Technological Risks in Energy Storage Financing
Technological risks play a significant role in the financing of energy storage projects. These risks are primarily associated with newer technologies that lack extensive historical data, which can make project finance lenders cautious. Here’s how technological risks impact financing:
Key Technological Risks
- Limited Operational History: New energy storage technologies, such as hydrogen and compressed air systems, have limited operational data. This lack of historical evidence increases risk perceptions among lenders, making them more cautious in their evaluations.
- Lithium-Ion Batteries: Although lithium-ion batteries are widely used and have a more established track record, lenders still focus on potential issues like capacity degradation and safety concerns related to overheating. These risks can be mitigated with performance guarantees and equipment warranties.
- Variety of Technologies: The use of multiple technologies in energy storage projects can complicate financing. Lenders must conduct thorough diligence to assess each technology’s risks and ensure they meet minimum performance requirements.
Impact on Financing
- Increased Risk Perception: The novelty of many energy storage technologies increases their perceived risk, making it harder for developers to secure financing compared to more established technologies like solar and wind.
- Independent Engineer Reports: Lenders rely heavily on independent engineer reports to evaluate technology risks. These reports help assess whether a project can meet performance and safety standards.
- Mitigation Strategies: Project companies can mitigate technological risks by securing performance guarantees, equipment warranties, and operations and maintenance agreements. These tools shift some risks from the project company to technology vendors or operators.
- Diverse Revenue Streams: To justify project economics, energy storage projects often require capturing multiple revenue streams. This can involve complex operational strategies and analytical platforms to optimize revenues.
Financial Considerations
- Higher Costs and Volatility: Recent increases in battery costs and supply chain pressures have driven up construction costs for energy storage projects. This volatility necessitates careful financial planning and risk management.
- Portfolio Financing: To mitigate risks, developers may opt for portfolio financing, which spreads risk across multiple projects rather than relying on a single project.
Overall, technological risks in energy storage projects underscore the importance of thorough risk assessment and mitigation strategies in securing financing.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/how-do-technological-risks-impact-the-financing-of-energy-storage-projects/
