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PG&E breached energy storage deal, developer alleges, requesting cancellation

Highlights

Deal involves 10-MW Henrietta D project in California

PG&E says it is still on track to meet storage targets

Pacific Gas and Electric Co. has breached its agreement for the 10-MW Henrietta D Energy Storage Project under active development in Kings County, California, attorneys for developer Convergent Energy and Power said in court papers filed November 22, requesting permission to cancel the 20-year contract.

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In a motion filed with the US Bankruptcy Court for the Northern District of California, the venue for the Chapter 11 restructuring of Pacific Gas and Electric, or PG&E, and its parent company, PG&E Corp., attorneys for the developer described numerous "post-petition breaches" of contract "and other actions" that have imposed hardship on the project and made meeting its requirements "impossible."

The developer, a subsidiary of private equity firm Energy Capital Partners, cited a September 24 letter from PG&E that stated the charging restrictions it had previously placed on the facility would prevent the project from achieving its performance obligations under the agreement.

"This letter and debtor's course of conduct will prevent achievement of the core purpose of the [energy storage agreement]" and has created a basis for cancellation, attorneys said.

If Convergent's project is canceled, it would be a blow for battery technology specialist Eos Energy Storage, which was to supply its innovative zinc-based batteries for the facility, scheduled to come online by May 1, 2020.

PG&E 'WELL POSITIONED' TO MEET STORAGE TARGET

The Henrietta D Energy Storage Project is the latest contracted battery array to come under pressure in the bankruptcy proceeding, in which PG&E has committed to honor "all power purchase agreements, renewable energy power purchase agreements, and community choice aggregation servicing agreements" as part of its restructuring.

Earlier in November, US Bankruptcy Judge Dennis Montali granted permission for delays and price discounts that PG&E negotiated for solar and energy storage projects, including with a subsidiary of Vistra Energy that has a 20-year resource adequacy agreement for 300 MW/1,200 MWh of battery storage. That came after Montali in August granted price cuts and delays for five reworked solar and energy storage agreements.

Previously, the bankruptcy court also granted an affiliate of Enel SpA permission to cancel three energy storage contracts with PG&E, totaling 85 MW.

Despite the delays and possible cancellations, PG&E is on track to meet its 580-MW share of a 1,325-MW state energy storage procurement target, a utility spokesman said.

"PG&E is well positioned to meet its energy storage requirements with the projects it has under contract today," PG&E spokesman Paul Doherty said in an email. "If the need arose, PG&E has sufficient time to conduct incremental procurement."

Utilities must procure their shares by 2020, with actual installations to be completed by the end of 2024.

PG&E declined to respond to Convergent's allegation that it breached its contract.

"PG&E has received the filing and is reviewing," Doherty said.

-- Garrett Hering, S&P Global Market Intelligence, newsdesk@spglobal.com

-- Edited by Pankti Mehta, newsdesk@spglobal.com

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