A clean grid will need a lot of batteries to balance out the ups and downs of solar and wind power. Today, those batteries tend to come in two forms. The first is utility-scale battery farms that take up acres of land and cost up to hundreds of millions of dollars. The second is lots of little batteries tucked into garages and basements that can provide backup power when needed, plus share some of their stored energy with the grid at large.
Startup NineDot Energy is working on a third, medium-sized option — “community-scale battery storage” projects that can fit into less than an acre of open land or building space. The company’s first target: the crowded urban landscape of New York City, where utility-scale batteries are hard to build and batteries inside buildings are hard to finance.
This month, NineDot Energy raised $225 million in equity capital from new investor Manulife Investment Management and previous investor Carlyle, the private-equity firm that provided the startup with $100 million in financing in early 2022. NineDot used that initial tranche of funding to build its first project, a 3-megawatt/12-megawatt-hour battery and solar installation built on a 7,500-square-foot former parking lot in the Pelham Gardens neighborhood of the Bronx.
Behind a fence decorated with a mural designed by students of a nearby elementary school, four Tesla Megapacks hum away. Their job is to store electricity from utility Con Edison’s power grid when it’s plentiful, usually overnight, and then discharge it when the utility needs it to meet peak customer demand or keep the grid running during extreme weather or other emergencies.
With its new funding in hand, along with $85 million in construction debt financing from CIT and SMBC and a $25 million credit facility from the New York state’s NY Green Bank, NineDot has roughly $400 million in capital. It has about 30 projects in planning or construction across New York City, including one now being built on Staten Island. The company hopes to have 400 megawatts, or 1.6 gigawatt-hours, of projects under development by 2026.
That exceeds the 322 megawatts of grid batteries deployed in New York state today, and it would bring the state closer to meeting the goal that Governor Kathy Hochul set in late 2022 of having 6,000 megawatts’ worth of energy storage by 2030. That target is an important component of the state’s landmark 2019 climate bill, which aims to reach 70 percent renewable energy by 2030.
So far, New York’s large-scale battery market has failed to take off, however, with project developers unable to make the economics work under unfavorable utility contract terms. State policymakers have recently instituted a new Index Storage Credit structure for large-scale batteries that could provide more financial certainty to goose the deployment of 3 gigawatts, or 12 gigawatt-hours, of projects through 2030.
NineDot’s community storage systems, by contrast, earn their money through a different structure that has provided a “bankable, consistent framework for valuing the energy put on the power grid,” said Adam Cohen, NineDot’s CTO and co-founder. That structure, known as “value of distributed energy resources” (VDER) incentives, “can define for a reasonable period of time how much money you’re going to make, which makes financiers and investors comfortable that these projects will pencil out” economically.
New York’s VDER structure has largely been used by the growing number of community solar projects in the state and, more recently, by community solar paired with batteries. In simple terms, VDER sets the price that project developers are paid by utilities for the energy they provide to the grid.
Then, those project developers sign up “subscribers” ranging from corporate and government energy buyers to individual households that purchase a share of the power those projects produce, typically at a lower price than what they can get from the utility. That’s the standard approach in the 22 states (plus Washington, D.C.) that now have policies in place to support community solar.
But NineDot is one of a handful of companies — others include Summit Ridge Energy and Convergent Energy + Power — using VDER incentives for stand-alone battery projects. Other community-scale battery projects are being built by Con Edison, the utility serving New York City and Westchester County.
Batteries don’t generate their own clean power, of course. Instead, they withdraw power from the grid at large at times when it’s cheaper — and hopefully cleaner — and then discharge it to displace more expensive and dirtier grid power at other times, particularly when the grid is stressed by too much demand and not enough supply.
Cohen cited as an example the heat wave that hit New York City on September 7, the first day of the current school year — too many air conditioners running at once is a common cause of peak grid loads. “Overnight, when all the Bronx kids were getting their last tastes of summer break, the Pelham Garden system was charging up. When they got off their school buses, the system was fully charged, waiting for the afternoon peak,” he said. “As they were getting home and the grid began experiencing its daily peak demand, the batteries discharged power back into the grid.”
Getting batteries built in New York City
That distinct mode of operations has required some rejiggering of the structures designed for community solar projects, as well as for the decades-old rules and regulations for traditional energy infrastructure, Cohen noted. Fortunately for NineDot and other energy-storage providers, New York City “has really gotten behind energy storage inside the city to meet our renewable energy goals and to help shut down fossil fuel generators.”
Cohen said that since NineDot started working on its first project, a couple of key policy changes have occurred that have made it easier to get community storage up and running in New York. In 2022, state regulators altered the rules on how battery projects are charged by utilities for the energy they withdraw and reinject into the grid, which battery developers complained were making it too expensive to build in many parts of the state.
And in December, the New York City Council approved a policy package dubbed the “City of Yes for Carbon Neutrality,” designed to update decade-old zoning rules that have restricted everything from rooftop solar and electric vehicle chargers to building electrification and wastewater management retrofits. For batteries, the new zoning rules clarify “where you can install energy storage…and create a well-defined approval process for getting projects sited, permitted, built and operating,” Cohen said.
Safety concerns about batteries had also held up the development of community storage until recently. For years, the New York City Fire Department blocked lithium-ion battery projects within city limits because of their fire risk — a very real problem, as the rash of battery fires inside and outside the state has proven. But the work that the fire department has put into certifying the safety of batteries now being installed in the city has “become the gold standard nationwide for how to look at this technology and how to approve it,” Cohen said. “It may be slow, it may be complex — but it’s done thoroughly and has established a high level of trust.”
Building the value proposition for community storage
As more batteries get built in New York City, the opportunities to put them to use to help meet city and state climate goals start to multiply, Cohen said.
Today, the VDER tariffs that make up the bread-and-butter revenue for NineDot and other community solar and battery projects incorporate a “value stack” — a calculation of how each project can help provide lower-cost energy, alleviate the need for more expensive power plants to supply electricity at times of peak grid demand, reduce congestion on local grid circuits and lower overall carbon emissions of the grid at large.
If enough batteries are built within New York City, the power they store could replace that generated by fossil-fueled power plants still operating within the city’s borders. Environmental justice activists have fought for years to shutter those power plants, which pollute communities and cause health problems, and state regulators have set a deadline for closing them. But late last year, state grid operator NYISO postponed the scheduled 2024 closure of four of those plants, saying they were needed to meet peak grid demand until new transmission lines bringing power from upstate New York and Canada are completed in 2026.
Transmission lines and far-off wind and solar farms are one way to relieve pressure on congested city grids. But locally sited community solar and storage projects are another — and they can be built a lot more quickly than transmission lines. Environmental justice groups in California are pushing state regulators to approve a community solar-battery program, in hopes that installations in densely populated sections of west Los Angeles County could prevent fossil-gas-fired power plants from staying open past their scheduled closure dates.
The demand for electricity in New York and other cities will only increase in the years to come under mandates to transition vehicles and building heating away from fossil fuels. Cohen noted that provisions in New York City’s building decarbonization mandate, Local Law 97, allow properties that subscribe to community storage projects to count the electricity demand-shifting potential they provide in the same way they would if the batteries were located in their buildings. The biggest properties in the city can build their own batteries — the Javits Center convention hub in Manhattan has its own rooftop solar and indoor battery system, for instance — but “it’s really hard to find a good spot for a battery” in most buildings, he said.
Cohen conceded that the full range of benefits that community storage could provide is still being hashed out. “If we’re operating our batteries in 2034 the same way we’re operating them in 2024, we are doing something wrong,” he said. Eventually, distributed batteries could become integral to how utilities plan and operate their power grids, much as utility-scale batteries are today.
Gaining access to more of these “grid-services values” could also increase revenue for community storage projects, which in turn could allow them to provide cheaper energy to a greater number of lower-income and disadvantaged communities, he noted. New York’s climate law directs 35 percent of clean energy and environmental spending to disadvantaged communities. The Biden administration’s community solar programs also prioritize projects that can deliver low-cost energy to lower-income communities and communities of color.
But the economics of community solar and storage development also require deep-pocketed “anchor” subscribers willing to sign contracts for a portion of their energy. That includes customers like Starbucks, which is the first announced subscriber for NineDot’s Pelham Gardens project.
NineDot is also seeking out subscribers in disadvantaged communities, though it hasn’t made any announcements on that front yet. “We want the grid to be cleaner, and we want clean energy to get to those folks who need it the most,” he said. “The first thing is to make sure you have a bankable project.”
