The rise in demand and decrease in price of battery storage is fueling demand – and deals. In August, EnCap Investments and Apollo Global Management agreed to sell Broad Reach’s battery storage business to Engie, a utility company based in La Défense, France. Yorktown Partners and Mercuria Energy Group were also involved in the sale of Broad Reach.
To learn more about the deal, PE Hub spoke with Shawn Cumberland, EnCap Energy Transition managing partner.
The exit was EnCap Energy Transition’s second sale of a battery company in less than a year. The Houston-based firm, along with Yorktown and Mercuria, sold battery storage developer Jupiter Power to BlackRock in a deal announced in November 2022.
EnCap also was the original owner of Broad Reach before selling a 50 percent stake to Apollo in November of 2021.
“Our modus operandi, the way we invest, is to build portfolio companies that are in the infrastructure part of clean energy,” said Cumberland.
The two exits reflect a key point in EnCap Energy Transition’s strategy. The team guides an investment early on with equity but if the company grows, it’s only natural that the firm sends the company to a mega fund with deep pockets.
“These things require billions of dollars, so it runs out of our capability,” Cumberland said. “We create companies that are going to be capital hogs. And then somebody big has to buy them and keep it going. That’s the next part of this evolution.”
EnCap Energy committed $600 million – about half of the total $1.2 billion in its Transition Fund I – to Broad Reach and Jupiter combined in 2019. Cumberland said there was a risk of being pigeonholed as a battery fund. “We’re not a storage fund,” he pointed out. “But we have a firm belief that storage is going to be needed in that large scale.”
In September of 2019, Cumberland was hired by the EnCap Energy Transition team along with Kellie Metcalf, Jim Hughes and Tim Rebhorn as managing partners to pursue investments in the global transition to lower carbon energy. The four managing partners were previously at Prisma Energy Capital, an investment vehicle of Yorktown Partners focused on renewables and storage investments.
The quartet’s hypothesis then was that battery prices were going to decline in the same way solar panels did, allowing for growth.
According to Fortune Business Insights, the global battery energy storage market size was $9.21 billion in 2021. The market is expected to grow from $10.88 billion in 2022 to $31.20 billion by 2029 at a CAGR of 16.3 percent in the 2022-29 period.
Energy storage represents the majority of Broad Reach’s business, while it also has a development team that installs solar and wind projects.
Broad Reach’s battery business includes 350MW of grid-scale battery assets in operation and 880MW under construction mainly in the Electric Reliability Council of Texas territory, with commissioning expected before the end of 2024.
Engie is also acquiring a 1.7GW pipeline of battery storage projects at an advanced stage of development and a collection of early-stage projects.
EnCap and Apollo will remain owners of the rest of Broad Reach’s business, which includes 1.8GW of solar and wind power projects together with 4GWh of battery storage in the Mountain West region of the US. Cumberland said a sale of the rest of Broad Reach’s business could be explored, but, for now, it will remain with both firms.