How NineDot Energy will use $100M to install distributed batteries in NYC

NineDot Energy has spent the past six years finding ways to work in New York City’s congested and ever-changing distributed-energy market, from analyzing the value of distributed solar to developing and selling megawatt-scale fuel-cell projects in the Bronx and Staten Island.

Last week, it landed approximately $100 million from private-equity firm Carlyle to take a crack at another high-risk, high-reward target: community-scale battery installations, some of them paired with solar and electric-vehicle chargers, that could help the country’s most populous city hit its decarbonization goals.

It’s a big vote of confidence for a startup whose headquarters are still located in the Urban Future Lab incubator space in Brooklyn where it launched in 2015. ​“This is our first outside investment,” CEO David Arfin said in an interview this week.

“We bootstrapped the company” with ​“sweat equity” provided by himself and co-founders Adam Cohen and Nalin Kulatilaka, Arfin said. NineDot has also received loans from the New York Green Bank and has been bolstered by proceeds from the sale of its first fuel-cell projects, back when the company was named Certain Solar.

Now, with Carlyle committed to what Arfin said was ​“about $100 million” of project equity and development equity capital, NineDot plans to develop, build and operate 1.6 gigawatt-hours of what it calls ​“clean energy systems” by 2026, centered on lithium-ion battery installations in relatively small individual packages of 5 megawatts or less.

Those are challenging projects to develop in a crowded urban landscape. ​“It’s still incredibly expensive to build in New York City compared to upstate, for all the obvious reasons,” he said. ​“We have a [battery] supply shortage, and labor is scarce,” as is land to build on.

And then there’s the ​“risk-reward calculation” that goes into making a project financially viable in an economic and regulatory landscape that’s changing from year to year. ​“Every project has five to 10 variables that can go to the upside or the downside,” Arfin said.

At the same time, downstate New York is hungry for energy storage, he said. Unlike upstate New York, which is rich in hydropower and wind power, New York City is largely reliant on fossil-fueled power plants that must close to meet the state’s decarbonization goals. New transmission lines are being planned to bring clean power from north to south, but they will take years to build.

Meanwhile, New York state wants to build 10 gigawatts of distributed solar projects by 2030 and 9 GW of offshore wind power by 2035, providing varying amounts of energy that will need to be stored to match day-to-day fluctuations in demand. That demand will increase dramatically as the state and city push ahead on electrifying vehicles and building heating.

Growing demand for batteries

All of these factors are driving a need for batteries. New York Governor Kathy Hochul (D) introduced a raft of clean energy goals in her State of the State address earlier this month, including a doubling of the state’s 2030 energy storage target from 3 GW to 6 GW. That’s a long way from the 130 megawatts of batteries installed in the state so far, although an additional 1,240 MW are under contract and another 415 MW are being solicited by the state’s utilities.

While the mandate doesn’t specify where that storage must be built, the convoluted economic incentive structures set in place by state agencies and regulators do offer significant upside to projects that can serve the needs of New York City and its environs, Arfin said. The trick is to ​“navigate, anticipate and react” to a constantly changing environment.

“Buckets of funds open and close, and that can happen very quickly,” he said. ​“It takes close to a year to develop a project, so you are investing in land and legal and engineering and environmental studies, and you hope that when your project gets approved, there will still be funds available. That’s one of the things that makes it risky.”

Navigating New York’s shifting distributed energy landscape

New York state’s distributed energy opportunities and complexities stem from its 2014 Reforming the Energy Vision initiative, which is reconfiguring energy markets and regulatory structures to incentivize clean and distributed energy. One of the biggest changes has been the creation of ​“value of distributed energy resources” incentive regimes, which are used to compensate community solar and distributed energy projects.

The ​“value stack” stemming from those incentives, which dictates the compensation for the electricity that projects deliver to the grid, differs dramatically depending on where the project is, when it provides electricity and how much carbon it emits. ​“They basically provide economic signals with pricing to say, ​‘Here’s how we will value the energy you produce’” based on location- and time-specific variables, Arfin said.

For companies such as NineDot that are targeting New York City, one of the most important parts of the value stack is an incentive variable that pays more for power that can ease overloaded or congested parts of the grid, which are concentrated in and around New York City.

Whether that extra value is enough to overcome the extra costs of building projects in that constrained urban landscape is another question. As of this month, the state had 574 completed community solar projects totaling 964 megawatts of nameplate generating capacity.

But developers have struggled to find cost-effective community solar projects in the more expensive downstate markets despite more lucrative locational incentives since land and development costs are so much higher than in upstate New York.

The state has created incentive programs to boost the economics of projects in urban areas. But these incentives have been quickly snapped up, creating a start-and-stop dynamic for development efforts.

For example, under the roadmap released last month that calls for New York to have at least 10 GW of distributed solar, at least 1 GW is proposed for New York City and Long Island. But a ​“community credit” program created in 2019 to boost the value of projects in the New York City and Westchester County service territory of utility Con Edison was nearly exhausted as of late last year, leaving projects that had planned to use it but that hadn’t yet qualified to receive it facing uncertain prospects.

Similar dynamics have undermined the value of some fuel-cell-based projects. NineDot’s precursor company Certain Solar developed a 7.5 MW fuel-cell project in Staten Island and a 5 MW one in the Bronx, both of which were sold to Catamaran Renewables in 2020, Arfin said. But while these fuel-cell installations do supply power in locations hungry for it, they run on natural gas, which led New York’s Public Service Commission to restrict community credits for future projects of this kind.

Distributed batteries, meanwhile, have been able to access additional incentives under the Retail Energy Storage program run by the New York State Energy Research and Development Authority. But that program has seen its incentives drawn down and reduced since its launch in 2019, and ​“they are once again tapped out,” according to Arfin. It’s a gap he’s hoping will be quickly filled as NYSERDA moves to back up the state’s new storage targets with supportive funding.

NineDot is also looking at ways its projects can make money by helping the grid during emergencies, Arfin said. Its first battery project, located in the Bronx, is seeking to participate in Con Edison’s dynamic load management program, a new version of demand response aimed at enlisting batteries and other energy assets to act quickly during heat waves or other times when the grid is straining to supply power.

Community energy, multiple subscribers and multiple technologies

Community energy projects finance and sell their power under very different rules than those governing utility-scale solar and battery projects like the 400 megawatt-hour battery that Con Edison has contracted with developer 174 Power Global. That large-scale project sells its power on the state’s wholesale energy markets. Community projects like NineDot Energy’s, in contrast, provide their power to utilities and line up subscribers for that power; the subscribers collect credits that reduce their utility bills.

This allows developers of community solar and storage projects to seek out subscribers ranging from large corporate anchor tenants to individual residential customers. An example of a typical contract structure would be last summer’s deal between multistate community solar developer Nexamp and Walmart, which will buy credits accounting for about 50 MW of the 129 MW portfolio of projects Nexamp is developing in upstate New York.

“Big energy buyers like a Walmart allow us to [find subscribers for] an energy project quickly and allow banks to have some level of comfort,” Nexamp CEO Zaid Ashai said in a September interview.

That comfort is important, since most of a community energy project’s subscribers aren’t committing to long-term contracts to buy the project’s energy credits, and project owners need to be ready to seek out new subscribers to replace those that drop out. Many community energy programs, including New York state’s, also set aside a certain portion of credits for lower-income customers who may have lower credit scores, which can add more risk to a project.

Aligning the financial incentives that allow community energy projects to pencil out economically are important factors for expanding access to clean energy for lower-income customers, apartment dwellers and other customers who can’t install rooftop solar or other energy systems where they live, Arfin said.

Beyond its Carlyle investment, NineDot has lined up technology and deployment partners to work on its New York distributed energy plans. These include fuel-cell supplier Bloom Energy, battery supplier Tesla, and Endurant Energy, the microgrid developer bought last year by LS Power.

NineDot is also working with Revel, the electric scooter and ride-share provider that’s building EV charging hubs throughout the city, and Fermata Energy, a bidirectional EV-charging provider that itself raised $40 million in investment from Carlyle this month.

NineDot, Revel and Fermata are planning to use vehicle-to-grid technology to supply energy back to the power grid during times of peak electricity demand. NineDot’s first project in the Bronx will include batteries, solar panels and EV chargers that could eventually enable EVs to augment the energy stored in stationary batteries at the site to support the grid, Arfin said.

New York’s moves to create a new structure for valuing these distributed energy resources have had their ups and downs. Still, said Arfin, ​“We think that those pricing signals, though imperfect at any one point in time, can improve and serve the ratepayers and the clean energy economy well.”

“You have big projects that are centralized, and others that are very distributed,” he said. ​“The grid needs both.”