UBS’s new energy storage strategy plugs in with 700MW Texas deal

The end of July saw the close of a deal between UBS Asset Management and Black Mountain Energy storage for the transfer of five development-stage projects across Texas’s ERCOT grid, totaling 700MW in potential storage capacity. The deal, closed for an undisclosed amount, is the first for UBS’s new energy storage infrastructure strategy.

The manager’s new energy storage strategy “is a separate strategy from UBS Global Infrastructure”, Ken-Ichi Hino, UBS’s executive director of energy storage, told Infrastructure Investor. “Mark [Saunders] and George [Manahilov], our partners, joined UBS last fall as part of the Asset Management Group to launch this new strategy.”

Hino added: “Our new strategy is really about energy storage and the advantages that it creates. Moving forward, when sourcing deals we’ll look for the white space within energy storage – meaning taking advantage of the bi-directional capabilities that it has and the high efficiency that batteries provide, along with the small footprint that they have in the target markets where we’ve seen energy price volatility increasing, particularly associated with renewable energy. And so, we’re looking for more deals for stand-alone energy storage – specifically that will maximise the value of the capital that we put to work.”

Hino said UBS has a “novel” approach towards maximising that capital, though he is not at liberty to discuss specifics. What he did divulge is that UBS is wary of technological mismatches with regards to offtake contract demands. “Due to that,” he said, “we are contracting the batteries in a way that both aligns with their technological capabilities as well as our more efficient terms of risk and reward.”

A flexible approach

The deal will significantly increase the size of Texas’s energy storage market. According to figures from ERCOT, Texas had between 1.3GW and 2.8GW of energy storage connected to the grid at the end of 2021.

“[These five projects] are all in line with 2024 commercial operations dates,” Hino said. “They have not entered construction yet. Our strategy here is to optimise the design and the engineering pieces of the portfolios with the operations and the offtake. And so that’s what we are doing right now and where our focus is.”

In regards to the sort of timeframe UBS envisions for both these assets and their time response for grid support, Hino revealed: “We view battery technology and battery deployment projects as being very flexible, and that is something that we want to take advantage of over the project lifetimes. But for the initial projects or for the initial deployments, we’ll certainly have fast-responding batteries. Over time, we’ll continue to evaluate the opportunity in the economics of duration expansion, new technologies, retrofitting, etc.”

One thing that could have a major impact on timeline evaluations is The Inflation Reduction Act. Assuming it becomes law, Hino sees it as a net good for the assets. “With the extension of the investment tax credit, I think that’s going to be certainly a beneficial thing on our timelines,” he said. “And then some of the support, particularly the industrial policy aspects, will aid American energy storage and deployments in the mid-to-long term as well.”