The distributed energy storage company Branch Energy announced today that it is moving into PJM via Illinois, in order to take advantage of the region’s recently opened pathway for large energy users to “bring their own capacity.”
Under that framework, a data center could finance new capacity, including distributed capacity, in order to get connected to the grid faster. Notably, new capacity can come online anywhere in the PJM system to count. To finance its expansion into PJM, Branch raised a $33 million Series B, led by Piva Capital and Clean Energy Ventures.
Branch, which is vertically integrated, develops and operates behind-the-meter battery fleets for commercial customers, and aggregates them into virtual power plants. The company guarantees its commercial and industrial customers savings on their energy bill, while earning money on the front of the meter. In Texas, that looks like energy arbitrage and demand-charge management in ERCOT’s energy-only market: charging the batteries when prices are low and discharging when prices spike. There, Branch has largely financed its fleet on the back of its retail business and prior funding rounds.
In PJM, Branch will still own and operate the batteries, but is shifting to a more traditional project finance model, where long-term deals with hyperscalers will underwrite the batteries. (The company uses minimum 10-year terms with five-year auto renewals in Texas, and plans to use that model in PJM too.)
That change in how Branch finances its battery assets is critical to scaling beyond Texas, explained Lee Larson, a principal at Piva Capital. With data center offtakers, Branch can secure project finance term sheets, rather than funding deployments via equity from the corporate balance sheet.
In the near term, Larson expects Branch to act as a capacity provider in partnership with an existing BYOC aggregator, with the hyperscaler as the ultimate buyer. That’s the approach taken by Sunrun, for example, which last month inked an agreement to provide capacity to Voltus’ portfolio in PJM. Voltus, which pioneered the BYOC framework, has already agreed to provide 100 megawatts of capacity for Google data centers in the region.
For now, Branch isn’t announcing any partnerships in PJM, nor whether it ultimately expects to contract directly with hyperscalers. That said, Branch does have an existing partnership with Voltus in Texas, which aggregates some of Branch’s customer-sited batteries for ERCOT grid services.
“There’s going to be lots of different structures [of BYOC],” Branch co-founder and CEO Alex Ince-Cushman told Latitude Media. The structure being used by Voltus and Google is “proof that you can directly turn hyperscalers’ desire for compute into deployed capacity,” he added. “There’s going to be a huge amount of money flowing through it over the next five years.”
Ince-Cushman declined to share the size of Branch’s current portfolio, but said the company is targeting “tens of thousands of units over the next several years,” which equates to ”billions of dollars in annual PPA revenue.”
Making VPPs profitable
Branch’s model is essentially a C&I version of the one developed by home battery startup Base Power, which also recently expanded into PJM via Illinois — and which is also looking to serve data centers interested in BYOC.
But there are a few notable differences. For one thing, Base has raised significantly more money, including both a $200-million Series B and a $1-billion Series C within the span of a year. That latest raise valued Base at an eye-popping $13 billion.
One key distinction is the fact that Branch is only vertically integrated down to the energy management system level. Meanwhile, Base manufactures its own batteries, an extremely capital-intensive endeavor requiring significantly more up-front investment.
Larson sees Branch’s C&I approach as a more efficient use of capital, including when it comes to the cost of expanding into new markets. Each of the batteries Branch installs is 50 times larger than a typical residential battery, Larson explained, which means higher revenue per install, and lower customer acquisition cost per kilowatt. C&I installations often have more complex electrical and permitting requirements, he added, but that’s what Branch’s software layer is designed to tackle.
Customer acquisition, a longstanding barrier to scale for VPPs, is heavily broker-driven in the C&I space, Larson added. That means Branch can plug into its existing network of those energy brokers, many of whom already manage C&I power contracts in PJM as well as ERCOT, rather than having to spend money on a sales team and rely on door-knocking or advertising.
But neither Branch nor its investors really see the company as being in competition with Base, even if the latter opted to expand from the residential to the C&I space.
The scale of opportunity “boggles the mind,” Ince-Cushman said. That’s in part because the market penetration of C&I batteries is negligible — unlike for residential batteries, which has seen an uptick in deployment in recent years. “PJM has well over a million commercial sites…if we run around and we sign up 20,000 sites, we’re a very small fraction…even a multi-billion-dollar-a-year revenue company in this space is still low single-digit market share.”
The BYOC framework essentially creates a PPA for distributed capacity, Ince-Cushman explained. “Think about how impactful it was for solar to be able to get long-term offtake agreements, and what that did to your ability to deploy at scale and grow exponentially — that’s what we’re starting to see play out in PJM,” he added.
