Title: How Battery Technology Is Changing the Game
Speakers: Amie Colby and Bill Derasmo
Amie Colby (00:07):
Well, good morning, Bill. How are you today?
Bill Derasmo (00:09):
Doing well, Amie. How about yourself?
Amie Colby (00:11):
I’m great, thank you. Well, I’m Amie Colby. I’m at Troutman Pepper. I’ve been here for 23 years in the energy practice and I’ve had the pleasure of practicing with you virtually the entire time.
Bill Derasmo (00:21):
Yes, I have also been here at Troutman Pepper for 23 years practicing alongside of you.
Amie Colby (00:26):
A couple years ago, you started an energy storage, or Battery and Storage, podcast at Troutman Pepper.
Bill Derasmo (00:31):
Yeah.
Amie Colby (00:31):
And let’s talk a little bit about the genesis of that podcast.
Bill Derasmo (00:35):
Yes, the origin story, if you will. So we had a case where we were working with a client around 2016, 2017 where they had a standalone battery storage resource in the Midwest and they were trying to figure out how to capture all of the value that that asset could produce and all the services it could provide to the grid. And so we had to file a complaint at the Federal Energy Regulatory Commission, essentially focused on the market rules in the Midwest and the fact that they felt like their battery couldn’t capture the value. And so we filed a complaint and we got relief for them and then —
Amie Colby (01:13):
And what was the relief?
Bill Derasmo (01:15):
The relief was essentially that the market operator in the Midwest, as we call it MISO in the industry, had to change their market rules, which are captured in a tariff, to allow for the battery storage resource to participate in the market for each product that it was capable of providing. So energy, ancillary services, the different products within the energy market. And so MISO had to change its market rules to allow for that. And then FERC ended up issuing a generic nationwide order called Order 841, which has become somewhat famous, that ordered that relief essentially to all the markets nationwide. So that was how I got interested in it.
Amie Colby (02:01):
And so you were really at the leading edge of sort of the regulation regarding, especially at the federal level — regarding battery and storage.
Bill Derasmo (02:10):
Right. And so we decided that, hey, part of our job is to stay ahead of trends and where the industry is going on behalf of our clients. So we had the idea, well, why don’t we start talking about it and talking about the thought leaders? And so we started a podcast around 2019. Now we’re in our fourth season, as we like to say. But we’ve had a variety of guests. We’ve had two FERC commissioners. We’ve had 12 or so CEOs. We’ve had a general counsel. We’ve talked about the issues associated with storage from a variety of angles, not just regulation, from a transactional and market perspective, from a lot of time spent on the different types of battery chemistry and diving into the engineering behind these batteries. It’s brought up a lot of different ways of looking at the issue.
You have grid scale versus EVs. And so there are different types of batteries. One’s for mobility, one’s for where you would put them on the bulk power system on the grid and they would provide energy. And so that’s one way of kind of dividing up the world. Another is long duration versus short duration. There are batteries that function better over shorter periods of time and then you have to use different battery chemistries for longer periods of time as an example.
Amie Colby (03:28):
Okay. So well, let’s talk about the long duration, short duration. So where are you seeing that type of technology right now?
Bill Derasmo (03:36):
Right. So lithium ion is the dominant battery chemistry technology, right? And everyone’s familiar with lithium ion. Those batteries are better suited to shorter duration and they’re better suited in the mobility space. And so lithium ion is clearly the market leader dominant, but it’s less well suited to longer duration applications. You could certainly use it that way, but there have been other competing battery chemistries such as vanadium, iron, zinc, different ways of coming at the problem where that chemistry is better suited to have an energy release over a much longer time window.
Amie Colby (04:20):
So lithium primarily right now is sourced in China, correct?
Bill Derasmo (04:25):
Yes.
Amie Colby (04:25):
And so that causes its own issues from a national security perspective —
Bill Derasmo (04:29):
Right.
Amie Colby (04:30):
And just supply chain.
Bill Derasmo (04:31):
We have a movement within the United States — really under the previous administration, has continued under the Biden administration — of trying to re-shore manufacturing capability and just the supply chain. And the supply chain became a huge issue really at the end of the last administration, but it’s continued on. And so we have a big effort now and the Inflation Reduction Act was a result of, I think, this movement of say, “Hey, we’ve got a national security issue, an energy security issue where we’ve got to reshore some of this production.” And that — you can’t talk about storage…
Amie Colby (05:06):
…Without talking about the Inflation Reduction Act. It was just a game changer.
Bill Derasmo (05:10):
Exactly. And so there are now really favorable tax treatments if you produce batteries here, if you source — if you source the domestic content issue, if you source the minerals here, the batteries, locate factories here. The Inflation Reduction Act really drives a reshoring of our supply chain and lithium’s part of that. There have been some creative — I’ll touch on some creative solutions around the lithium problem and then we can go back to the IRA. As far as the so-called lithium problem, we had Megan O’Connor on with Nth Cycle and she has a proprietary technology, her company does, where they could pull the lithium out of spent batteries. And they’re not so spent because then you could take the lithium and use it a second time, and other minerals they can extract. And then we have a company B2U Storage Solutions where they take the batteries from the automobiles and then use them in a stationary application grid scale.
So those are creative solutions around trying to increase the supply of lithium, but —
Amie Colby (06:14):
And also second life.
Bill Derasmo (06:15):
Right. It’s second life. So it takes care of this — well, what are we gonna do with these things? Are we gonna put them all in landfills? The disposal aspect? Well, they don’t have to be disposed of so soon. And so there are those issues. And then as far as sort of re-shoring our supply chain, the Inflation Reduction Act is gonna have profound impacts. You’ve seen a number of companies announce that they’re gonna site factories here to build the batteries, which is an exciting thing, right?
Amie Colby (06:44):
Right. And the IRA, or the Inflation Reduction Act, really gives benefits to companies.
Bill Derasmo (06:50):
Right.
Amie Colby (06:50):
You can’t get the tax credits unless it’s a source.
Bill Derasmo (06:53):
And I breezed over that important point. Yes. Absolutely. That’s why the reshoring is happening, because the Inflation Reduction Act creates significant incentives for you to source your materials here in the United States.
Amie Colby (07:05):
Right. And we’re both regulatory lawyers so we do want to say that we have Dan Anziska, who’s been one of our colleagues who’s been very much on top of the factory and the sourcing. And then our colleague Anne Loomis, and Adam Kobos, who are our tax attorneys that are very much on top of all the tax credits and how to achieve those benefits.
Bill Derasmo (07:25):
Right. I think one of the challenges and one of the fun parts of our job is to pull together somebody like an Amie Colby and an Adam Kobos and put together a team that can handle the challenges if a client comes to us and says, “Listen, I’ve got this business plan. Now how do I execute on it?” And we’re doing that in real time. We’re working with companies as they site a factory and then they say, “Hey, we wanna pursue a business model where we’re going to stay in the project. We’re going to sell the batteries, but then we’re going to be a part owner, for instance.” Of a project that’s then gonna sell energy. And that creates a whole host of issues down the line. But you really need to bring a team to bear.
And I feel like we can do that for clients who are interested in executing on their business plan.
Amie Colby (08:10):
Right. And we get the opportunity to be in this really creative timeframe where it’s new to everybody. And so it’s fun as lawyers to get to interact with our colleagues, interact with our clients and create the best business plan and solution for our clients.
Bill Derasmo (08:27):
Absolutely. We’re really lucky to be able to work with creative clients and then our colleagues and we come together because now’s the time, right? As you say, this is essentially a new space. And there’s gonna be new things that come along after this. Like we’re already talking about hydrogen and renewable natural gas and all these things that are coming sort of after, if you will, storage. And part of our job is to see those trends, anticipate them, and then work for creative solutions that maximize the value of the investment for our clients.
Amie Colby (09:00):
Exactly right. As regulatory lawyers, I can’t help but touch on the fact that the regulation right now is just not keeping up with the technology.
Bill Derasmo (09:07):
That’s right. And that’s — we’ve mentioned that we’ve been practicing for a long time. In certain respects, our career has been sort of a travel log of different technologies. You had the dash to gas when we first started out and then a movement — “Hey, we’re gonna build a lot of wind and then solar and now storage.” And there’ll be things beyond storage, like hydrogen and things that are coming down the pike. As far as storage is concerned on the regulatory side, and you can speak to this — the issue of interconnection, that’s a problem more generically.
Amie Colby (09:37):
Correct.
Bill Derasmo (09:38):
Right?
Amie Colby (09:39):
Correct.
Bill Derasmo (09:39):
But what are you seeing with respect to interconnecting storage resources?
Amie Colby (09:44):
Interconnection regulations are causing issues across the country. The current chairman of FERC has announced that he does intend to do some type of queue reform or interconnection reform to try to address this, because to get the number of new batteries or standalone batteries or new resources online to help with the reduction in carbon or carbon reduction, we really need some new regulatory regimes to assist with that.
Bill Derasmo (10:14):
Yes. And interconnection — you hit on interconnection queue. So when you wanna connect a new resource to the grid, you have to go through something called the interconnection queue. And what have you seen recently? Because what’s interesting is storage creates different challenges than maybe the other resources that have traditionally been coming on the grid.
Amie Colby (10:37):
Storage is really interesting. And prior to the IRA, most storage facilities were not standalone. They were co-located with either solar or wind. And there were tax benefits for doing that. With the IRA, the government has said, “Hey, you can have a tax benefit as a standalone storage.” So we’re seeing developers appropriately try to maximize their resources, and are looking at interconnections they may have had that had been co-located and trying to split those so that they can have a standalone battery interconnection and then potentially a solar or wind interconnection. And so the companies across the United States are trying to address the pace at which these developers are trying to, and utilities are trying to, capitalize on the benefits of the standalone storage.
Bill Derasmo (11:27):
Yeah, it’s an interesting development and I think we’re gonna continue to see the evolution of the rules around these resources. And we talked at the start of the conversation just getting the market rules opened up so that storage could participate effectively. And now we’re talking about interconnection reform. There will be other changes, I’m sure. And it’s part of our job to anticipate that and help our clients navigate that.
Amie Colby (11:52):
So, Bill, this has been a great conversation. It’s really been a pleasure for us to get to sit and talk about this technology that is really going to be a game changer for our industry. And we get the opportunity to help shape some of the solutions with our regulatory practices.
Bill Derasmo (12:11):
Absolutely. And we get to work with really creative clients and help them come up with creative solutions and we’re really lucky to be here.
Amie Colby (12:19):
Thank you very much.
Bill Derasmo (12:20):
Thank you.
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