CAES Development Company

Sector: Electric Storage / Power Generation

Investment Fund: Fund I, Fund II

Geography: Ohio

Initial Investment: June 1, 1999

In 1999, the Principals believed that the Midwestern U.S. was oversupplied in base load coal and nuclear facilities and recognized that the oversupply was generating excess capacity, forcing base load units to operate sub-optimally. The oversupply of electricity was amplified by the deregulation of certain electricity generation markets in the Midwest as many facilities became “competitive” assets, not “rate-based” assets. As a result, owners of competitive coal and nuclear plants were at risk for load factor, fuel efficiency and operations and maintenance costs.

Haddington and their consultants generated the idea to develop a new method for the bulk storage of electricity that would increase electricity output at these facilities while simultaneously cutting costs. The method, known as compressed air energy storage or CAES, converts excess electricity generated at night by base load coal and nuclear power plants into more profitable and flexible daytime energy. Excess electricity is used to compress air that is stored underground and then released in the daytime to fuel the plant’s turbines and produce energy.

Both Fund I and Fund II invested in CAES Development Company (CDC) and held approximately 94% of the ownership interests in CDC. The balance of the ownership interests were held by existing and former management.

CDC developed a systematic site search for project candidate (geologic, market, gas and electric infrastructure) and reviewed over 7,500 candidate sites. Haddington believed that premier sites were in short supply and acquired the Norton Energy Storage (NES) site as the best site reviewed. CDC obtained all permits necessary to develop up to 2,700 MW of compressed air energy storage at the NES site, which can be constructed in as many as nine modules of 300 MW each. Engineering and equipment design and cost estimates have been completed for the first 600 MW of generation (two modules) and 400 MW of compression.

In September 2001, the Haddington funds sold an option to purchase CDC to a major utility. The terms of the option included a non-refundable option payment. Due to dislocation in the U.S. energy markets caused by the California energy crisis and the Enron bankruptcy, the utility declined to purchase the facility and the option expired, and the CDC board decided to delay the development of the project.

Between 2005 and 2006, the Midwest Independent System Operator (MISO) was sanctioned by FERC, and hourly markets developed for electric energy. By 2008, with wind energy and other renewables driving even greater price volatility in the electricity markets, energy storage’s attributes again became compelling. 

Haddington successfully exited Norton in 2009.  In November 2009, FirstEnergy Generation Corp., a subsidiary of Akron, Ohio-based FirstEnergy Corp.(NYSE: FE) announced the purchase of the rights to the Norton project  from CDC.