's delays. It's very complex.

You can get this, you know, allocation of of high upgrades that, you know, that can be challenging for a project to to get past. But for storage specifically, maybe I'll give three. You know, I think one, which you already hit on, is this competitive land acquisition dynamic in the early stage. Right?

So, you know, how long that that lasts, right, where everyone's kind of chasing the scene, like, similar opportunities, I think we'll see. Right? There may be some consolidation. There may be some, you know, some of those may be early stage developers that intend to flip and and so, right, things may may correct a little bit.

The second, I think, is around it's tied to interconnection, but it's really battery specific because batteries as opposed to renewables you know, usually, in most markets, ERCOT is different. You know, we're we're including capacity value in the value stack. And when you do that, you really or to receive that that value or participate in that in that market, you really need a higher level of interconnection service than you may let's say for an energy only renewable asset.

So just to stop you there, what does that mean that you're considering the capacity value in the value stack? I think it's what you said. Something like that. Yeah. What does that mean?

Yeah. Yeah. So, this is yeah. Again, not maybe for your ERCOT listeners, but it's for probably most of most of the others across the country. So, you know, in some markets in the US, we have capacity markets, PJM, MISO, New York, etcetera.

And, you know, there, you're really you know, it's it kind of goes back to this concept of having enough resources available on the grid in the case of, say, an extreme event, an emergency. And so the way that number, how many megawatts are needed, right, on the grid is is there's low load forecasts or demand forecasts that are that are performed.

And and then there they add typically a reserve margin on top of that, so a safety factor.

And then that kind of sets the number of megawatts of resources that are needed in a particular region or or market.

And so resources that may not run much or may not have a regular energy or ancillary service opportunity are still needed for that one really, really hot day on the fourth of July, for example.

And and so, typically, those are gas turbine peakers and now, right, batteries are are kind of taking some of that or or filling some of those same needs. And so with that, right, you're you're basically paid right to to be installed and available and operating. You have must offer obligations in the day ahead market, but it's really, you know, when you're called upon, you need to deliver.

And in return, right, as a an asset owner, you're there there can be compensation for that. So it can come through an auction or in California or SPP or a few others. You know, that that's really more more of a bilateral kind of a a dynamic than a than a auction.

Ravi, I've got to say, I think you, by accident there, gave the best explanation, I think, we've ever heard on this podcast of how capacity market or capacity value or capacity as a word works in the US. Because as a European, we have lots of different ways lots of different types of capacity market that confuses us. And that was that was terrific. Thank you. I'm sure that a lot of our listeners are gonna really appreciate that.

Yeah.

So I'm gonna move on now to so so so what so what's gotta change? Right? So if you had a a wish list of things that let let let's say regulatory changes that could make your life a bit easier.

What's what's holding us back? I asked you before what gets in the way, but what's what's holding us back?

I'll I'll throw out a couple. You know, I think I think there's still, you know, work to be done or or or room for improvement on storage resources being studied, allocated upgrades in in a way that is representative of their actual operating model. So, you know, storage, you know, if you're a a fully deliverable, right, a network resource, right, you you may be assessed based on, right, injecting twenty four hours a day.

Obviously, we don't inject batteries twenty four hours a day. I'm not an expert in this area, but, you know, I would say I'm sure that there are reasons why it's done the way it's done from a fairness perspective.

I think there's also challenges with the actual software that ISOs and utilities are running. Right? I mean, they're doing very complex analysis, and and, you know, I would imagine that this requires quite a bit of of change to that, right, to that infrastructure.

Others, I would say, I'll just throw out two more. One is is is really around, I think, long duration storage. Right? That's, it's not an area that I'm strongly focused on personally, but but I think that in order for that to to advance, we need to see, like, not only demand in the market, but but value put on on a long duration resource. So, you know, things like ELCC values, right, or capacity, right, values need to represent kind of or or or value that longer duration.

There's also the procurement route. So in California, for example, there's more there's starting to be more mandated procurement for for long duration storage.

But but seeing that more across the US, I think, would be interesting.

And then just lastly, the area I kinda love to think about and and and see evolve is is really on the business models. Right? So, you know, I think, you know, right now in today's world and we talked a little about ERCOT, but in a lot of the other markets, it's a utility space or load serving entity space, right, where where you are contracting with, right, with those entities.

I think business models will continue to evolve.

You know, the corporate market is is really active for renewables.

I think it's somewhat untapped. And, frankly, I think they need to understand what value can batteries actually bring to them. But as as things evolve, right, I I think seeing the new business models and across the US, it it but it's exciting, but it's also a it's a challenge, right, for for projects because we have a a smaller customer pool than maybe renewables do.

So, Ravi, this is your chance to plug something. Is there anything that you wanna get out to our listeners, to the the world of energy storage? Do you think they need to hear? This is your opportunity to sell or to plug.

Yeah. I'm gonna take maybe a a slightly different route here than than than maybe just the energy storage world. So, you know, I think I think there's you know, across the industry from a from a people and talent perspective, you know, obviously, there's a strong interest in in people from you know, that that bring a lot of experience or or even folks that, right, have two to five years of experience. But but I think that there's there's a bit of a gap. I think the industry as a whole can do a better job in terms of training and developing young folks maybe coming right out of undergrad.

We have, over the last two or three years, ramped up our internship and coop program.

And I it's been very successful. Right? It involves, you know, projects and some formula formal kind of curriculum where folks like myself and my peers, right, are maybe kind of teaching a little module.

And and we've retained a lot of those folks. And and I think that we oftentimes maybe we're both guilty of this. I know I am. But, you know, we're often too busy to kind of take the time and, you know, explain something or, you know, take take you know, work one on one with someone. And and I think the more we all do, the better off we are.

Totally agree. That sounds like a great program, actually.

Yeah. Yeah. It's great.

Alright. Now to everybody's favorite question. So, Ravi, what is your contrarian view? What's the thing that you believe that not a lot of other people believe?

I'm not sure if it's contrarian or not, but I'll I'll I'll throw it out there. So, you know, I think a lot of folks in the industry may think that battery storage is going to evolve across the US in the same or similar fashion that it's evolved in the mature markets like Texas and California.

And I think that in many parts of the US as we kind of move west, right, from east to or sorry, from west to east, you know, I think we'll see utilities flexing a little bit more their of their muscle in terms of, right, a a desire to own assets. And and look, I mean, I came from a utility company and and, like, I mean, this is they have the right to kinda defend their business model. And and so I think we'll see them really focusing on repowering their assets that they already have on land they already have, next to substations that they already have, right, in control of of and that or using surplus capacity.

We can get into that. That's a whole FERC order. But but using the, you know, using the excess to to add batteries and make and make sure they have more flexible and and effective assets. So, you know, I think that's maybe people are are not fully understanding that, and I I feel like that dynamic is something people are gonna have to work through.

And so what would that actually mean then? What would be the consequence?

You know, the way you develop in these markets is a little bit different. Right? Because you have in some cases, right, you're they're also your customer. Right?

And so if it it's a having a presence, you know, and you kind of the utility commission space, right, in terms of advocacy. And so it's it's inter it's also doing research into, right, understanding their IRPs and procurement needs. But this may may evolve, right, or may end up in the form of developers, right, flipping pre notice to proceed or kind of as projects are in a late stage where developers that are used to kinda taking the earlier stage development risk that utilities can't take. Right?

Because they have to they're not allowed to to to take us as much of that development risk as as we might. So, you know, I think there's there's a more of a flip model there or bill transfers is is something that I think we'll we'll see a lot a lot more of.

Does that mean the demand for developed assets could be much less than than what's currently priced into the market.

I don't think that's necessarily the case. I think if you have a project that is is pretty advanced that that there's gonna be value for it. You know, I I think I would maybe just, you know, caution against, you know, seeing, I'll say, the, you know, exciting, you know, ERCOT LMP map and the hedges and the put options and all kind of interesting structures that we might see in in Texas or, you know, or dot curve effects in California. Just seeing that dynamic play out. I don't think we'll see that that dynamic play out as heavily in, you know, I I in these vertically integrated markets more towards towards the east. And I think, you know, I think there's value there. It's just a different kind of value.

Ravi, it was absolutely awesome to have you on the podcast. Thank you for joining us. And we wish you and the team the best of luck as you continue gallivanting around the United States, finding the right sites, and getting batteries on them. I would love to welcome you on the podcast again to find out how you've been doing in a few months well, in in a year's time or so.

Yeah. Thanks for for having me. Yeah. Would would love the, opportunity, and, yeah. Appreciate you, taking the time here.

Thank you very much.