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Water + Air + Rock: Investors place big bets on Hydrostor’s energy-storage technology

Curtis VanWalleghem was in control of enterprise planning at Canada’s largest nuclear plant when he got here throughout the technology that may change the course of his profession. The yr was 2010. During price range discussions for Bruce Power, on the japanese shore of Lake Huron, the upkeep staff warned VanWalleghem that prices had been surging to new heights. At the time, the Ontario Liberals’ contentious Green Energy and Green Economy Act had been enacted to bolster the event of renewable power sources to ultimately substitute fossil fuels like coal, which then accounted for 8.3% of the province’s electrical era. To accommodate the variable output of Ontario’s wind farms, Bruce was basically being dialled down after which wound again up once more to make sure there was sufficient baseload electrical energy to maintain the province’s lights on.

It was expensive and impractical, and positively not what nuclear reactors had been constructed for. In addition, each time the ability was powered down, income dwindled. Energy storage, in some kind, stood out because the logical resolution. So VanWalleghem and his staff went seeking choices. First, they thought-about pumped hydro, which includes constructing two reservoirs at completely different elevations, then managing the move of water between them to drive generators. It was a confirmed technology, however it may very well be impractical—for one factor, it required huge swaths of land, and securing it might pit builders in opposition to residents.

Then, a junior member of VanWalleghem’s workers informed him about an inventor in Toronto named Cameron Lewis who was growing a method referred to as superior compressed-air power storage—one thing about storing compressed air in underwater balloons. It was too early-stage to be of use at Bruce Power, however not lengthy after assembly Lewis, VanWalleghem turned so bought on the concept that he signed on as CEO.

More than a decade later, Lewis’s technology—since modified to retailer compressed air in deep underground caverns—is on the cusp of taking part in a key function in an accelerated adoption of renewable power because the world confronts the local weather disaster. Early this yr, Hydrostor Inc. landed a US$250-million funding from one of many world’s prime buyers, Goldman Sachs Asset Management, which oversees greater than $2 trillion. The monetary large’s involvement might assist gas a constructing growth of Hydrostor amenities world wide.

Goldman’s timing certain appears good. If Canada and the remainder of the world have any hope of reaching the emissions discount targets set out within the Paris Agreement and staving off catastrophic local weather change, we have to be producing two-thirds of world power from renewables like wind, photo voltaic and geothermal by 2035, the International Energy Agency (IEA) says. (The total purpose is internet zero by 2050 with a purpose to restrict the rise in world temperatures to between 1.5 and two levels Celcius from pre-industrial ranges.) The IEA expects renewable electrical energy era to surge 60% from 2020 ranges, to greater than 4,800 gigawatts, within the subsequent 4 years alone. That equals the full present capability of fossil fuels and nuclear energy mixed. Renewables will make up 95% of the rise in worldwide electrical energy capability by means of 2026, with photo voltaic offering greater than half that.

For that to really occur, we’d like large quantities of power storage since, because the saying goes, the wind doesn’t all the time gust, and the solar doesn’t all the time shine. That means renewables can’t present the baseload energy electrical grids require, leaving many utilities to rely on fossil gas–fired energy to maintain their programs steady. Despite ample solar and wind in Canada, non-hydro renewable power made up simply 7.4% of the grid in 2019, in keeping with Natural Resources Canada.

The IEA tasks the world must increase capability by 56% to succeed in simply 270 gigawatts in 4 years, and there are a complete bunch of applied sciences within the combine. “You’ve bought compressed-air power storage, thermal storage, pumped hydro,” says Dan Woynillowicz, principal of Polaris Strategy + Insight, a local weather and power coverage consultancy in Victoria. “It’s all going to rely on the fee, market construction, the place they’re being utilized—which leads me to consider there’s not going to be one which prevails.”

Investors are piling in everywhere in the place: Over the primary three quarters of 2021, storage corporations raised US$5.5 billion in enterprise capital throughout 59 offers, in keeping with the Financial Times, in comparison with US$1.2 billion in all of 2020 over 91 offers. Much of that cash flowed to lithium-ion batteries, that are anticipated to account for a lot of the development. (Tesla, GE and Siemens are main gamers within the house.) But they’ve limitations. They require lithium, cobalt and numerous rare-earth minerals that should be mined—and a big chunk of world provide is managed by Chinese state–owned corporations, a serious danger as East-West tensions simmer. Operationally, batteries have comparatively fast cycle instances, which means they work most effectively for 4 hours or much less.

That means we have to develop different methods to succeed in storage scale in a rush—and Goldman and different buyers assume Hydrostor has landed on a singular one. One motive for his or her optimism is that its storage amenities can largely be constructed utilizing off-the-shelf parts and may hoard energy for days, not hours, and in bigger portions than batteries can. Plus, a Hydro-stor facility occupies a comparatively small footprint in comparison with pumped hydro, which means it’s a lot simpler to seek out locations to place them. “You want lower than 5% of the house and water, and you may construct it nearly wherever there’s competent bedrock,” says VanWalleghem. “You can go to the place the grid wants storage loads higher than pumped hydro can.”

Hydrostor has already constructed a few demonstration crops (together with one on the Toronto Island that’s now being dismantled, having served its objective), and it’s set to interrupt floor on three large-scale tasks with a whole bunch of megawatts of capability. It’s taken quite a lot of affected person capital from an uncommon assortment of backers to get the corporate to the purpose the place it’s set to scale up as world economies search new methods to decarbonize their energy grids.

Hydrostor’s magnificence is its relative simplicity. Lewis describes the system as an enormous piston. It works by pumping compressed air right into a cavern as deep as 600 metres underground. The rush of air pushes water as much as a reservoir on the floor. When the facility is required, the water is launched again into the cavern, sending the air out and driving generators that generate energy. The system comes with two benefits: The power could be saved over a interval of days relatively than hours, as is the case with batteries. It also can run on both extra or off-peak energy from the grid or from renewable sources, eliminating the necessity to burn fossil fuels for its compressors.

Hydrostor’s amenities are constructed from repurposed power processing tools, and assembling one requires the identical abilities—which suggests the experience already exists right here in Canada. The gear it makes use of for the storage course of is generally repurposed from different industries, primarily gasoline crops and different oil-field tools. Underground air storage in itself isn’t a model new idea, both—the pure gasoline trade, for instance, has saved gas in depleted reservoirs and caverns for many years. And the corporate says its gear can function for so long as half a century. If a facility must be decommissioned, the compressors and pipes could be eliminated, and the rocks that had been dug out of the shaft can merely be dumped again in.

The amenities are additionally extremely adaptable, says Lewis, as a result of they’ve three distinct components. If a utility requires extra storage time—say, three or 4 days—Hydrostor could make the underground cavern larger. If it requires a big, fast enter of photo voltaic power, it’ll set up a bigger compressor. If the client must discharge energy slowly over an extended interval, Hydrostor can set up a smaller turbine. “From my perspective,” says Lewis, “we’ve made a product that’s so wildly versatile, it’s simply interchangeable to match no matter they give you for his or her wants out there.”

Lewis recollects his first assembly with VanWalleghem as serendipitous. Lewis had minimize his tooth within the oil-field service trade in Alberta, and he’d been in search of methods to commercialize his invention whereas enrolled on the MaRS tech incubator in Toronto. His adviser there was Tom Rand, the co-founder of ArcTern Ventures, which has been investing in clear tech since 2012. After seeing Lewis’s hand-drawn sketch of the storage system in 2009, Rand took a couple of days to mull it over earlier than deciding concepts like Lewis’s would someday be key to the mass adoption of renewable power. He turned Hydrostor’s first angel investor. “There wasn’t a marketplace for Hydrostor again then,” says Rand, “however with out big long-duration storage, you possibly can’t remedy the local weather downside. It’s taken 10 years, however the market is right here, and it seems it was a very good wager.”

When it got here to the enterprise itself, Lewis noticed himself because the technical man, preferring to work behind the scenes. He had no need to be the face of the corporate. MaRS had superior Lewis a grant to rent a CEO so he might focus on product improvement. “This is the place the universe and the hand of God got here in,” he says.

Meanwhile, at Bruce Power, an analyst affiliate informed VanWalleghem a few man in Toronto who’d filed a patent for a brand new solution to do compressed air—a technology the affiliate thought might assist remedy Bruce’s downside. “It appeared fairly fascinating,” says VanWalleghem. “We sleuthed round and located Cam’s e-mail deal with.”

VanWalleghem’s e-mail inviting Lewis to debate the technology over lunch landed simply moments after the inventor had received the MaRS grant. Lewis informed VanWalleghem he was stunned MaRS had reached out so rapidly with a CEO candidate. Not solely had MaRS not contacted him, VanWalleghem replied, however he didn’t even know what MaRS was. The pair hit it off over lunch, and VanWalleghem turned a convert. “Cam’s idea was viable and compelling,” he says. “So I made a decision to take the leap of religion and be a part of.”

Maybe greater than the tech itself, what makes Hydrostor outstanding is its roster of strange-bedfellow buyers: the outspoken green-capitalism evangelist Rand and oil-patch financier Rafi Tahmazian of Calgary-based Canoe Financial. (For extra on Tahmazian’s extra conventional power investments, see web page 16.) While they maintain wildly completely different world views on decarbonization, they each agree on the potential for Hydrostor’s technology to grow to be a lynchpin within the transition to extra climate-friendly energy sources. So a lot in order that they’ve stayed with the corporate throughout a prolonged improvement interval during which it has but to generate vital income. All alongside, Rand and VanWalleghem have stored placing their very own cash into the enterprise. “For 11 years, each time we introduced on a brand new investor, they’d say, ‘Curt, Tom—you guys are available and put some extra money on the desk with us,’” says VanWalleghem. “So we must maintain doubling down and exhibiting our continued dedication to the enterprise.”

It could also be about to repay, as the corporate will get set to interrupt floor on three tasks in Australia and California price a complete of $2.5 billion.

Hydrostor attracted its first big investor, Calgary-based Lorem Partners, led by Curtis Bartlett and Ron Miller (each Hydrostor administrators), in 2016. Bartlett and Miller had made their fortune within the oil patch, backing, constructing and promoting off over a dozen oil and gasoline producers. Around 2010, they started to review the renewables sector and made an funding in a U.S. hydroelectric firm. Five years later, Bartlett sat by means of pitches by a number of startups linked to MaRS and got here away impressed by Hydrostor. At first, the valuation appeared a bit wealthy. But a yr later, with renewable power taking off throughout the utility sector, long-term storage was clearly the lacking piece. Hydro- stor appeared to have a chic resolution. “What they had been doing was taking confirmed stuff and placing it collectively in a brand new manner. There is not any black field,” says Bartlett. “Utility clients are arduous sufficient. If you’re attempting to promote them a black field on prime of it, like, good luck.”

It was Lorem that persuaded Canoe Financial to get in on Hydrostor in 2016. Tahmazian is Canoe’s senior portfolio supervisor and a vocal defender of the oil trade. He has little endurance for anybody espousing the notion that renewables alone can play the function of base energy supplier to a world that also depends closely on fossil fuels. Nonetheless, his agency started a seek for various power alternatives across the center of the final decade, when the oil-price crash precipitated a prolonged malaise within the patch. It landed on Hydrostor again when the corporate was price simply $12 million. “I assumed, Yeah, it’s small, however it’ll have an actual influence within the inexperienced motion,” Tahmazian says. “This is just not greenwashing my funds. It is exposing my purchasers to this and feeling good on the finish of the day that we’re attempting to do one thing materially related.”

In 2020, Paris-based fund supervisor and infrastructure developer Meridiam signed on as a associate, agreeing to assist fund a proposed venture in California utilizing Hydrostor’s technology. Since then, the corporate has benefited from Ottawa’s technique to carry the Canadian clean-tech sector into an exporting energy as world demand for climate-friendly services grows. In April 2021, the corporate scored $4 million from Natural Resources Canada’s Energy Innovation Program and Sustainable Development Technology Canada. Four months later, it received one other $10 million from the funding arm of BDC Capital.

Then alongside got here Goldman, which calls its take care of Hydrostor the largest-ever funding in long-duration power storage. It’s a part of the New York–primarily based finance large’s goal to lend and make investments US$150 billion in clean-tech and renewable power ventures world wide. Goldman executives, led by associate Charlie Gailliot, head of power transition non-public fairness investing, spent a few yr digging into the corporate as a part of its due diligence course of. Hydrostor’s tech, Gailliot mentioned in an e-mail, “will play an essential function on this planet’s transition to renewable energy.” Three of Hydrostor’s six board members are actually Goldman representatives. Based on the dimensions of its funding, that offers some indication of the non-public firm’s valuation—within the neighbourhood of US$500 million.

The funding, within the type of most well-liked fairness, will assist advance Hydrostor’s three essential tasks, together with two $1-billion amenities in California, which has referred to as for 100% carbon-free energy by 2045. The 500-megawatt instalment northeast of Los Angeles will retailer electrical energy for grids operated by L.A.’s Department of Water and Power and California Independent System Operator. When it’s accomplished, it’ll permit photo voltaic and wind farms to generate energy to the grid across the clock by offering as much as eight hours of electrical energy at full capability. The second venture is deliberate for Morro Bay, on the coast between San Francisco and L.A., the place it will present as much as 400 megawatts of capability to the native grid.

In Australia, the $500-million Broken Hill Energy Storage Centre would assist get rid of main new investments in energy traces in New South Wales and wean the area off its dependence on exhaust-belching diesel-powered mills. Located at a decommissioned mine, the ability is being developed with an Australian associate, the advisory agency Energy Estate. In 2020, Transgrid, the state’s transmission community service supplier, chosen the 200-megawatt venture as the popular choice in a regulatory examine for transmission funding.

The three tasks are in numerous levels of improvement, however they’ve all established interconnection with the facility grids they plan to serve, confirmed all rights-of-way, and accomplished preliminary geology and feasibility research. Hydrostor plans to make a ultimate resolution on a minimum of one in all them inside a yr. The plan is to get some or all the three tasks to fruition by 2025 or 2026.

Meanwhile, the placement for a brand new venture in Ontario—on prime of an present 1.75-megawatt facility in Goderich, Ont.—is now into account.

Rand, for one, has loads driving on Hydrostor: One-third of his complete internet price is tied up within the firm. He says Goldman Sachs’s funding reveals the facility storage enterprise isn’t only a local weather play however a monetary one. “It doesn’t matter your place on local weather. This transition is coming,” says Rand. “Giant hedge funds—I don’t assume they offer two shits about local weather. They’re inserting large bets on low-carbon applied sciences as a result of I feel everybody all of a sudden realizes the transition is inevitable. Whether it occurs quick sufficient to unravel the local weather downside is one other query.”

Tahmazian agrees—this isn’t simply “pipe goals and pixie mud and fairy tales,” he says. Hydrostor has the potential to generate profits for buyers. Renewable power, he says “is simply not an trade that’s mature sufficient to see a end result that’s constructive with out some very materials fixes, one in all them being storage. It was simply blatantly apparent to us.” That’s why Canoe has hung on because the years have marched on.

Now, the heightened focus on local weather options—and calls for from retail and institutional buyers alike for alternatives that supply each environmental and monetary features—has put Hydrostor ready to maneuver to the subsequent degree: constructing large-scale storage tasks and, down the highway, a doable preliminary public providing. VanWalleghem is satisfied that after the primary plant is up and working, the attraction of the technology will grow to be clear to different utilities as they add renewables to their grids. “Having these first three get by means of development—that’s actually the subsequent big milestone for us,” he says. “It will add quite a lot of worth for our buyers like Goldman Sachs and, in parallel with that, we ought to be choosing up tens of extra crops and getting them contracted. That will kind the idea for a really disruptive world enterprise.”

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