When considering energy storage projects, lenders look for several key factors to ensure that their investments are secure and profitable. Here are the major aspects lenders focus on:
Key Factors for Lenders in Energy Storage Projects
- Risk Allocation and Mitigation:
- Lenders want to see that all risks are identified and adequately covered. This includes technology risks, construction risks, and operational risks.
- Performance guarantees and equipment warranties are crucial to mitigate degradation and operational issues.
- Contractual Framework:
- Lenders prefer projects with long-term contracts, such as Power Purchase Agreements (PPAs), which provide revenue certainty.
- Fixed-price turnkey EPC contracts are preferred to shift construction risks from the project company to the contractor.
- Financial Viability:
- The project must demonstrate strong cash flows and a robust financial model that can support debt repayment.
- Lenders assess the value of any performance guarantees and warranties to ensure they are provided by creditworthy counterparties.
- Operational and Maintenance Costs:
- Lenders require an operation and maintenance (O&M) agreement with an experienced operator to manage potential degradation issues and major maintenance costs.
- Regulatory Environment and Market Conditions:
- The regulatory framework of the location and market conditions are critical. Lenders need assurance that the project aligns with renewable energy goals and can benefit from available incentives.
- Technology Reliability and Safety:
- For projects using technologies like lithium-ion batteries, lenders expect detailed reviews on capacity degradation and safety issues.
By focusing on these factors, lenders can ensure that their investments in energy storage projects are well-managed and likely to yield returns.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/what-are-the-key-factors-that-lenders-look-for-in-energy-storage-projects/
