Positioning for growth, Enchanted Rock (ERock) has signed a deal for $240-$335 million of natural gas generators for its reliability microgrids.
The deal comes as the microgrid developer continues to find traction for its reliability microgrid concept in Texas — and moves to expand elsewhere in North America.
Power Solutions International (PSI) and its subsidiary Professional Power Products (3Pi) will provide the gensets under a mutually exclusive deal.
ERock installs natural gas gensets in microgrids at customer sites, which it aggregates into virtual power plants. The aggregations provide ancillary services to the central grid.
Revenue from the grid services offsets microgrid costs, so ERock is able to supply customers – most recently stores — with reliability at a discounted price. The microgrids provide back-up power for the customers.
ERock’s growth projections for Texas support the genset contract. But the company is working on deals beyond the state, including in Canada and New York.
“Texas is still our home base and we’re growing pretty rapidly here. And we’re looking to expand in other areas of North America,” Thomas McAndrew, ERock CEO, in an interview Tuesday.
To that end, ERock is looking at how to modify its gensets for northern climates. PSI and 3Pi are helping ERock redesign the gensets. The Texas microgrids must function in temperatures of 115-120 degrees. In contrast, in parts of Canada the equipment must operate at times in weather 20-30 below zero.
In addition to modifying its gensets, ERock also will need to adapt its revenue formula when it moves beyond ERCOT, the grid operator for most of Texas.
ERock will tailor its approach to the revenue streams available in other wholesale market. “Certain markets are more capacity focused. In other markets there are opportunities to help folks avoid demand charges. ERCOT is more focused on the energy/ancillary services side,” McAndrew said.
The more revenue ERock can derive from the wholesale market, the less the customer pays for reliability, he said.
So far ERock has only supplied reliability microgrids in deregulated markets. But McAndrew said he is open to working with utilities in vertically integrated markets, as well.
ERock expects to purchase about $30 million in microgrid gensets in 2017 from 3Pi, with volumes ramping up significantly in 2018, 2019 and 2020. The deal is subject to the attainment of certain targeted volume levels.
The manufacturer will exclusively supply its Heavy Duty 21.9L engine to ERock for reliability microgrids in North America. The deal extends an existing contract that ERock signed with 3Pi in June.
“This latest agreement with ERock solidifies 3Pi’s shift of focus to the rapidly growing, high-value distributed generation markets (microgrid, demand response & CHP),” said Gary Winemaster, PSI’s CEO.
He added that the company offers highly engineered solutions rather than commodity genset packages, a strategy that allows 3Pi to take advantage of ongoing energy market trends.
The new contract, combined with the original agreement, positions 3Pi for significant revenue growth in 2017, Winemaster said. He expects 3Pi’s to exceed its previous high water mark of $40 million.
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