Why RPC chose the UK for its first storage investment

• Investment platform RPC recently formed joint venture with UK’s Eelpower
  
• RPC CEO says UK has ‘most sophisticated’ ancillary storage services market in Europe
  
• RPC says Nordic, Italian and Spanish storage markets also have potential

If you’re looking for a great energy storage investment opportunity in Europe, the UK could be your best bet.

That’s the view of Bob Psaradellis, CEO of pan-European renewable energy investment platform Renewable Power Capital (RPC).

Last month, RPC – which is backed by CPP Investments - entered into a joint venture (JV) with UK battery storage company Eelpower. The JV will acquire, build and operate utility-scale storage projects – it has a target of 1GW of storage, with a current pipeline of 240MW, which will be built over the next two years. 

Since its incorporation in 2020, RPC has committed nearly €1.5 billion in acquisitions including wind and solar PV in Spain and the Nordics.

But the joint venture with Eelpower represents its first investment in energy storage.

Energy Storage Report spoke to Psaradellis to find out why it chose the UK, why it selected Eelpower as its partner and where else in Europe it sees opportunities for storage investment

Why has RPC entered the UK energy storage market? 

Bob Psaradellis: A couple of reasons. Energy storage is a very strategic asset class for us since we launched the company in December 2020. The vision was based on a belief that the next 20 years of renewable energy investing are going to look very different from the last 20. Subsidy-free, very merchant, the power generation side competing on its own merit without subsidy – this is the core part of our thesis and the way that we build our business. Part and parcel of that is energy storage – that's the missing piece in achieving the energy transition, not just on the generation side, but on the demand side. Admittedly, storage is a much newer asset class, and we're a young institution that is populated by a lot of very experienced people. But our experience in wind and solar, which is collectively measured in decades, dwarfs our collective experiences in storage. But it's an asset class we need to be in. I predict that within five to 10 years we'll have just as big a storage portfolio as we do a generation portfolio. Great Britain is the most mature market in Europe by far. We spent some time really thinking through the market and our go to market strategy, but when we settled on one, we really wanted to go full speed into the market, which we're doing now with a great partner in Eelpower.

Why does the UK storage market represent “one of the best opportunities in Europe”, as you said at the time of the JV launch? 

BP: It's the most mature market in terms of revenue opportunities. We identified the need the UK has in terms of fast response, frequency modulation, ancillary surfaces, system inertia falling – that's not a trend that's limited to Great Britain. That's a trend that we think will be European-wide and potentially worldwide as more and more generation comes online and more and thermal spinning assets come offline given the inertia. But Great Britain has the most sophisticated market for ancillary services. There are other markets that are catching up or at least moving in the right direction. We have a big presence in the Nord Pool [the pan-European power exchange] and we see good opportunities there, as well as potentially in Italy and, in the not too distant future in Spain. But Great Britain is a great place because the market is really growing. It's the largest market in terms of installed capacity, it's the largest market in terms of forecast capacity, and it's a great place for us to cut our teeth.

This is your first storage investment, why now?

BP: Storage was something we wanted to get into when we launched the company. Unlike wind and solar, which we were able to transact almost right away, we really had a lot of learning to do in how and where and what nature we wanted to play. We spent a year just working through understanding the market strategy, and it wasn't just limited to Great Britain. We were looking European-wide, then we zeroed in on a market, and then we looked at potential partners. It just took some time and also resources.

Why did you choose Eelpower as a joint venture partner?

BP: Eelpower is clearly a pioneer in the space. We are the type of owner, operator, investor where our model is predicated on having very deep insights into the assets in which we invest. We're not really a financial investor, we're more of an industrial player and we think that having that really deep knowledge, first of all, makes us a better investor, but also allows us to both manage risk and extract value over time. In wind and solar, we are fully self-sufficient, but in storage there's a lot of unknowns for us having not owned and operated one of these before. And my experience tells me that things can go wrong and often do. I joke that in the wind or solar space, unless a dragon flies out of the sky and eats the wind plant, we'll have seen it before, and so we'll know how to react. In storage, that wasn't the case, so we wanted to partner with somebody who had really deep industrial capabilities around procurement, design, optimisation and the relative merits and demerits of the various optimisers in the space. We also recognose that you don't just turn on a battery storage plant and let the algorithm work for you. There needs to be quite a bit of human intervention too, and judgment along the way. Eelpower was able to bring all of that capability.

What was the process for selecting a partner?

BP: It was a combination of in the lab and in the field. We did a lot of desktop research on the various players and we had a lot of meetings with a lot of different players. Many of those players, by the way, are very interesting and are doing some very innovative and cool things. We broadly saw the market in two, maybe three categories. There are developers, aggregators, and then maybe people like Eelpower who are aggregators plus, let's say. And there's pros and cons to partnering with one or the other. Generally speaking, we quite like development and think that development risk and return is attractive. But in this market, before diving into development, we really wanted to sink our teeth into some fully permitted, fully consented, ready to build assets and learn what we think are the hard skills around procurement and design and optimisation. Then in a later stage, we'll likely expand our remit in looking to more development opportunities. We found a lot of very good players, some wanted to transact with us, some didn't, but at the end of the day, what we found was that Eelpower had a unique value proposition. But that’s not to say that there was not some other extraordinary value propositions in the market.

Will you move into development with Eelpower?

BP: That remains to be seen. They've got a very particular business model where they don't develop – they work with a lot of developers. I think once you start competing with your customers, it can get a little difficult. But, in the not too distant future, I do see us doing more on the development side. And not just in the UK.

The joint venture is targeting 1GW of utility-scale storage capacity, what challenges will that target pose?

BP: We're in a very inflationary environment and capex is moving at an extraordinary pace. We don't know what the end of that looks like. And, and we don't have as much experience in procurement in this sector. Not nearly as much as we do, say in wind and solar – there's been enormous capex inflation in those sectors, but we're more attuned to it. So we worry about that. We think about that a lot. Obviously we're in a rising interest rate environment, and I think that will have implications for the cost of equity. So there's macro factors around cost of equity, but there's also supply and demand. We're not sure necessarily that the cost of equity will change in the storage sector considering the strong fundamentals, but it very well could. And then access to grid remains the biggest bottleneck to securing projects.

At the time of the JV’s launch, it was said it’s approach would be “investing in projects without government subsidy as a long-term project owner”, could you elaborate?

BP: There's a lot of policy debate at the moment around how renewable energy should be incentivized in the UK. Our firm belief is that there should be no subsidy. We don't think that there's any case for taxpayers to subsidise renewable energy and renewable energy generation anywhere in the world at this moment. The cost of the technology does not require subsidy. The market is mature. Subsidy had its purpose, but that purpose has long since vanished. We would be the first people in line telling government and anybody else that you do not need subsidy and you should avoid subsidy. Now, no one has ever really talked about subsidising battery storage, it's an asset class because it's unsubsidized and because it basically works on market principles. It fits neatly into our strategy, which is not to rely on subsidies or CFDs [contracts for difference] or things like that. The market fundamentals ought to be the driving factor, not any form of subsidy.

Can we expect imminent RPC announcements elsewhere in Europe?

BP: You can expect announcements in the not too distant future. Most likely before the end of the year, in a different market.