This is an energy storage startup you need to know about

Inside a sunlit, cramped office near San Francisco’s financial district, entrepreneur and former political operative Susan Kennedy has been leading a team that is at the forefront of the emerging market for energy storage. The company, Advanced Microgrid Solutions, was in stealth mode until it became one of a handful of companies that recently won contracts — and a whopping 50 MW order — to build and manage large installations of batteries in buildings for utility Southern California Edison.

But unlike other companies on that list, Advanced Microgrid — founded in 2012 and funded with private equity from undisclosed sources — isn’t a big energy company, nor has it otherwise built a history of delivering on projects. And, on a side note, in the male-dominated energy industry Kennedy’s executive team boasts more women than men.

Susan Kennedy

An advisor to Advanced Microgrid Solutions, Nancy Pfund, described Kennedy as “a talented individual” who “has a good lay of the land in terms of knowing what’s compelling for utilities.” Pfund is a managing partner with DBL Investors, a San Francisco venture capital firm that invested in Tesla Motors and SolarCity. Tesla is building a large battery factory for both its cars and the kind of energy storage projects that Advanced Microgrid is developing.

The backgrounds of Kennedy and her co-founders shed some light on the startup’s stealthy sprint into the market. Kennedy was the chief of staff to former California Governor Arnold Schwarzenegger, who signed the Global Warming Solutions Act of 2006 that created a master plan for reducing California’s carbon emissions. Kennedy also was Gov. Gray Davis’ deputy chief of staff and cabinet secretary; communication director for U.S. Sen. Dianne Feinstein; and a commissioner on the California Public Utilities Commission.

Kennedy’s co-founder, Jackalyne Pfannenstiel, was the assistant secretary of the U.S. Navy in charge of its energy strategy. Pfannenstiel also chaired the California Energy Commission and before that worked at utility PG&E for twenty years.

Tesla investor Nancy Pfund with Tesla CEO Elon Musk at the launch of the Model S.

Tesla investor Nancy Pfund with Tesla CEO Elon Musk at the launch of the Model S.

Standing around the kitchen table in one corner of the San Francisco office, the petite Kennedy spoke with great energy about transforming where and how electricity is sourced and how the grid is managed.

Why energy storage is emerging now

California is at the forefront of clean energy generation, and it is undergoing two parallel tracks of change: one defined by the rise of giant solar and wind power plants in remote locations and the other by the proliferation of solar panels on homes, offices and industrial buildings.

But along with the increase in renewable energy generation on the grid comes headaches for utilities in managing the grid, which needs to be able to maintain a balance of supply and demand to avoid blackouts. That worry was one of the reasons that California began carrying out a mandate over the past year that requires its three big utilities to buy 1,325 MW worth of energy storage services by 2020 (with projects completed by 2024).

Energy storage systems can discharge quickly onto the grid to deal with any supply imbalance caused by the intermittent infusion of solar and wind energy. They can also reduce the need to build a type of natural gas power plant that ramps up quickly and is used mostly when demand spikes, but that is inefficient at burning natural gas and spews emissions.

power grid

Kennedy is keenly interested in developing and owning storage projects on commercial and industrial properties. These systems can generate a variety of sources of revenue for the company.

Battery systems can bank solar electricity for use at night or when power from the grid is expensive during certain times of the day, say a hot summer afternoon. Even without solar, the battery system can still take in energy from the grid when electric rates are low and discharge it for onsite use during the day.

Aside from making money by helping businesses use energy more efficiently, Advanced Microgrid also hopes to get paid by utilities when it curbs the amount of electricity drawn from the grid for certain minutes or hours when the utilities call for it and uses its batteries to meet the buildings’ demand during those times (this is called “demand response.”).

Having multiple streams of revenue is particularly important in these early days of building the energy storage market, when advanced batteries are expensive and there aren’t enough installed yet to reach the lower manufacturing and project development costs that will come with scale.

“The opportunity to develop energy sources at the customer side of the meter will be the next-generation change in energy,” Kennedy said. “If we succeed, then we will change demand response forever. We will make it valuable to utilities. We won’t add congestion to the grid.”

How it works

Advanced Microgrid won four contracts totaling 50MW with Edison, which still needs to secure the utilities commission’s approval for them. The startup won the contracts because it understands how to customize projects to meet Edison’s needs.

Kennedy recruited Audrey Lee, who previously worked at the utilities commission as an adviser to the commission’s president, to lead software development and battery system designs. The company’s chief commercial officer, Katherine Ryzhaya, was a power purchase agreement negotiator at Pacific Gas and Electric.

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One of the challenges for Advanced Microgrid is to figure out the size of the battery systems that are needed to meet the projected needs of the commercial buildings and the utility. There’s a penalty to be paid if Advanced Microgrid fails to deliver what Edison needs.

The startup plans to install the first 10MW of lithium-ion battery systems in clusters of commercial buildings in Orange County, Calif. Those systems will run from several hundred kilowatts to up to 1 megawatt. The company has developed in-house software for analyzing energy and other data and designing battery systems.

Advanced Microgrid is looking at buying batteries and the software for running its projects from companies that already have deployed their technologies commercially, said Kennedy. But she declined to say which companies are under consideration. Using proven technology also will be key to lining up project financing, which is also a subject she’s mum about.

If all goes well, Advanced Microgrid expects to bring online the 10MW project in Orange County by Jan. 1, 2017 and the rest of the 40MW in Los Angeles by the end of 2017.

The pressure is on for the startup to deliver. “We passed the first test by winning the bid. Now we have to prove that we can build them and create values on both sides,” Kennedy said.

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There’s an interesting post from Venrock Capital’s Matthew Nordan regarding the correlation of natural gas pricing with demand response compensation for frequency regulation. The overall point Nordan is making is that demand response players like EnerNOC and PowerSecure have been undervalued precisely because natural gas prices have been so low. For a utility, the major value of demand response is in avoiding having to turn on a natural gas peaker to provide the marginal megawatts of electricity during high demand. If natural gas prices are low, the cost of doing that remains relatively low and the value of demand response, which would have the grid turn down demand rather than have the utility turn up supply, is in turn low. But natural gas prices are creeping up, and I’ve written that with LNG exporting on the horizon, cheap natural gas won’t last forever. Which is why Nordan think the value of demand response companies will rise soon as the prospect of natural gas peakers gets less and less attractive for utilities. Nordan makes the additional point that if GDP can continue to bounce back, electricity use will itself rise, creating further need for demand response. With all the carnage in the solar industry and the IPO troubles in cleantech, investors sure could use an energy technology sector to get excited about.

A startup emerges to help time shift energy use

It’s a hot day and you agree not to jack up your air conditioner in exchange for a discount on your utility bill. Startups like Smart Grid Billing are developing applications to help manage this process, and the startup plans to launch a pilot next month.

Data center, meet the smart grid

If one looked back at the last sixty years and told a story about the electrical grid, it would be a tale of monumental growth as electricity use in the U.S. is about 13 times what it was in the 1950s. Americans now consume about 20 percent of all energy worldwide.
But in the last decade that growth has slowed to just under one percent per year. The story of the next sixty years will be less about demand growth, but about creating a stable grid in a world of increasing amounts of renewable energy.
The issue with renewable energy integration come down to the reality that with wind and solar, generation is intermittent. You can’t just power up or down a generator as needed. Which has meant that utilities are increasingly looking for its customers to help balance the grid through programs like demand response and frequency regulation which incentivize customer to use less or more power at the precise time that operators need to adjust demand.
The opportunity for data centers
It’s this scenario that has some people wondering if data centers might have a role to play in helping utilities maintain grid stability. It often surprises many to learn that data centers are built with about 20 percent extra capacity and on top of that can have utilization rates as low as 10 percent. They are designed to absorb spikes in usage, like when Michael Jackson died and sites from Twitter to MSNBC struggled to stay available.
Much is written about how companies like Apple and Facebook have gone to states like North Carolina and Oregon respectively to access cheap, abundant power for its data center buildouts. And it’s precisely because data centers are such power hogs that they make attractive targets to shed and take power as needed to help balance the grid. Facebook’s Oregon data center has a capacity of 28 megawatts out of a total regional grid capacity of 720 megawatts, making it the largest commercial user of power in the region.
When Power Assure launched its data center energy management software company in 2007, it always had the long term vision of saving its customers money, not just through better visualization and automation of its server hardware, but through generating revenue via smart grid incentive programs. It reasoned that if data center operators could analyze their computing loads and energy consumption, they could find the flexibility to take and shed power loads as needed.
“We always had it in our roadmap that we would move into the smart grid, but it was unclear how that would take effect. The market had not really gelled,” Power Assure’s CEO Brad Wurtz told me.
5 years and $30 million dollars in equity raised later, Wurtz feels the market has matured to the point where data centers can begin to feel comfortable with the proposition of assisting the grid, both because data centers have better visibility into their own utilization patterns and because the smart grid has improved communication systems between utilities and its customers. Power Assure says it has ongoing trials with customers participating in load shifting and automated demand response.
Talking dollars and cents
Wurtz and I ran through the numbers for PJM, the regional transmission organization (RTO) for 13 states from New Jersey to Illinois. PJM is tasked with coordinating the electrical grid for over 60 million people as well as integrating new sources of renewable energy.
In 2011, for example, PJM was willing to pay $116,339 per megawatt to load shed but an even higher number–$173,074–to be available to deliver load shifting on an as needed basis. With all demand response the less notice the customer receives the greater the customer is compensated because what RTOs need is quick response to shifts in demand.
For a 30 megawatt data center that was well managed with 20% excess capacity, generating a few million dollars through grid incentives becomes pretty doable.  Wurtz noted that one new client has built into its data center the ability to adjust its power consumption every 15 minutes to be able to optimize its energy pricing.
Demand response is an easier and less well compensated way for data centers to earn money because it typically gives utility customers at least a day’s notice that it will need to shed load. But some are looking into the future towards frequency regulation, the second by second balancing of the grid to maintain 60Hz, which is better compensated because of how quickly data centers would need to respond.
The question is always: is it worth the risk? The fear at the heart of every data center manager is downtime. No one gets fired for spending too much money on hardware and power consumption. People do get fired if a site goes down, even if the reason is that servers had to be shed to meet the needs of the grid.
But, in the end, risk exists on a spectrum meaning that there’s downtime risk for every data center no matter how prepared it is, as the Michael Jackson episode showed. And the better every data center knows its utilization patterns, both historically and second by second, the more possible it becomes for them to identify opportunities to help out the grid and make some cash in the process.

Question of the week

Does it make sense for data centers to participate in smart grid incentive programs?

What the utility of the future looks like

As utility industry trade show DistribuTECH wrapped up last Thursday, attendees got a peek at not only new product offerings — from smart thermostats to software platforms that manage smart meter data — but also the potential for what a utility of the future might look like. As the smart grid grows up and reaches its full potential, here are five important ways in which how we interact with our utility can be revolutionized and why they matter.