Hydrostor CEO: ‘Now our bets are paying off’

BY ROBERT MALTHOUSE

  • Hydrostor awaiting certification for two major US storage projects
  • Initially short on development money, it had to ‘pick markets carefully’
  • CEO eyeing further deals in Canada, US, UK, Australia, Chile and India

Bringing a new type of energy storage technology to market can be immensely challenging. Just ask Curtis VanWalleghem.

The CEO of Toronto-headquartered energy storage developer Hydrostor – a company that was founded 11 years ago – has had to surmount some significant obstacles to get the business to where it is today.

These challenges have included trying to convince investors to take a ten-year outlook and back a technology that may take some time to generate revenue.

But VanWalleghem has helped the company he leads overcome these barriers – partly by making shrewd bets on particular markets – and, in one of the most recent developments, it was announced at the beginning of December 2021 that Hydrostor had filed an Application For Certification (AFC) with the California Energy Commission to develop a 500MW / 4,000MWh energy storage facility outside the City of Rosamond, Kern County, California.

That filing followed an earlier AFC filing for the Pecho Energy Storage Center, a 400MW / 3,200MWh advanced compressed air energy storage (A-CAES) project located in San Luis Obispo County, California.

How Hydrostor’s technology works

Hydrostor has developed, deployed and tested patented A-CAES technology that can provide long-duration energy storage. A-CAES uses compressed air stored in a purpose-built cavern where ‘hydrostatic compensation’ is used to maintain the system at a constant pressure during operation.

It is argued that long-duration energy storage (LDES) is key to unlocking 24/7 clean energy. According to a report by McKinsey and the LDES Council, it has the potential to deploy 1.5TW-2.5TW of power capacity by the year 2040. 

Energy Storage Report spoke to VanWalleghem about the challenges involved in commercialising a new technology, the markets being targeted by Hydrostor, and the barriers to the wider adoption of energy storage.

What are the next steps for your California projects and when could we eventually see the plant in operation?

Curtis VanWalleghemWhen you’re developing projects, you first have to secure the land, interconnection, and community engagement before ultimately applying for permits and offtake, which usually happens in parallel.

In California, it’s an extensive permitting jurisdiction. But the nice thing about the California Energy Commission is that it’s a one-stop clearing house for all permits. And whilst they’re no longer permitting gas plants, [Hydrostor’s] technology falls under their remit – unlike batteries, solar and wind – making it a pretty unique permitting pathway. Altogether, that’s about a year-and-a-bit process and we’re quite far advanced on all the other development tasks.

We expect to have all the required permits in early 2023, which will allow us to start construction.

Hydrostor is a Canadian-headquartered company and your latest proposed scheme will be in California. Which markets currently offer the biggest opportunities for your business and why?

CW: Having started a company after inventing a new technology, we didn’t have a lot of development money to put to work. So, essentially, we had to pick our bets carefully.

Going back three and half years ago – as that’s the time it takes to gain commercial traction through locking up land, securing permitting, and bidding for contracts and so on – our team analysed the fundamentals of the markets. Key assessment questions were: how do you get offtake contracts? How easy is it to secure permits? Do we think the market’s going to pencil out properly? And frankly, California and New South Wales, Australia jump to the top of the pile for us.

Since choosing those markets, both have come out with storage mandates, which is a credit to our team’s foresight in picking the right ones. Now more markets are opening up. We’re seeing Alberta and Ontario in Canada, a number of other states in the US, and also the UK as they have made some really interesting moves. The rest of Australia too, Chile and even India’s opening up to a certain extent.

How big is your company at present and what expansion plans do you have?

CW: We currently have 25 employees, but I would expect that to more than double next year. 2022 is going to be a big investment year for us. Up until this point, it’s been ‘show us what you can do with limited development money’, which was placing those bets two years ago. Now those bets are paying off, which has given us the confidence to start expanding our development footprint. And the growth of the market has made this an exciting time for the industry because there are many more opportunities to get revenue contracts nowadays, whereas three or four years ago it was really nascent.

What are the biggest challenges you currently face in the day-to-day running of your business?

CW: As an infrastructure company, matching the early-stage capital to the opportunity at first was tough. Usually venture capitalists want to invest in products like ‘apps’ that can start generating revenue after ten months. But in our case, we needed to invest for ten years – which is longer than some funds run for – so, we had to be very creative to get around that obstacle.

Once utilities were looking to invest, they wanted to see smaller pilot projects before committing. With our smallest project costing around $500 million, a lot of the responses we received were ‘that’s a little big for my first step’. So we had to get creative with a couple of small projects using existing caverns to make it make sense. Now, it’s a case of finding the right balance between price and risk of the technology that ensures performance and bankability.

What do you see as the biggest obstacles to the wider adoption of energy storage and what do you think is the best way of overcoming them?

CW: Many electricity markets around the world are broken in terms of how they induce new capacity. It’s evident that the technology, capital and consumer demand for green electrons are there but the lack of a mechanism that installs confidence to invest the CAPEX (capital expenditure) is the biggest obstacle. I give credit to places like California, which is deploying a resource adequacy product; New South Wales, which is using a ‘contract for difference’ scheme; and Alberta, which is using the transmission system and capacity contracts to combat this issue. But at some point, every market must consider all types of assets and their varying requirements. This is happening as mentioned, but the pacing item is how quickly this can get done. We can’t consult forever. These decisions must be made sooner rather than later.

What will be the biggest trends in energy storage in the coming year?

CW: I think longer-duration storage is going to have a big impact in the near future. You can start to see it with big project announcements and the recent formation of the Long Duration Energy Storage Council.

Short-duration batteries, like lithium, have almost become a commodity, like solar and wind now. You can merchant fund them and they’ve figured out how to play in most markets. The next wave is the eight to 24-hour technologies. I also see corporate power purchase agreements having a big year. They were just directly contracting wind and solar, but now they want green electrons 24/7 to match their profile, which requires storage.

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