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How Advanced Battery Manufacturers Can Support Storage Project Finance

William Tokash
Mar 02, 2016

Accumulators and batteries close up.

The emergence of the stationary energy storage sector is shining a new light on battery energy storage technologies. Navigant Research sees the following drivers underpinning new business models that are making energy storage systems (ESSs) more prevalent:

  • The integration of new distributed, intermittent variable generation sources such as wind and solar into power markets.
  • The restructuring of electricity markets to enable the recognition of energy storage’s ability to deliver flexible grid benefits.
  • The need for cost-effective solutions to address how changing population trends and load profiles will affect the structure and operation of the power grid.
  • The rise of distributed energy resources and microgrids that will improve reliability in areas with relatively unstable grids and frequent outages and minimize the impact of outages affecting large numbers of customers for areas with stable grids.

Building on the macro drivers outlined above, a recently released Navigant Research white paper examines five ESS trends in greater detail. These trends address key issues that will enable the energy storage sector to meet its transformative and disruptive potential. In particular, Navigant Research anticipates that the emergence of standardized ESS contracts will drive the growth of both consumer behind-the-meter and utility ESS markets. It is also expected that advanced battery manufacturers can play a key role alongside ESS project developers and financing partners in the movement toward standardization.

Importance of Contracts

A standardized contract stands as the essential building block of power and renewable energy project financing. Just as contracts, insurance, banking, and rules of law constitute the fabric of almost every modern business investment, so too do these factors contribute to bankable energy storage projects. And similar to what happened during the birth of distributed solar, new business models are being driven by the emergence of predictable revenue flows to energy storage project asset owners.

ESS contracts will need to address key issues like battery readiness, availability, degradation, calendar and cycle life expectations, and warranty issues, among others. Moreover, due to the growth of installed ESS projects and project pipelines, project developers and financiers are working closely to tie the anticipated ESS use case to definable and enforceable battery performance warranty contract language.

Navigant Research believes that the lessons learned from the distributed solar sector on standardized contracts should be leveraged by ESS stakeholders. Advanced battery manufacturers can play a pivotal role in the standardization of ESS contracts, similar to the efforts undertaken by solar PV panel and inverter stakeholders during the Solar Access to Public Capital Working Group effort on solar contract standardization.

There is a significant level of investor interest in the emerging energy storage sector. Some of the interested parties have participated in the solar and wind financing sectors, while those that missed previous renewables-related opportunities are eager to replicate the success of the first movers in the solar and wind industries. Navigant Research believes standardized contracts will make the financing of energy storage projects simpler and easier to repeat. Battery manufacturers have a unique opportunity to help create a new energy storage asset class driven by debt and equity participants, thereby driving the development and construction of more energy storage projects.