Can the UK's Zenobe bring long-term storage contracts across the pond?

Armed with over $2 billion in funding, the U.K. battery storage and electric fleet startup Zenobe is ready to expand its presence in the United States. But one element of its success that may be a harder sell across the pond: contracts that are double or even triple as long as those typical of U.S. developers, and lots of them.

The approach that has won the company contracts, customers, and investors as it moved from grid balancing to storage on high-voltage transmission networks — in addition to its calling card of fleet charging — involves layers of services.

At Zenobe’s U.K. sites, for instance, the company is usually developing large-scale battery systems of 300 megawatts and above, and is providing multiple services simultaneously, with the contracts to back up each. According to founding director James Basden, who leads Zenobe’s network infrastructure business, this approach has meant that the company can punch above a startup’s typical weight.

“Unlike most companies doing battery storage, and indeed most companies doing battery storage in the U.S., we have long term contracts for nearly everything we do,” Basden said. These include 15-year capacity market contracts, as well as hedge contracts with large companies like EDF. But the company also gets paid by the system operator for their grid services. 

“That means that we can get 65% to 75% debt into projects — and completely changes the nature of the projects,” Basden said. “It’s much more like project financing than anything that's early-stage.”

Many, longer contracts

Basden said most of Zenobe’s competitors are getting more like 25% to 40% debt into contracts. But the company's customers are willing to sign contracts for long-term, forward-contracted revenue because of the additional services provided — as well as the company’s technical ability.

“From the offtaker’s point of view, the more variety and different types of revenue streams that we have, the lower the risk,” Basden said. A single site, he added, can yield as many as eight or nine individual contracts. And many of those are for a decade or longer.

Expanding operations to the U.S. does complicate this process somewhat, Basden said, simply because these types of contracts are less common across the pond. In the U.S., contracts are typically three to five years long, versus the agreements of 12 years or more that Zenobe undertakes.

Zenobe uses two structures for these contracts. The first is a floor, where the company gets a guaranteed amount of revenue from the likes of an EDF, with profit-sharing above that. Otherwise, they rely on a simple toll: a single payment of a standard amount over a given time period.

Zenobe does forecasting of its own revenue streams that is “at least as sophisticated” as its offtakers’ forecasts, which allows them to bring “really detailed analytics of how markets are going to evolve” to their meetings with the likes of EDF or Mercuria or Vitol. Those analytics are down to the level of a single site.

In the U.K., this means that the company “will have a really detailed view about what will happen per project over a 15-year period, typically,” he added. “And our intention is to do the same in the US.”

Conversations with potential U.S. offtakers are already underway, Basden confirmed, specifically for floor contracts (given that there aren’t many tolls in the U.S.). Zenobe is looking particularly at New York and Texas, Basden added. 

The evolution of Zenobe’s approach

Zenobe started out by adding batteries to the U.K.’s distribution networks for grid balancing. But within a year, the young startup pivoted, both to charging fleets of electric buses, and to focus its network infrastructure work “almost exclusively” on high-voltage transmission networks, Basden said. 

Today, Zenobe uses grid-forming inverters to tackle voltage problems, provide inertia to the grid, and fix short circuit levels after a fault, for instance. While the transmission scale is more challenging than the low-voltage one, Basden said, that focus has differentiated the company.

Another key element of Zenobe’s model is precision. Rather than just beef up the grid’s ability to store energy that would otherwise be curtailed, the company places batteries to clear up specific grid constraints, operating from within a few hundred meters of each.

To get the required visibility into said constraints, Zenobe conducts power system studies that Basden said can predict everything from the nature of power generation 25 years from now to the assets that are likely to be retired.

In the seven years since its founding, the company has raised a whopping total of over $2 billion (1.8 billion GBP) in debt and equity.

At the very start, the three co-founders managed to secure more than $32 million (25 million GBP) from 40 private individuals, which enabled the company to get its assets up and running. It then secured funding from the New York-based Tiger Infrastructure Partners, which focuses on early-stage infrastructure, and from the the Japanese JERA, a joint venture between Tokyo Electric and Chubu Electric, the country’s two biggest power generating companies.

From there, they were able to raise over a billion dollars from institutional, big-scale private equity — nearly $770 million (600 million GBP) from the private equity and infrastructure investor KKR, and more than $345 million (270 million GBP) from the Infracapital, which is backed by the Abu Dhabi sovereign wealth fund. 

These infrastructure funds were particularly interested in more innovative investments than typical wind and solar, Basden said: “We’re a really big flexibility play, and that’s absolutely essential for the uptake of renewable power.”

Today, Zenobe has roughly 300 employees spread throughout its offices. Beyond the U.K., Zenobe’s network infrastructure business is currently operating in Australia and the U.S.; its electric vehicle fleet charging business also has a presence in Belgium, Finland, the Netherlands, New Zealand, and Spain.