Financial configuration of energy storage projects

Although energy storage solutions are often financed on a limited recourse project finance basis, the lending facilities used to finance energy storage solutions can take a variety of forms. Some of the more common facility types include: • Borrowing base facilities. • Asset finance facilities. • Expansion facilities.

However, given some of the hurdles facing these projects (such as unproven technology risk and the lack of long-term committed offtake arrangements), a number of factors need to align in a borrower's favour for it to secure limited or non-recourse project financing to develop an energy storage project.

In addition to looking at the projected revenue stream of the project, as is the case in a traditional project finance structure, lenders may look to the value of the underlying assets in an energy storage project in order to maximise the amounts available to the borrower.

Due to the differing periods of contracted revenue under the various offtake agreements entered into by the borrower and therefore the fluctuating nature over time of the cashflows in an energy storage project, some lenders may only be willing to provide borrowing base facilities in respect of energy storage projects.

Energy storage can play a key role in reducing costs and increasing revenues both when there is too little electricity available at the right place and the right time, and too much. Over the past decade, the UK government has created a number of incentive schemes and subsidies for the construction and operation of renewable energy projects.

Energy storage involves creating a mechanism for storing energy produced at a time when it is in excess of the current demand (or prices are otherwise low) for use at a later time (when needed or when a higher price can be obtained for that energy).