Convincing lenders to invest in energy storage projects involves addressing their key concerns and showcasing the viability of such investments. Here are several strategies to make energy storage projects more appealing:
Key Strategies to Encourage Lender Investment
- Mitigate Technology Risks:
- Independent Engineer Reports: Secure robust reports from independent engineers to assess technology capabilities, safety, and long-term performance.
- Performance Guarantees and Warranties: Offer guarantees and warranties that cover potential degradation and safety issues, especially for lithium-ion batteries.
- Operations and Maintenance (O&M) Agreements: Ensure that O&M contracts are in place to maintain project performance and address degradation concerns.
- Establish Clear Revenue Streams:
- Offtake Agreements: Utilize long-term offtake agreements that provide predictable revenue through capacity or energy delivery payments.
- Merchant Cashflows: For projects with merchant cashflows, conduct detailed market studies and model sensitivities to understand potential scenarios and risks.
- Portfolio Financing: Offer portfolio financing options to diversify risks across multiple projects.
- Address Revenue Complexity:
- Diversified Revenue Streams: Highlight opportunities to generate revenue from multiple markets, including capacity, wholesale electricity sales, balancing mechanisms, and ancillary services.
- Optimizing Performance: Use advanced technologies like machine learning to optimize battery performance and ensure efficient operation.
- Increase Project Scale:
Expand project sizes from smaller scales (50-100MW) to larger capacities (250-500MW) to reduce costs and enhance lender confidence. - Demonstrate Success through Milestone Projects:
Showcase successful large-scale projects such as the Sheaf Energy Park in the UK, which has helped establish a model for viable project financing. - Leverage Tax Incentives:
Highlight available tax credits for standalone energy storage systems, as provided by legislation like the Inflation Reduction Act of 2022, to attract more investment.
By addressing these factors and creating a more bankable project structure, lenders can be increasingly convinced to invest in energy storage projects, helping to accelerate the transition to a more sustainable energy system.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/how-can-lenders-be-convinced-to-invest-in-energy-storage-projects/
