Lenders assessing the technology risks of new energy storage technologies typically follow a structured approach to manage and mitigate these risks. Here are the key steps and considerations involved in this process:
Technology Risks Assessment
- Independent Engineer Reports: Lenders rely heavily on reports from independent engineers to evaluate technology risks. These reports assess the project’s ability to meet commissioning and performance requirements under applicable offtake agreements. For newer technologies like hydrogen and compressed air, the lack of historical data increases scrutiny.
- Focus on Emerging Technologies: Newer energy storage technologies, such as hydrogen and compressed air, are seen as higher risk due to limited historical data. Lenders focus on understanding these technologies’ safety, efficiency, and long-term reliability.
Mitigation Strategies
- Performance Guarantees and Warranties: To mitigate risks, project companies can secure performance guarantees and equipment warranties. These shift some of the technology risks from the project company to the vendors, providing lenders with assurances about the equipment’s reliability.
- Operation and Maintenance (O&M) Agreements: Lenders prefer projects with O&M agreements in place, ensuring that experienced operators manage the project’s operation, maintenance, and cost management.
Capacity Degradation and Safety
- Capacity Degradation: For lithium-ion batteries, a significant concern is capacity degradation over time. Lenders expect robust reviews of this issue from independent engineers.
- Safety Issues: Safety issues like overheating (thermal runaway) are also scrutinized. Mitigation strategies include securing warranties and performance guarantees.
Financial Structuring and Revenue Streams
- Revenue Streams: Lenders prefer projects with long-term offtake agreements for predictable revenue streams. However, they may finance merchant cashflows with less leverage and additional protections like cash sweeps.
- Portfolio Financing: Developers may opt for portfolio financing to mitigate project-specific risks, but this approach can be complex in terms of diligence and structuring.
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