Beacon Power Corp. has signed a lease agreement with NorthWestern Energy for a 1 MW Smart Energy Matrix flywheel energy storage system. The system will be installed by Beacon Power and operated in conjunction with Mill Creek Generating Station (MCGS), a gas-fired regulating reserve plant recently commissioned in Montana and owned by NorthWestern Energy. The system is expected to be operational by the end of 2011.

The initial term of the lease will be 15 months, which, at NorthWestern Energy's option, can be extended up to two additional 12-month terms. NorthWestern Energy will pay Beacon $500,000 for the first 15-month term and $500,000 for each subsequent term should it choose to extend the lease to a second or third term. At any point NorthWestern Energy can opt to purchase the 1 MW system outright for approximately $4 million. A portion of lease payments already made under the agreement would be applied to the purchase, depending on when the purchase was made.

The Mill Creek Generating Station was recently placed in service to balance all loads and resources in NorthWestern Energy's balancing authority area in Montana. It will also provide regulation service for variable energy resources that are part of NorthWestern Energy's retail energy supply portfolio.

As part of their agreement, Beacon and NorthWestern Energy will collaborate closely in developing the flywheel system's control signal algorithms to optimize the performance of the MCGS, and to evaluate the impact of the flywheel resource. The companies will also seek to determine the optimum amount of flywheel regulation capacity for MCGS should NorthWestern elect to expand the flywheel capacity.