Leyline Identifies Opportunities, Challenges in Energy Storage Finance
By Diane Cherry, Principal, Diane Cherry Consulting
Leyline Renewable Capital has provided development funds for projects in anerobic digestion, wind, landfill gas, and solar – and stand-alone battery energy storage is the latest technology to be added to the list. Over the past few months, Leyline has been on the energy storage speaking circuit, lending its expertise and learning from others about the barriers to financing energy storage projects.
As previously discussed, several trends are driving growth in energy storage, including falling battery prices; standardized warranties; new state mandates for storage, such as the recent one passed by the Commonwealth of Virginia; and the rise of forecasting models. With incredible growth in energy storage projects, there are also financing barriers which prevent more and more projects from coming online. As a development-stage capital provider, Leyline must understand these barriers and how to overcome them.
Leyline CEO Erik Lensch spoke on Sept. 25 at the Solar Power International Conference on Overcoming Barriers to Financing Storage along with panelists Kat Gamache, partner at Norton Rose Fulbright, and Michael Kleinberg, energy storage advisor at DNV GL. The panel highlighted three major barriers to energy storage projects:
- The lack of long-term contracts,
- The need for project off takers, and
- Performance guarantees.
Safety is also a big focus for storage projects, especially with the rise of larger and larger projects. Longer duration storage is also now available, ensuring that power generated by renewable energy is available at all hours and/or serves as a hedge against volatile energy prices.
On Nov. 9, the first day of the GTM Energy Storage Summit, Erik met virtually with Dan Finn-Foley, the head of the energy storage team at Wood Mackenzie, to discuss what motivated Leyline to lend in the energy storage space, where things are with respect to financing these projects, and how it may change in the future.
Erik spoke about making investment decisions based on the future, rather than the past, much like the solar market years ago. He explained that the most challenging issue for storage developers is the lack of a long-term fixed power purchase agreement for battery storage projects. However, there are a number of other factors which make energy storage projects more attractive.
First, there are no permitting or interconnection risks associated with stand-alone battery storage systems when compared with large solar projects that have multiple landowners and a large footprint. Second, Erik shared that there are developers who want to own an energy storage asset, build a portfolio and then exit to a lower cost of capital.
In the end, the takeaway lesson for energy storage financing, according to Leyline, is that it is better to be early than late. States have procurement targets, utilities want to use energy storage to meet energy generation needs, and battery prices are expected to continue to trend downward. For all of these reasons, Leyline remains bullish on energy storage now and in the future.