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As battery technology evolves, financing storage assets grows more attractive

SNL Image

Tesla batteries controlled by Advanced Microgrid Solutions software outside a California office building. The financing of a Macquarie Group-owned portfolio of AMS batteries in 2017 was considered a key development in financing solar storage projects.
Source: Advanced Microgrid Solutions Inc.

The technology underlying battery storage to accompany renewable generation is growing increasingly sophisticated, and that innovation is reassuring would-be financial backers, panelists at S&P Global Platts Financing U.S. Power Conference said Oct. 22.

"This market is progressing in terms of its developments, it's still very young in terms of new application of new technology for storage," said Bryan Urban, executive vice president in the stationary storage solutions business unit of Leclanché SA, which is a Swiss battery company.

"Even lithium ion batteries, which are established, are changing in their chemistries, their style," said Urban, adding that he expects further innovation will continue to bring battery costs down, making financing storage assets a more attractive bet.

"New technologies will develop, it's progressing," said Urban. "With that, the opportunities for financing will become more apparent."

While equipment costs are expected to decrease, and banks are becoming more comfortable with storage financing, the nuances of the sector are still being felt out by financiers.

"I think we all have an expectation or hope that battery storage hardware will come down in cost significantly," said Ian Diamond, senior developer at Con Edison Clean Energy Businesses Inc., a subsidiary of Consolidated Edison Inc.

"[Storage technology] is very complex, which makes it extremely exciting," said Diamond, though that complexity will test the risk appetite of the technology's would-be financial backers.

"There are going to be some finance entities that are going to be only comfortable with securer revenues," said Diamond, though he also expects to see some deal makers "willing to take a more speculative, high-risk approach."

Meanwhile, Chris McKissack, COO of GlidePath Power Solutions LLC, told conference attendees that independent power producers are in a unique position to lead on storage and stressed that IPPs be "allowed to continue to push the industry forward."

"This is an IPP space," said McKissack. "Wires companies aren't the innovators."

Other panels: merchant wind, capacity market changes

Storage emerged as a theme throughout the conference, with David Janashvili, executive director at Moelis & Co., saying in an earlier panel that uncertainty surrounding battery technologies and their financing could depress deal volume temporarily. In the long term, however, storage will be essential, Janashvili added, as a mixture of solar, wind, storage and some natural gas is emerging as the most obvious path to decarbonizing power generation.

The evolution of capacity markets as renewable resources are added was the key issue during a different panel discussion Oct. 23, in which grid operators argued their respective markets may need to evolve, but still function quite well, with healthy reserve margins.

Renewable assets with storage added are becoming more common as coal-fired plants in the Western U.S. are retired, Paul Browning, CEO of Mitsubishi Hitachi Power Systems Americas Inc., said during another panel discussion. Arvind Rajpal, executive director for U.S. power principal investments at Castleton Commodities International LLC, agreed with that sentiment, saying his firm has looked at placing storage on "excess land" at the sites of their solar facilities.

Beyond storage, another formerly-niche asset class gained the attention of several panelists: merchant wind.

Janashvili identified an increase in merchant wind M&A as a trend-to-come in 2020, a view shared by Stuart Murray, principal and head of energy management consulting at Pöyry.

Merchant wind as an asset class gained attention in 2018, when The Carlyle Group LLC acquired, as its first wind investment, a 612-MW portfolio of merchant wind facilities from Noble Environmental Power LLC.

S&P Global Platts and S&P Global Market Intelligence are owned by S&P Global Inc.