Gore Street Energy Storage (GSF) has announced that “Big Rock”, its 200MW California asset that it acquired in February 2023, has secured a resource adequacy (RA) contract with J. Aron & Company LLC, a subsidiary of Goldman Sachs. Big Rock is GSF’s largest asset and is on track to be energised by December 2024 and the fixed-price RA contract is scheduled to commence in summer 2025. The RA contract runs for 12 years, is worth over US$14m annually and is fully stackable “allowing for concurrent revenue streams across wholesale trading and ancillary services”. GSF says that the contract will significantly enhance its total revenue generation whilst further diversifying revenue streams and providing further stability. It adds that the contract also supports its long-term ability to continue distributing dividends to shareholders.
What is California’s RA programme?
The RA programme in California aims to ensure sufficient generation resources are available to meet the energy system’s supply requirements. It requires load-serving entities to demonstrate they have secured enough generation capacity through RA contracts to cover their forecasted peak demand plus a reserve margin. This includes physical resources like energy storage to ensure flexibility and reliability in the power supply. The RA contract requires a minimum duration of 4 hours and so Big Rock has secured a contract for 100 MW to fulfil the RA contract requirements.
The RA contract is similar to contracts in Great Britain’s capacity market in that it is a long-term contract that is “fully stackable simultaneously with other revenue streams”. However, the RA contract is worth a substantially larger portion of the total revenue in the California market – it is expected to account for up to 40% of the total expected revenue for BIG Rock over the contract life. Due to the long-term fixed-price nature of the contract, it also supports securing project-level debt against Big Rock.
Comments from Alex O’Cinneide, CEO of Gore Street Capital (GSF’s investment manager)
“This RA contract marks the next exciting step for the Company as a new revenue stream is secured for the portfolio. Securing this contract is a significant milestone for the Company’s cash flow. Based on contracts now in place, the Company’s contracted cash flows will increase fourfold compared to FY24.
“The closest equivalent of long-term contracted revenue held within the portfolio would be from GB Capacity Market contracts, which offer a fraction of the contracted revenue secured for Big Rock in California. The RA agreement ensures the Company’s largest asset to date will deliver long-term, stable value to investors, demonstrating the significance of our decision to enter the CAISO market.
“We are proud to have secured the RA contract from a high-level counterparty in Goldman Sachs as we look to continue to build on the Company’s track record of success in a new market.
“California represents a particularly attractive location for investment as the state is rapidly decarbonising its energy supply to reach carbon neutrality by 2045. Renewable technologies, led by the state’s c. 20 GW of installed grid-scale solar capacity, are already delivering high levels of power throughout the year and creating unique challenges in managing the grid. Energy storage is proving itself to be a crucial technology in facilitating California’s energy transition, reducing curtailment of renewables and supporting system operations during periods of steep ramping.
“We look forward to adding our expertise to the CAISO market with the Big Rock asset and further diversifying the Company’s revenue and geographic exposure.”