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Leclanché CEO: 'Days of large power plants and chunky investments are over'

AnilSrivastava, French-born CEO of Leclanché SA, took the helm of the Swiss batterymanufacturer in 2014 after years in the renewable energy industry, includingstints as the chief executive at Arevea Renewables and a large offshore windbusiness in Germany.

Asthe oldest battery manufacturer in the world, Leclanché SA is looking tocapitalize on the growing demand for energy storage and market itself as aprovider of battery energy storage systems and power conversion systems

At BloombergNew Energy Finance's Future of Global Energy summit held in New York Cityearlier in April, S&P Global Market Intelligence spoke to Srivastava aboutLeclanché's approach to its upcoming energy storage projects, the financinglandscape, and evolving opportunities for energy and battery storagemanufacturers.

Anil Srivastava, CEO of Leclanché

Source: Leclanché

Leclanchéwas recently selected to deliver a 13 MW/ 53 MWh energy storage system, one ofNorth America's largest grid ancillary services projects, along with DeltroEnergy Inc. Construction of the first phase of this project, pegged at roughly$50 million, is starting across six sites in Ontario. An additional phase,estimated to cost an additional $25 million to $27 million, is due to beginroughly three to six months later. The manufacturer is also battery energy storagesolutions to a renewable project that is being developed by German-Americanintegration company YounicosAG in the Graciosa Island of the Azores, off the coast of Portugal.

Srivastavasaid he expects up to 1,000 MW of industrial-scale storage procurement to beawarded across the U.S., Canada and Europe this year, based on the number ofbids across PJM InterconnectionLLC markets, California, Ontario, Germany and the U.K.

S&P Global MarketIntelligence: Leclanché recently made a capital contribution to the energystorage project in Ontario. How do you see that panning out?

Srivastava: Leclanché agreed to providea strategic equity of around $2 million — roughly 5% of the capital. This isnot really an equity [contribution]. It's a guarantee to [our] shareholdersthat we are serious and we have a skin in the game. [As the turnkey provider],we will make sure that all six sites are up and running, as designed andcontracted. A larger share of capital will come from a pool of other equity[investors], including our own shareholders. These are off-balance sheet.

Wehave rounded off our part of the equity, which is sufficient to build the firsttwo to three sites, with the help of our shareholders and our own contributionof $2 million. We've also undertaken, on a best-effort basis, [an endeavor] tobring in debt from a Swiss export credit agency — SERV.

Is there a ballpark in termsof what component of debt would account for the overall construction costs?

Weare shooting for 60% to 70% in debt.

How does Leclanché's skin-in-the-gameapproach fall in line with its overall business strategy in the medium andlonger term?

That'sa good question. We are not here to provide equity. The difference Leclanchéhas made in the [Ontario] project, and going forward, in our strategy is tobecome the provider for energy storage systems for both energy and power — anintegrated provider of battery energy storage systems and power conversionsystems. Effectively, we would represent between 60% and 70% of a customerspend. [That means] 60% to 70% is Leclanché's direct supply. So, we control thevalue chain as a company from a building lithium cells to all of the hardware,systems software and power conversion systems. With humility, that's where wemake a difference.

What appealed to you aboutthe project in the Graciosa Island?

[Through]our PPA with a local distribution company, we will provide wind and solar[power] simultaneously… for 60% less consumption of diesel. There's noprecedent [for that].

Leclanchétook this project from a large Korean company [which] could not make it workeconomically. [That company's] technology can't take too many cycles. When youhave wind, you've got thousands of micro-cycles adding up to hundreds of cyclesin a week. We have a power cell technology called lithium titanate oxide. Wewere more expensive than this great Korean company on a total CapEx basis, buton a dollar-per-KWh basis we were cheaper because we can take more cycles. ThePV [facility] and battery [for the Graciosa project] will be up and running byJune. We aim to complete the [wind component of the] project in October.

What is your approach tofinancing the Graciosa project?

Whatshareholders intend to do is that when the first phase of commissioninghappens, [the idea is to] turn it over and get some debt. That's what they'veexpressed to us. That's why it's important to get some commissioning going, sothat they can go back and leverage the project. But as of now, it's funded withequity and some mezzanine.

Are mezzanine debt financiersopening up to the prospect of funding storage projects?

Theworld has changed. It's distributed power generation and local consumption. Thesize of [many] projects [today] will be small. The days of large power plantsand chunky investments are over. If infrastructure funds say, "I will notpick up my pen. Not worth my time," they will miss the boat. If banksstart to think the projects are too small [to invest in], somebody else willcome and fill that gap. Initial PVs were never with commercial banks. They'resmall. [The banks thought]: "Hmmm, not interested." Guess what? Now,it is such a significant part of the energy mix. The banks are scratching theirheads [and wondering], "How did we not be a part of this?" I thinkthey will follow the same with storage, if [perspectives] don't change.

Aportfolio of smaller projects for investors has one positive—your risk ismitigated, by definition. That part, I don't think people see.

Do you expect to seeconsolidation in the battery storage space, going forward?

Consolidationis not necessarily "bigger is better." Deeper is better. And I'm notplaying with the word. Leclanché will lead a deeper integration on a verticalbasis, where we bring the energy and power components into one homogenoussolution.