A Tesla solar storage system in Hawaii. Tesla storage technology was at the center of the first nonrecourse debt financing for a solar storage portfolio in 2017.Source: Tesla Inc.
As battery storage paired with renewables becomes a more familiar part of the power generation landscape, the norms and standards by which these projects will be financed are taking shape.
In March 2017, CIT Group Inc. arranged the first nonrecourse debt financing for a battery storage portfolio for solar assets, backing a Macquarie Capital (USA) Inc.-owned portfolio of solar assets in California. The storage systems, developed by Advanced Microgrid Solutions, were equipped with Tesla Energy Operations Inc.'s Powerpack 2 lithium-ion batteries.
"There aren't really many solar deals that are being done anymore that don't have a serious inclusion of storage conversations," Eamon Nolan, a partner in project development and finance at law firm Vinson & Elkins, told S&P Global Market Intelligence in an interview. "Most new-build utility-scale renewables transactions are giving serious consideration to how energy storage can augment and enhance the economics of the project."
Developer 8minutenergy Renewables LLC, for example, is including a storage component with all of its new projects. And it is not only utility-scale projects that are featuring storage. The Solar Energy Industries Association projects that roughly 25% of new distributed solar assets will feature storage by 2023, up from 3% in 2018.
By 2024, the global storage market is expected to swell to 158 GWh, up from 12 GWh in 2018, according to a report from energy research and consultancy group Wood Mackenzie Inc.
Among the financial institutions pushing into storage are Sumitomo Mitsui Banking Corp., which has been anticipating demand for storage financing, and NY Green Bank, which has developed projections related to pricing storage into deals.
Meanwhile, major power players are becoming more invested in storage. Most recently, GE Renewable Energy and Convergent Energy and Power LP announced a supply agreement under which the General Electric Co. subsidiary will deliver 25 MW/100 MWh of battery storage to three of the developer's California projects, as GE increases its storage activity in the U.S., U.K. and Australia.
"Obviously, battery storage is another technology that [NextEra Energy Resources LLC] are spending a lot of time focused on," NextEra Energy Partners Chairman and CEO James Robo said on a Sept. 30 investor call after the yieldco announced a deal to acquire a gas pipeline company. Robo added that NextEra Energy Resources, the competitive generation subsidiary of NextEra Energy Inc., is "signing long-term contracts" for storage assets and expressed a willingness to acquire storage projects as they become "a bigger and bigger piece of the energy business."
Later in the week, Robo made his view more explicit during an Oct. 2 investor conference, saying, "We see renewables plus battery storage, without incentives, being cheaper than natural gas and cheaper than existing coal and existing nuclear."
Retirements of fossil fuel-powered facilities, mainly coal-fired plants, will drive increased demand for energy storage from renewable resources, said Ram Sunkara, a partner at Eversheds Sutherland and head of the law firm's natural gas liquids, petrochemical, liquefied natural gas and distributed generation and renewable corporate procurement teams.
"I think until we have a long-term, viable storage infrastructure program in the U.S., which we have not gotten to yet, on a utility scale, we're still going to need gas-fired generation to balance the grid, because we have too much intermittent generation with wind and solar," said Sunkara, who expects both renewable storage assets and gas-fired facilities to be fixtures of the power space in the coming years.
"Energy storage is going to be the next kind of breakout technology," said Mona Dajani, partner and co-head of energy and infrastructure projects team at law firm Pillsbury Winthrop Shaw Pittman, but added that while there are batteries and technologies to support demand, "they still need to come down more in cost before we can scale up."
"The key issues are that the lenders need to be comfortable with the technology risks so mitigants include a credit-worthy supplier that's standing behind extended contractual warranties," said Dajani, noting that robust operations and maintenance contracts from reputable providers will also be an important factor in banks' calculations.
"I think that robust technical advice will be important for lenders, including in relation to the batteries' depths of charge," said Dajani, referring to a battery's total capacity as it relates to the speed of the battery's degradation.
"Who your battery provider is is a big deal and their track record is a big deal," Ethan Zindler, head of Americas at BloombergNEF, said during a Columbia University Climate Week NYC event in September 2019.
Safety continues to be an issue as well, with concerns lingering following an April explosion at Arizona Public Service Co.'s 2-MW lithium-ion battery project in Surprise, Ariz. Dozens of storage projects have caught fire in recent years, including more than 20 in South Korea. However, the industry has spent much of 2019 seeking out ways to make projects safer, according to market watchers.
"We've taken heed of [recent accidents] and already taken steps to ensure we are limiting risk to the greatest extent possible," said John Zahurancik, COO of Fluence Energy LLC, which installed the APS system in Arizona.
Financiers will be weighing technological, geographic and economic factors as they look toward financing more storage, said Dajani. "The revenue stream, which is what the banks look at, will depend on the electricity market, the technology, the project size [and] whether the project is applied behind-the-meter or connected to the public grid."