Renewable Roundup: Big banks lining up to finance big batteries
We’ve reached a significant tipping point in how the battery storage market is financed, shifting from expensive private equity investments to ordinary bank finance. Which will be another factor leading to a terawatt of storage by 2040.
Once reluctant to finance big projects, lenders now are taking another look.
One result of falling prices, improved performance, and easier, more regular access to funding is projected to be a terawatt of battery-backed grid-scale electricity storage by 2040.
That doesn’t include behind-the-meter storage in homes and businesses, nor does it include using electric vehicles for electricity storage. But they also add up.
Big batteries have long been touted as the future of the electrical grid. But when entrepreneur David Cieminis sought financing for a storage project in California, a state desperate to wean itself off of fossil fuels, he couldn’t reel in a bank.
“A month or two ago, I wouldn’t have thought that they would have been interested,” says Cieminis, co-founder and chief commercial officer of AbleGrid Energy Solutions. Like other battery startups, the company wound up relying on more expensive private equity for the project.
Little energy storage exists on the world’s electrical grids.The U.S. has just about 1,400 megawatts of battery storage—equivalent to the output of two natural-gas-fired power plants—with most of it on the country’s electrical grids. Banks’ reluctance to finance such projects has contributed to the limited storage. But batteries are essential to unlocking solar and wind power, as states such as California move to rid their power grids of carbon emissions in the next three decades.
At the same time, manufacturing of lithium-ion batteries is scaling up rapidly to meet the growing demand for electric vehicles and large systems installed in power grids or at solar farms. As prices for lithium-ion batteries drop—they fell by half from 2016 to 2019, according to BloombergNEF—banks are taking another look.
Standalone storage deals also have been scarce because of the newness of the product for project finance bankers—project contracts aren’t yet standardized, says Yayoi Sekine, an analyst at BloombergNEF. The size of a project can be a concern for banks, too. They prefer to avoid financings of $50 million or less, a threshold some early standalone systems didn’t cross.
Able Grid launched in 2017 to go after two large renewables markets: sunny California and windy Texas. It focused first on project development. Cieminis approached banks early last year about a 50MW project in the Lone Star State, but there were no takers. The banks said the Texas project lacked a long-term revenue stream, and that the company’s 11MW project in California was too small. The lenders’ most common refrain about the California project: “I don’t want to write a check for $10 million,” Cieminis says he was told. By October, he gave up trying, and found an alternative funding source.
In early February, on a whim, he approached a few lenders that had completed storage financings. He was pleasantly surprised to find interest in two other Able Grid projects—100MW facilities in Southern California and Texas.
Recognizing the sizable opportunity in batteries, some project finance banks have recently begun supporting battery developments, and others expect to follow soon. The U.S. Energy Storage Association trade group is aiming to have 35,000MW online by 2025. There are also climate change implications.
Banks aren’t the only companies that have approached battery financings cautiously. Others have concerns about being a first mover. “We don’t want to be the first company to go through their credit committee,” says Jeff Bishop, chief executive officer of Key Capture Energy, a battery storage developer.
Some early concerns among lenders have abated. Banks are now largely comfortable with lithium-ion batteries, a technology long in our lives. “They’re the battery in your Tesla, in your iPhone,”says Mike Lorusso, a managing director at CIT.
CIT was a lead bank on a $140 million loan last month for a portfolio of projects developed by esVolta, a California-based developer. The deal came after about six months of talks between Chief Financial Officer Krish Koomar and banks. It’s esVolta’s first debt financing. Mitsubishi UFJ Financial Group Inc., one of the world’s leading project finance banks, expects at least three standalone battery deals in the U.S. this year, says Erik Codrington, a managing director.
Able Grid financed its first two projects with support from an undisclosed private equity firm. Such investors expect a return of at least 10%, whereas bank debt can often be had for 4%-5%. Cieminis is more optimistic that his latest projects will attract bank finance.
“There’s a learning process,” he says. “It takes time for the market to ramp up.”
This is the previous model, in which storage companies relied primarily on equity investors. It includes major successes and notable bankruptcies.I was peripherally involved with A123 Batteries out of MIT, one of the market failures listed in that article. They provided the Lithium Iron Phosphate (LiFeP) batteries for the One Laptop Per Child XO in 2007, and were among the first to provide a grid storage installation, in their case to Peru, in the Atacama Desert. They lost out to other less environmental but more powerful lithium battery formulations.
Finally, A Lender Who Understands Energy Storage
As an energy storage expert, you know how important power is. Finding a bank that understands energy storage can be difficult. We are that bank. We underwrite non-traditional revenue like energy storage and find creative financing solutions to your most challenging projects. We were one of the first banks in the nation to fund project-level debt for a portfolio of solar and energy storage projects without corporate guaranties or burdensome reserves. We finance both solar plus storage projects as well as storage projects alone. We are proud to be a pioneer in this lending space, and can offer fixed-rate loan terms of up to 25-years without balloon payments.
We work with you to understand each operational plan for energy storage, including optimal cycling patterns, software decisions and bankable maintenance contracts. We can get the financing process started even before final technology is selected and contracts are executed. We know the asset class and can provide value where other banks cannot.
The energy storage market is kind of like the Loch Ness Monster — It’s rarely seen. It’s said to be huge. And many think it’s not real.
If you’re like us, you have dozens of articles and reports on energy storage (and other topics) starred for reading later. But “later” never seems to arrive with the free time you needed to read about this high potential market.
As such, we’re providing this “Cheat Sheet for Energy Storage Finance” based on our work as buy-side and sell-side investment bankers experienced in both energy storage venture capital and project finance.
I’m also including some perspectives from my panel last week at the UNC Cleantech Summit entitled “Financing Energy Storage.”
Thanks to Greentech Media, GTM Research, Utility Dive, Bloomberg New Energy Finance, Bloomberg, McKinsey & Company, i3 (Cleantech.com), Lazard, Energy Storage Association, PV Magazine, Rocky Mountain Institute, Renewable Energy World, and Energy Storage News for their great work that helped us compile this research.
The Market Opportunity
Big picture: The rise of energy storage is expected to mirror the giant leap that the solar sector took between 2000 and 2015 (link).
For those of you who rode the solar roller coaster like we did, you might want to get that amusement park seatbelt and whiskey ready. You may need them.
Storage is an essential element in this energy transition. Recent cost reductions in storage technologies have meant that storage is on the cusp becoming of competitive. IRENA predicts further cost reductions of 48% to 64% between 2016 and 2030, with total electricity storage predicted to grow from approximately 4.67 TWh in 2017 to between 6.62 TWh and 7.82 TWh by 2030; an increase of 42-68% from 2017. Batteries in particular are gaining market-share. In 2016, lithium-ion batteries made up almost half of all new battery deployments, whilst advanced lead-acid and sodium-sulphur batteries also held large market shares.
Battery storage is readily scalable and can respond in milliseconds. It can be located either ‘behind the meter’, as part of a hybrid site smoothing generation output or providing back-up power, or ‘in front of the meter’, providing electricity grid services.
Commercial energy financing deal criteria
To be considered for conventional or renewable energy financing, the following criteria must be met:
- Minimum debt requirement $25 million per transaction
- Must have committed equity
- Project must be late stage development with all requirements to begin construction or operation
- Businesses must have a minimum of three years of good historical performanceCIT is committed to supporting innovation and sustainable solutions in the energy sector. In addition to financing conventional energy companies and projects, we are among the leading arrangers of secured loans for renewable power projects including solar and wind power and battery storage projects.
Several big banks that recently provided capital or advised on financing for nearly 150 large- and commercial-scale battery storage projects planned across the United States, mostly in Southern California, are preparing to build on those initial forays with follow-up funding to fuel the spread of stationary battery installations.
“[We are] very excited about battery storage,” Beth Waters, managing director of project finance in the Americas at Mitsubishi UFJ Financial Group Inc., or MUFG, said at an Oct. 12 event in San Francisco hosted by the American Council on Renewable Energy. “I look at it as market-disruptive, wonderful [and] important. It makes things more efficient and it’s only good that will come to the industry.”
MUFG, a lead investor in a $2 billion deal to finance AES Corp.’s Southland repowering project, which includes 1,284 MW of natural gas-fired generation and 100 MW of energy storage contracted by Edison International subsidiary Southern California Edison Co., is now eyeing additional energy storage investments. “It was a good toe-dipping exercise for both the banks and the institutional [investors],” Waters said of the AES deal, “because it had very large, billion-dollar tranches in each market for them to get exposed to what this [technology] is.”
A Roadmap for Accelerating Market Growth
A Study for the DOE Energy Storage Systems Program
Project financing is emerging as the linchpin for the future health, direction, and momentum of the energy storage industry. Market leaders have so far relied on self-funding or captive lending arrangements to fund projects. New lenders are proceeding hesitantly as they lack a full understanding of the technology, business, and credit risks involved in this rapidly changing market.
The U.S. Department of Energy is poised to play a critical role in expanding access to capital by reducing the barriers to entry for new lenders, and providing trusted analytical benchmarks to better judge and price the risk in systematic ways.
Sorry, this is all in techno-bureaucratic bafflegab. It does eventually explain some of the financial structures in use in the industry.
- Behind-the-meter battery project increases energy storage capacity in Southern California
- Loans boost development of large-scale “virtual power plant”
- CIT adds to track record as a leading lender for sustainable energy projects
31, 2018, and operates a principal bank subsidiary, CIT Bank, N.A. (Member FDIC, Equal Housing Lender). The company’s commercial banking …
Feb 25, 2020 — In just the past few days, nearly US$500 million has been committed to downstream activity in the battery energy storage space in the US, with AES Distributed Energy raising US$341 million of debt financing and EsVolta US$140 million of borrowing.AES Distributed Energy, the subsidiary of AES Corporation which focuses on solar PV and solar-plus-battery storage projects, is seeking to develop and execute projects in the Northeastern US, entering into the US$341 million deal for a “portfolio of distributed energy projects”.
Parent company AES is also joint owner of energy storage technology provider Fluence – along with Siemens. The company did not specify the projects in its pipeline, nor give numbers but did suggest that it would include “community” projects.
“Accelerating Battery Storage for Development” is a new, first-of-its-kind, US$1 billion World Bank Group program to accelerate the deployment of battery storage for energy in developing and middle-income countries. The program is expected to help countries ramp up their use of renewable energy, increase grid stability, and leapfrog to a new era of energy technology.
For several years, the Bank has been working with countries to support the deployment of batteries with solar and wind power, with projects underway in Africa, South Asia, Latin America, and the Pacific. The new program will finance and de-risk investments such as solar parks with battery storage, off-grid systems, and stand-alone batteries. The program will also support large-scale demonstration projects for new storage technologies.
“Accelerating Battery Storage for Development” also aims to fundraise US$1 billion in concessional climate funds, through channels such as the Climate Investment Funds’ Clean Technology Fund, and mobilize at least another US$3 billion from the public and private sectors. The goal is to finance 17.5 gigawatt hours of battery storage by 2025—more than triple what is currently installed in all developing countries.
(Crossposted with DailyKos.)