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21 January 2021

Swell puts $450m to work installing VPP for 6,000 Hawaiians

What’s going on in an around California’s Swell Energy is little short of exciting, and could point the way for thousands of global utilities. Swell has multiple US utilities in multiple states set to give its solar+storage plan a try. This week, Hawaii’s Public Utilities Commission, approved the first project to put 6,000 batteries into its territory, with Swell working alongside utility Hawaiian Energy on Oahu, Maui and Hawaii islands.

The story goes back a few months to when Swell said it had a plan to install 14,000 such batteries plus solar across 3 US states, and raised some $450 million to get the job done. The rest of the plan will likely roll out over the coming few months and its home State of California is likely to be next, and in total this funding will be for 200 MW of storage paired with 100 MW of solar capacity, but we don’t expect it to stop there.

While no-one is talking about this in detail, it is the detail that will probably show us if this is the right deal. Rethink Energy has been saying since its inception that distributed energy resources need to be encouraged, and Swell has convinced the local leading residential solar installer RevoluSun, to head up installs in Hawaii, while Hawaiian Energy will give customers energy discounts to encourage them. Swell will use the $450 million it raised just before Christmas to take the sting out of consumers paying the full cost of these installations up front and instead they can choose to pay it off monthly.

This deal is phrased as a $25 million contract with Hawaiian Electric, but that’s because part and parcel of this virtual power plant, is the ability for the utility to call on the combined power of all 6,000 batteries and solar, when it wants to, initially we imagine it is will mostly be for emergencies and grid stability, but later it is likely to become an everyday resource, as it gets used the using the spare electricity.

Swell’s key ingredient is the EnergyShield software it has written for utilities to manage the energy, and it lets customers choose batteries from LG Chem, sonnen or Tesla, alongside any rooftop rooftop solar.

In the US this has been all the rage for the past two years, and Sunrun is the market leader with about 13,000 BrightBox batteries installed. In 2020 the Federal Energy Regulatory Commission pushed through a ruling that all territories should support moves like this. Tesla and LG also have their own software, as does sonnen which has cut a few utility deals in the US, and is strong in this market in Germany and Australia.

The Swell software supports lighting during grid failure and diverts solar power straight to battery, automatically enrolls the home in the utility’s net metering scheme, is rate optimized so the consumer buys the least amount of electricity possible, for the lowest price. Convincing a utility to work alongside a business which is taking away some of its revenue is something of an achievement, but essentially it will cut the load on these homes and allow for slower grid upgrades and cut capex for the utility, while lowering its buy price for electricity.

The Hawaii program will deliver 25 MW of solar and 80 MW of battery, representing 100 MWh of stored energy, delivering capacity and frequency response to the three island grids, while also reducing bills for participating customers.

The financing deal done just before Christmas allows for two further investor owned utilities in other US states to arm another 8,000 homes between them in the same way. The deal was funded by Ares Management and Aligned Climate Capital.

Swell already has these utility deals lined up, but they have not yet been officially approved by state authorities, so cannot announcement them yet. Presumably Swell will be able to act as a go-between to sell a certain amount of energy to industrial customers across US ISOs as well as the utility direct..

The financing vehicle has been structured with Swell’s utility contracts in mind, and with the VPP capacity payments serving as a distinctive feature.

When it announced this deal, Swell said that it expected its existing installs to generate some 3,000 GWh of clean solar energy in the next 20 years, with about a third of that stored for later consumer use.

“Utilities are increasingly looking to distributed energy resources as valuable ‘grid edge’ assets,” said Suleman Khan, CEO of Swell Energy as this deal was struck. “By networking these individual homes and businesses into virtual power plants, Swell is able to bring down the cost of ownership for its customers and help utilities manage demand across their electric grids,” said Khan.

And as it closed the financing deal it announced its Home Energy Subscription Agreement, so homeowners can finance their systems through Swell. Grid capacity for these systems has already started this month. And will ramp up to 200 MWh of energy storage by June 2023. How many people would take solar and batteries tomorrow if it didn’t cost them anything and promised to cut their electricity bills?

Two things are likely to happen – copycats will write their own software and try to get into this business and NY funding groups will chase their business too, but also as money for systems are repaid, Swell can then finance more systems, and once the two investors see that their money is safe, they can raise considerably more cash. This type of deal will fly through the next two years in the US but also in Australia, Germany, Spain, Italy, and potentially in key parts of Asia, and it may well be a way to accelerate solar globally.

One source of electricity for the consumer owned batteries will be solar farms that would usually be curtailed, and Hawaiian Electric can send this to Swell’s customer batteries and then Swell can sell it on their behalf in an energy arbitrage when energy is needed – sharing some profit with its customers – perhaps taking that profit off their electricity costs. We continue to say it, but few have understood it, there is nothing more profitable you can do with energy right now than operate a battery energy storage system for energy arbitrage.

Hawaiian Electric has already contracted for a number of grid scale batteries in 2020, and we reported in May that Plus Power would install 185 MW/565 MWh Kapolei Energy Storage project and ENGIE EPS’s 60 MW/240 MWh solar-plus-storage project. The Plus Power deal was to take over from a defunct AES coal plant.

Swell has also just launched Quick Connect which lets residences in Hawaii begin building projects first, and then applying for licenses later, which will operate until it has built out these 6,000 systems.