(Bloomberg) --
Just as Tesla Inc. batteries supplied batteries that helped balance and demand on the U.K. grid for the first time, one startup aims to profit from the growing demand for storage capacity among investors.
Vest Energy is a clean technology trading house run by Aaron Lally, a former trader at Mercuria Energy Group and Glencore Plc. His fledgling firm is signing up large funds and companies looking for ESG investments that will usually finance or build renewable or battery assets but won’t have the trading capabilities to react quickly to changes in market prices.
There are already some specialist energy-storage funds like Gore Street Plc and Gresham House Plc. But as infrastructure funds, which have been involved in the renewables space, start to get interested in batteries, there is a gap in expertise particularly when it comes to monetizing storage, a burgeoning technology.
Vest Energy has trading technology that an infrastructure fund wouldn’t have and will use algorithms to determine future power prices and dispatch assets at the most profitable times. Batteries are set to become increasingly critical in the power market as a back-up for a grid absorbing more intermittent flows from wind and solar farms.
“The market is stressed when there’s an under-supply of renewables, and that’s going to lead to energy storage and renewables revenues going through the roof,” Lally said in an interview.
Using batteries in the balancing market, like Tesla’s six megapack units, shows the technology is able to perform many of the same services as gas and nuclear stations. Energy storage can take advantage of grid contracts to guarantee power at specific times, which may be more profitable than selling electricity into the market. Winning these contracts requires knowledge of the technology and regulation, Lally said.
If prices look like they will turn negative, a battery needs to be empty and ready to draw power from the grid and earn money while doing it.
In Europe, energy storage projects have benefited from increased power market volatility due to the growing of share of renewable generation during coronavirus lockdowns, BloombergNEF said in a report. This may improve the business case to build more.
“Over the last four or five years, we’ve been in a low-volatility environment in the U.K. but also across Europe, and we strongly believe we’re coming to the bottom of that cycle,” Lally said.
Lally said he is in the process of signing up clients and finalizing commercial agreements. Vest Energy, backed by private equity firm CF Partners U.K. LLP, will start focusing on the U.K., which is about two years ahead of other nations in integrating batteries into the power market. Vest wants to hire more people and move into Germany, Italy, Spain, France and Ireland.
Read more here about the U.K. rules making bigger batteries possible
Vest Energy isn’t alone in offering these trading services. Scandinavian companies like Danske Commodities AS, Centrica Energy Trading AS in Denmark have been optimizing renewable assets for years. It will be among the first to focus on energy storage.
In July, commodities trader Hartree Partners Plc launched its venture to build and operate renewable assets to help companies cut emissions from their electricity supply.
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