Lenders assess the risk of technology degradation in energy storage projects through a comprehensive process that involves several key steps and considerations:
Key Steps and Considerations in Assessing Degradation Risks
- Independent Engineer Reports:
- Lenders rely on reports from independent engineers to evaluate the technology risks, including degradation. These reports assess the project’s capacity to meet commissioning and performance requirements under applicable offtake agreements.
- Performance Guarantees and Warranties:
- Project companies often secure performance guarantees and equipment warranties to mitigate degradation concerns. Lenders assess these guarantees based on factors like the creditworthiness of the providers and whether these guarantees are assignable to the project company.
- Extended warranties or hybrid warranty/maintenance services can be explored to slow degradation.
- Battery Management Systems:
- Battery management systems are crucial in optimizing charge/discharge cycles to reduce degradation. Lenders consider how these systems are designed to manage state of charge (SoC) and depth of discharge (DoD) to preserve lifespan.
- Environmental Conditions:
- Maintaining suitable environmental conditions (e.g., temperature) is essential to extend battery lifespan and preserve warranties. Lenders assess whether operators have measures in place to mitigate thermal risks.
- Second-Life Batteries and Recycling Considerations:
- While not a primary focus, lenders might consider strategies for battery reuse or recycling at the end of their initial life cycle.
- Market Risks and Revenue Models:
- Lenders also evaluate how market fluctuations in energy prices might affect the project’s cash flow, particularly for merchant cash flows where revenue is variable.
Additional Strategies for Mitigating Degradation Risks
- Proactive Risk Management: Engaging in early risk identification and mitigation strategies helps ensure long-term project viability.
- Insurance and Governance: Utilizing insurance to cover equipment failure and establishing strong project governance can further mitigate risks.
By focusing on these aspects, lenders can better assess and manage the risks associated with technology degradation in energy storage projects.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/how-do-lenders-assess-the-risk-of-technology-degradation-in-energy-storage-projects/
