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Financiers warming to battery storage despite concerns with standalone projects

SNL Image

NextEra Energy Inc.'s Pinal Central Solar Energy Center in Arizona, outfitted with Tesla Inc. lithium batteries. Battery storage technology has been well-received by the power generation industry, but financial institutions have been slow to provide capital.
Source: Salt River Project

Battery storage is suffering from "growing pains" as the industry matures, according to panelists at S&P Global Market Intelligence's 33rd Annual Power and Gas M&A Symposium, but the technology's attractiveness seems likely to ultimately outweigh any pitfalls.

"When your mandate is long-term revenue certainty, you're looking wherever you can find it," said Phillip Adams, business development manager for asset acquisitions at Southern Co. subsidiary Southern Power Co.

"The pace of adoption is going to be a bit different" state to state, agreed Antonio Smyth, senior vice president for transmission ventures, strategy and policy at American Electric Power Co. Inc.

AEP has "half a dozen or so" grid-scale storage projects in operation, said Smyth. "We're very active in that space and technology's going to play a big part in our future."

Cost remains a key concern for the technology, said Himanshu Saxena, CEO of Starwood Energy Group Global LLC. "I think the [operations and maintenance] costs and the maintenance CapEx on these systems is going to be far more than people forecasted when they got into this business," he said, adding that the storage industry is experiencing "growing pains."

"Unfortunately for storage, it's skipping [what is] generally a honeymoon period with these technologies where people would give you 15-, 20-year contracts before they start taking the certainty away from you," said Saxena, costing the sector the chance to "extract good contracted safe deals with decent returns" in its early days.

Regardless, storage remains a common requirement on requests for proposals for renewable projects, Saxena said. "There are tons of projects we see in the market that are being done with solar-plus-storage."

Financing standalone battery storage, however, remains more difficult, with banks only slowly warming to bankrolling the assets.

"We're starting to spend a lot more time on storage, we have financed storage in tandem with thermal assets, there's more and more talk about storage being integrated with renewable generation and we're very excited about what's to come there," said Ravina Advani, managing director and head of energy, natural resources, and renewables at BNP Paribas SA, who said her institution still has concerns about bankrolling standalone battery storage projects for renewables.

"Storage on a standalone basis, even though the cost of lithium ion and cobalt and all of those materials is coming down so drastically and making those technologies even more competitive, we still struggle with the revenue profile inherent to some of those technologies," Advani said. "We're still waiting for that to be a little more mainstream."

Describing the relationship between developers and financiers, Saxena said: "I think that storage contracts are going to go through an evolution as both parties learn what the system can deliver and how do you price this."

"I feel like for the past two or three years we keep hearing 'that market's about to explode' and I feel very confident this year and going forward that the market is actually going to grow significantly," Adams said. "We've seen costs come down drastically over the last two or three years, finally making those projects economical; [they are] finally an attractive investment for the offtakers as well as the owners."

One of the main hurdles for storage remains uncertainty around power purchase agreements, Adams said. "You still see drastically different contracts in every single state so it still makes the investment a bit complicated today, but we're starting to see those contacts coming together, we're seeing long-term contracts, we're seeing credit-worthy offtakers on those deals, so I'm still very excited about energy storage investment."

The general consensus among conference speakers was that battery storage has an indispensable place in the power sector's future, and that the industry is constantly evolving such that it is hard to make too many other long-term predictions.

"Whatever we think of the rules of the game, the rules are going to change in 10 years," said Mark Florian, managing director and head of global energy and power infrastructure funds at BlackRock Inc.