North Carolina-based developer Strata Solar, which recently appointed a new cfo, has begun discussions with project finance lenders for a standalone utility-scale battery storage project in California as it awaits final approvals of its capacity revenue contract.
Strata's 100 MW/400 MWh Saticoy project in Oxnard was the largest of the storage systems chosen last week by Southern California Edison to replace retiring gas-fired generation instead of the 262 MW Puente gas-fired project proposed by NRG Energy.
SoCalEd is in the process of obtaining approvals for 20-year capacity contracts for the seven battery storage projects, which total 195 MW.
The Saticoy project is slated to cost between $120 million and $150 million with construction set to begin early next year. The developer intends to mandate lead arrangers for a project finance transaction in the third quarter of this year.
"We're in discussions with banks who are talking about 20-year debt in the L-plus-one handle, matched to both the capacity contracts and merchant revenue streams," Strata’s chief capital markets officer Jimmy Chuang tells PFR. "We expect our merchant ancillary revenues will be just as large."
"We're looking into hedging some of the merchant risk, which we can then count as contracted for the financing," adds the developer's new cfo, Andrew Groff.
Groff, a former Ernst & Young accountant whose last job was vice president and controller at LS Power, made the move from New Jersey to Durham, N.C., to join Strata this month. He had been with LS Power for eight years and has also previously worked at Covanta Energy and Stone Tower Capital.
Strata intends to have an in-house trader to oversee hedging in the CAISO day-ahead market.
CIT Bank is a potential front-runner, given its long relationship with Strata as well as its experience financing Macquarie Capital’s 63 MW/340 MWh Electrodes storage portfolio (PFR, 4/1). Zions Bank and MUFG have also financed Strata in the past.
In the meantime, Strata has raised some $500 million across revolving credit facilities and construction loans and says it has the flexibility to finance construction in a number of ways.
Chuang expects between $80 million and $100 million of the project’s final cost to be long-term financed with syndicated debt by its commercial operations date, which is penciled in for December 2020.
Joshua Rogol, Strata’s New York-based vice president for energy storage, is working on securing a technology provider.
Strata was founded in Chapel Hill, N.C., in 2008 by Markus and Cathy Wilhelm, and has since built up a 1 GW portfolio of solar assets, primarily in its home state. Over half of Strata’s 500 MW contracted pipeline, however, is outside North Carolina.
"As a $1 billion enterprise that remains family owned, Strata is unique in that we build assets with the expectation that we will own them for the next 40 years," says Chuang. "Our position as a vertically integrated solar and storage energy services provider ensures that we can meet this expectation."
Aside from the equity distributions from its solar assets, the bulk of its revenues come from build-transfers with its two biggest customers—Duke Energy and Dominion Energy—as well as its engineering procurement and construction contracting business.