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Enel can cancel PG&E battery deals, judge rules, as developer pressure mounts

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Enel can cancel PG&E battery deals, judge rules, as developer pressure mounts

Enel Green Power North America Inc. can cancel three energy storage contracts with embattled Pacific Gas and Electric Co., or PG&E, ruled the federal judge presiding over the joint Chapter 11 bankruptcy cases of California's largest utility and its corporate parent PG&E Corp.

In a March 22 order, Judge Dennis Montali approved an agreement between PG&E and Enel Green Power North America, a project development affiliate of Italian power company Enel SpA, that authorizes the developer to terminate capacity contracts signed in late 2017 for three battery storage projects totaling 85 MW, as well as related interconnection agreements.

Under the terms of the stipulation, PG&E and Enel Green Power agreed not to claim damages arising out of any contract cancellations. The agreement does not, however, prevent the developer from asserting claims related to any collateral it has pledged for the projects, nor prevent PG&E or its parent from refuting any such claims.

Before reaching the agreement, Enel Green Power in February had asked Judge Montali to enforce its contractual rights under certain provisions of bankruptcy law, citing exposure to an undisclosed amount of development costs coupled with uncertainty over whether the contracts "will be terminated in connection with PG&E's bankruptcy."

The order comes as concern rises among PG&E's contract counterparties that the utility may seek to reject some of its roughly $42 billion in contractual commitments. The utility and its parent have pressed their case that the bankruptcy court has exclusive jurisdiction over their "rights to reject" power purchase agreements and other contracts, an argument recently confirmed by a federal district court. Among PG&E's contracts are nine energy storage agreements for 540 MW of contracted capacity to meet state reliability and energy storage targets, according to a bankruptcy filing.

California-based developer esVolta, which holds a recently approved resource adequacy contract with PG&E for a 75-MW battery storage project, on March 20 expressed concerns over looming development costs and asked Judge Montali to confirm its contractual rights under the contract, including its authority to terminate the deal. Development of the project, known as the Hummingbird Battery Energy Storage System, "is becoming untenable, as the threat of bankruptcy contract rejection has prevented esVolta and Hummingbird from obtaining the third-party financing that is necessary to continue with the facility's development."

At a recent conference in San Francisco, major energy storage investors were split on whether the collapse of PG&E's and other California utilities' credit ratings, related to their wildfire liabilities, could undermine California's energy storage market. Clean energy advocates, however, have expressed concerns that PG&E's bankruptcy reorganization puts the state's overarching clean energy and climate targets at risk.