← Currents
Currents
Ep338: A New Use for Old Wells
00:21:07
Kemp Gregory, CEO of Renewell Energy, discusses a novel energy storage approach that repurposes idle oil and gas wells into gravity‑based storage systems, using existing infrastructure to deliver low‑cost, flexible capacity to the grid.
Loading summary
Transcript47 lines
- [00:00]
A
Foreign.
- [00:05]
B
Welcome to Currents, a Nord Rose Fulbright podcast. Today we're recording with Kemp Gregory, the CEO of Renewal Energy. Renewal Energy takes idle oil wells and repurposes them for energy storage. And we know that energy storage is a hot topic these days, especially with the tax credits expiring for wind and solar. So, Kemp, welcome to the podcast.
- [00:25]
A
Great, I'm glad to be here.
- [00:28]
B
All right, so first, the way I just described that, to me, being a project finance lawyer sounds a little bit more like a science project that a PhD student would be undertaking or maybe a white paper that somebody has from NREL or something. What is it that you are actually doing? And can you explain to us how it works and what you're able to. How the energy storage works and how
- [00:54]
A
much energy you're able to produce?
- [00:56]
B
Really in store.
- [00:57]
A
Yeah, yeah, happy to. So what we do is we take idle oil and gas wells, we convert them into gravity based energy storage and we do that by moving a weight up and down inside the wellbore, controlled by a wire rope that's connected back to a winch. So it's really just mass times gravity times height, or in our case, mass times gravity times depth. So in our pilot installation out here in California, we have a 30,000 pound weight that's about 2,000ft long and it moves up and down at about a wellbore that's 7,000ft deep. And we have a 1 inch wire rope connected to the top of the weight that goes all the way up through a sheave, out the top of the wellhead and then over and connects into a really big regenerative winch. A winch that's designed to spin both ways. So when the weight's moving down the wire rope is being pulled off the winch and it's spinning the whole system in reverse, if you want to think
- [01:46]
B
about it that way.
- [01:47]
A
So when you spin a motor in reverse, it is effectively a generator. So now we're pushing power to the grid. When the weight's moving down the well, you can think of this like our discharge. And then when we're pulling power from the grid, that is when electricity prices are cheap, we're pulling power from the grid and we're using the motor in its normal mode to do what winches might be what you assume they always do, which is move things up. So up we pull the weight towards the surface and then we just do that process once a day.
- [02:15]
B
And what's the. I don't know if the correct term is medium or whatever that you're Using to create this resistance. Is it air, like some kind of airflow or you put water in there, what do you do?
- [02:26]
A
Yeah, it's water. It's water. The well's full of water.
- [02:29]
B
Okay. And, and so, so basically you got this water. So it's kind of like almost like. Well, I guess not exactly pumped hydro but kind of kind of like a little mini hydro system that you guys bring in and out. So when you came up with this
- [02:42]
A
idea that we're, we like to joke that we're pumped hydro is sort of metallic cousin in that the water that moves around the weight doesn't actually drive any motion the way a water in a pumped hydro drives motion. It's all about the wire pulling off the winch. Yeah, very, very easy, easy comparison.
- [03:02]
B
What's the efficiency conversion? So you, because you're, it sounds like you're pulling power off the grid, it's kind of like an arbitrage idea. Right? So yeah, pulling power off.
- [03:11]
A
Yeah, that's right.
- [03:12]
B
Grid. When maybe in the middle of two o' clock in the morning or something like that. Or maybe depending where you are, maybe at three or four o'clock in the afternoon if you got a lot of normals around or something and then discharging to smooth out peaks. So to do that I'm assuming you need to be fairly efficient. What, what kind of efficiency ratio do you have?
- [03:31]
A
Yeah, you're, you got the nail on the head there. Depending on where you are. Just like you said it, the wind actually blows the strongest at night. So if we were in a very wind heavy area, we'd be raising the weights. Night obviously, solar in the day. So that's when we would do that. And then you probably will almost always want discharge in our case lower the weights in the 4pm to 9pm window. That's when electricity prices are the most expensive. That's when everybody comes home and turns their air conditioning on or turns their heater on, whatever. So the round trip efficiency that we have tested in the field today is about 60%. So lithium ion batteries and pumped hydro, the two primary ways in which we store energy in the United States today, actually dominated by pumped hydrogen, is about 80% average in the field. So 60 to 20, I mean 60 to 80. There's a gap there. We think we could top out at around 70. So it'll be sort of in the same neighborhood. But what utilities care more about than efficiency is cost. They want the energy storage to be very, very low cost. And that's something we deliver on in spades. We think we can deliver energy storage for about $5 per kilowatt hour, when a typical lithium ion deal these days is probably something more like $300 per kilowatt hour. And depending on who you ask, we'll only get down to, let's say, $100 per kilowatt hour in the most bullish examples. But you asked me a question, I didn't answer. Sorry about that capacity. So each system, well, I should say the one we've built today is about 36 kilowatt hours, 36 kilowatts. So we keep it relatively simple, probably will for the medium to long term in that we match power to energy. So it's about, it's just a one hour charge, one hour discharge. So we think we can grow the system size to maybe 100 kilowatt hours and 100 kilowatts before we start tampering with the ratio of power to energy. But it really just means getting into deeper wells where we can build heavier weights. So there's really not a lot of science behind building bigger systems, or at least not hard to figure out how we would do it.
- [05:29]
B
So where are the ideal locations for your technology to be deployed?
- [05:34]
A
Yeah, great question. We pass every well through seven different criteria, and I can name off a few. But the big ones, the well needs to be near electrical infrastructure. A battery without connection to the grid is really no battery at all, or at least not a useful one. The well needs to be so deep, needs to be so wide, needs to be straight, needs to pass a pressure test so it can't look like Swiss cheese down there. Like the casing's got to be intact. And, you know, it needs to have pretty good energy storage revenue in the area or else we're not terribly interested. And then last but not least, is actually kind of the most important in terms of what it segues into is the plug and abandonment cost for that well needs to be relatively high where we are starting out. And that's because we really offer two services every time we convert a well. We offer the oil and gas company an alternate means for satisfying their plug and abandonment for elimination obligation. And that we charge a service for. I mean, we charge a fee for. We charge a fee for that service and then we use that money to help us build the hardware that we then turn around and sell for a very low price its service to the utility. So we spend a lot of money to build hardware. A lot of people think mechanical energy storage is always a bad idea because it always costs so much and we didn't figure out how to make it extraordinarily cheap. That's not our trick, that's not our insight. Our insight was, hey, these oil and gas companies have to spend all this money on plug and abandonment or elimination, remediation, sort of more generic terms. There's a way that if you can get them a new option, get it approved by the regulator, then they will pay you for this new method that you've just unlocked for them. And then you turn around and take that well and turn it into energy storage. And that's sort of the, the magic trick behind renewables. We're really a two service entity. We just kind of do it all at the same time.
- [07:18]
B
Yeah, I like that. So basically there'll be like kind of this stranded hole in the ground that now we can use for something useful.
- [07:25]
A
So yeah, yeah, what's the some soapboxes about that. But I'll let you drive the combo and see if you want to unpack.
- [07:32]
B
No, no, be my guest. You're going to know a lot more about it than I ever will.
- [07:37]
A
Yeah, there's really just two main points there. Point number one is that there is a massive backlog of idle wells in the United States. There's just there are more wells in the United States than any other country by a massive margin. And it's mostly because we have private mineral rights and really nowhere else does Canada used to. Not so much anymore. So if you own the land, you have the right to drill or if you own the mineral rights. So that results in huge quantities of wells. And there's actually a really interesting demographic slice of wells in the United states. States about 900,000 active wells, about 700,000 of which are stripper wells. They make very little oil. They make less than 15 barrels a day. And then there are about 2.1 million idle wells. And the terminology gets a little confusing here. And I don't blame anybody for getting confused. The oil patch is full of redundant and confusing terms. Idle means it's still owned by someone, think Chevron or Bill Johnson and company or whatever, anyone in between. It's not plugged and abandoned, it hasn't been eliminated or remediated and it's not making oil and gas. So that's sort of the biggest layer of the demographic. And then the bottom layer is the orphan wells. That's what people sort of confuse idle and orphan frequently because sometimes they'll call idle wells abandoned wells. That's just not quite right. And then that kind of sounds like plugged and Abandoned wells, which is a whole other demographic. So yeah, I use active, idle and orphan and there's about 100,000 to 500,000 orphan wells depending on AES. Nobody really knows that's the nature of them being orphans. So we go after that idle well tranche. If that idle well tranche delivers in any significant quantity wells into the orphan well trotch, we're screwed. Like that's a bad situation for all of us because then the taxpayer pays when a well needs to get cleaned up. That's orphan. So our flag that we're waving over here is like, don't let the orphan well apocalypse happen. Like let's do something with all these idle wells instead of letting them just trickle on into the government's problem, I. E. The taxpayer's problem. So we're sort of waving our flag saying like, hey, there's a better way we can do something better than just filling them full of cement and cutting their heads off or neglecting them, which is the two options that really happened today. So that's sort of soapbox number one. Soapbox number two I'll keep short. And that is the grid we have today is probably the grid we're all going to get going forward. Nobody's building a lot of high voltage lines. If you look at a graph of the amount of high voltage lines that the US has built over the last 15 years, it's a precipitous decline. And so the point I'm trying to make there is people sometimes say like, oh, putting energy storage in an oil well is dumb idea because you can't put it wherever you want. And my response is you can't put anything wherever you want. It's got to be where the electrical infrastructure already is. And a lot of people don't know this about oil fields, but they're mostly electrified. There's tons of poles and wires that run through oil fields because they want to run those pump jacks off electricity because it's so cheap. So what you've got is this awesome mashup of an incredibly good gravity based energy storage resource in a bunch of deep holes with a bunch of electrical infrastructure on top of them. And that's just sort of a Goldilocks situation where it's a fun calculation on what's more valuable, the wells themselves or the energy electrical infrastructure on top. They're both valuable, they're both in the, you know, they're both need to have something else done with them for different reasons. But we're sort of here to repurpose Both.
- [10:52]
B
So just assume, you know, the high end is just 500,000 idled wells. Of those 500,000, are you saying a majority, if not the vast majority of them are located in a place where you'd have interconnect that you could inject power onto the grid if you get. Yeah, there might be some upgrades needed or whatever, but theoretically you could, you could inject power into the grid and they could be suitable sites for energy storage.
- [11:21]
A
Yeah. The best proxy for trying to figure this out, which is a question we've tried to ask ourselves, is whether the well is oil or gas or somewhere in between. If a well is a dry gas well, then it's probably on plunger lift, which, which requires no electrical infrastructure, doesn't require power, adds a very low tech system that works brilliantly, but it doesn't need any electricity. If anything is pushing any type of fluid like condensate or stuff like that, then they probably need a pump jack or something like that. And that ratio of sort of associated gas, wet gas, straight up oil wells to just purely dry wells, dry gas Wells is about 70, 30. So that's why we think about it, there's probably about 70% of the wells in the United States are electrified. Not every single one.
- [12:03]
B
Well, there's still an enormous addressable market or whatever you call it from your end. Yeah, huge, huge opportunity. So, so let's get to what, what I guess one, once you came up with this idea, how do you get funded to make it work? Because doing anything for the first time in the energy business is always very difficult. So how do, how do you get money to prove that your concept works?
- [12:26]
A
Yeah, the first people to believe in us were the professors we had at Stanford put money behind us and then some friends and some family that was, that was going on six years ago now. Since then we've raised a seed round from more traditional sort of VC structured entities that bet on early stage climate tech hardware stuff. And then we've, because our story is so good, we've actually had a lot of good fortune in winning grants. So we won about $3.1 million in grants, mostly from the DOE. Actually it's all technically from the DOE but the biggest chunk was from ARPA E. And then more recently we run about $6.4 million in grants and that's split between the California and the actual Kern county, like the county I'm in right now, which is where 90% of California's oil and gas comes from. And it's the number one county in terms of Solar in the nation as well, which is kind of cool.
- [13:20]
B
Yeah. But we've done some solar projects, basically.
- [13:22]
A
Yeah, we've basically been alternating between dilutive, non dilutive, dilutive, non dilutive. And so now we're on this big upswing of non dilutive, which means we're going to go back to the market shortly and raise Series A, where we want to raise something to the tune of 8 to 10 million dollars in preparation for trying to scale this up, move from one commercial scale pilot to the five. We've got grant funded and then we want to add, you know, 20 or so on top of that.
- [13:48]
B
So that was going to be my next question. You kind of answered it, but I'm going to ask it so you can be more clear. What do you actually have in operation today and what's the, let's say, short term, next 12 months look like if your business plan pans out?
- [14:05]
A
Yeah. So we have one commercial installation operating today. It's in the California Central Valley with an oil and gas company called California Resources Corporation. We sort of unoriginally named it Alpha. I was out there yesterday with my team. Yeah, it's pretty, pretty cool for someone who's really into winches and energy storage. A little underwhelming when you're just standing there looking at it, but yeah, it's our, it's our, it's our baby. But over the next 12 months, we're going to permanent permit and install two more systems which were very uncreatively naming Beta. And I don't even know if we have a name for the third one. I don't think we do. We call it beta 2, but it would be like a new, new gen, you know, new design, same concept, just upgrades in lots of different areas. So we're really looking forward to moving out of just having one, which we're very proud of, but into the world where we're talking about multiple systems and then ultimately, hopefully. Which is why I imagine what you're thinking is blend the financing with not just equity and grants, but introduce project financing because we're so modular. If somebody wanted to do a project finance for 50 wells, we could do that. We could do 500 wells. It doesn't have to be, you know, a $500 million project each and every time.
- [15:18]
B
So two questions for you. One. First one is, does your technology benefit from the investment tax credit?
- [15:26]
A
Yes. Yeah. Thank God that survived.
- [15:30]
B
All right, so that's good for you. Second is, what is it, give or take? I mean, it sounds like one that you're about to step up to bigger storage facilities. But let's say you get Alpha, Beta, Gamma, whatever built here, Delta, you're up to whatever. I don't know what it takes to get to Kappa or whatever.
- [15:54]
A
Well, it is.
- [15:54]
B
Before you're comfortable going to market. You think people are going to take this? What does it cost per kilowatt that point? And kind of how do you. When does that happen? And then what are you. Are you. Is it still too early in the game to figure out how you're going to deploy hundreds of these?
- [16:13]
A
Yeah, I have an audacious answer for this. By 25. By 25 total installations. So we're already one in. We've got five booked. Love to make a big sale here shortly of 20. But yeah, by 25 systems we think we could reach $0 per kilowatt hour. What I mean there is that the normal CAPEX formula is all the money you got to spend divided by all the capacity you create. We like to think of it like all the money you got to spend minus this fee that we charge oil and gas companies, minus the itc, divided by all the capacity you can create. And that way I like to tell VCs when they ask me what do you do? I say I build free energy storage just. Just to see their eyes pop. But that is the vision is that we want to get this. We want to level those two, I guess really three columns, CapEx activation fee thing we charge oil and gas companies with the itc. Those two columns stack up to essentially eclipse capex. And then even though we're relatively small energy storage, we're basically getting profit in year zero. As long as revenue beats opex. We've already taken care of the capex and that's one of the reasons that we think we could be poised for fast growth.
- [17:19]
B
So it sounds like then if I understand the business model, you'd be in a situation where any place that you have high peaks on power prices would be a great market for you. Assuming everything else, you know, the geography works in terms of both geology and geography, I guess work that you got to be able to cite it. You got to be able to cite it. But once if you can cite it someplace that's got high and high, big, big range in power prices, basically you can arbitrage that and help smooth the peaks down and make money at the same time and kind of control costs for wholesale users and for retail and kind of also stabilize the grid.
- [17:59]
A
Yeah, that's right. That is our vision. Basically the way we think about it is that when we started this company, energy storage was there to firm wind and solar, which is still great and necessary because we're curtailing massive amounts of power around the country, especially in California. Then data centers showed up and basically turned the story away from we need energy storage to firm winded solar to we need energy storage to save the grid. Like if the grid doesn't get significantly more flexible because of the way data centers have a very variable load and just outright more electrons needed, then we're all going to be in a real bad spot. And so that's been a serious tailwind for us, even if it's not necessarily data center and wells right next to each other, although that could happen. That's just sort of another soapbox. It's more just like the grid is going to go under massive strain. I've just talked about how it's not getting any newer or younger or better really in terms of the poles and wires. So we're going to have to vastly improve it at the end points. So that's better and more generation, but also really low cost. Flexible energy storage being the real dynamic characteristic of a more flexible grid.
- [19:00]
B
Well, we definitely need that. So let me ask you, how many. I don't know if you go by megawatt hours in your the way you do it, but like a typical lithium battery storage developer would. But however you're measuring it in how much storage can you guys think you can provide then? Let's say if according to your business plan, you get your first 25 built and then within a fairly reasonable time you're able to show people and then you deploy it. I don't know how long it takes to build these things. I don't know how long it takes to get environmental permits for them. I don't know how long it takes to get upgrades for interconnect. Is this the kind of thing you could have 500 megawatts installed in five years or is that way too much or too little for that matter?
- [19:47]
A
Yeah. Okay, so we want to have something like 650 megawatts of capacity by like 2033 or 2032.
- [20:00]
B
Okay, so I was kind of was close.
- [20:04]
A
Yeah. It's not. Yeah, we're not the silver bullet. We're not like going to come up. We're not going to provide all the energy storage the nation needs, but we will be the, the lowest cost, most flexible version of energy storage.
- [20:16]
B
It all can all sounds extremely interesting. We need all the help we can get. Even if this isn't going to be the silver bullet, as you say, that solves all our needs. At least it can help address some of them. So. So good luck with it and thanks for recording with us today.
- [20:32]
A
Thanks for having me here. Yeah, great questions. Really appreciate your time.
- [20:39]
B
You can find us online at www.projectfinance.law or send us an email at currentsordonrosefullbright.com Please rate, review and subscribe on Apple Podcasts, Spotify or your preferred podcast app. Our show today was produced by Emily Rogers.
- [20:55]
A
Stay ahead of the Currents.