Renewable energy roundup: big banks line up to finance big batteries
This does not include behind the meter storage in homes and businesses, or the use of electric vehicles for electricity storage. But they also add up.
Large batteries have long been touted as the future of the power grid. But when entrepreneur David Cieminis sought financing for a storage project in California, a state desperate to wean itself from fossil fuels, he couldn’t turn to a bank.
“A month or two ago, I wouldn’t have thought they would have been interested,” says Cieminis, co-founder and chief commercial officer of Ablegrid Energy solutions. Like other battery startups, the company ended up relying on more expensive private capital for the project.
There is little energy storage on global power grids. The United States has about 1,400 megawatts of battery storage, equivalent to the output of two natural gas-fired power plants, most of which are on the nation’s electricity grids. The reluctance of banks to finance such projects has contributed to the limited storage. But batteries are key to unlocking solar and wind power, as states like California strive to rid their power grids of carbon emissions over the next three decades.
At the same time, lithium-ion battery manufacturing is expanding rapidly to meet the growing demand for electric vehicles and large systems installed in power grids or solar farms. As lithium-ion battery prices drop – they halved between 2016 and 2019, according to BloombergNEF – banks are taking another look.
Stand-alone storage agreements have also been rare due to the novelty of the product for project finance bankers – project contracts are not yet standardized, says Yayoi Sekine, analyst at BloombergNEF. The size of a project can also be a concern for banks. They prefer to avoid funding of $ 50 million or less, a threshold that some early stand-alone systems did not cross.
Able Grid was launched in 2017 to target two major renewable energy markets: sunny California and windy Texas. He initially focused on project development. Cieminis approached the banks early last year about a 50 MW project in Lone Star State, but there were no takers. Banks said the Texas project lacked long-term revenue and the company’s 11 MW California project was too small. The most common refrain from lenders about the California project: “I don’t want to write a check for $ 10 million,” Cieminis says. In October, he gave up trying and found another source of funding.
In early February, on a whim, he approached a few lenders who had finalized the storage financing. He was pleasantly surprised to find interest in two other Able Grid projects: 100 MW facilities in Southern California and Texas.
Recognizing the tremendous opportunity that batteries represent, some project finance banks have recently started supporting battery development, with others planning to follow soon. The US Energy Storage Association’s business group aims to have 35,000 MW online by 2025. There are implications for climate change, too.
Banks aren’t the only companies that have approached battery financing with caution. Others fear that they will be the first to move. “We don’t want to be the first company to go through their credit committee,” says Jeff Bishop, CEO of Key Capture Energy, a developer of battery storage.
Some early concerns among lenders have subsided. Banks are now largely comfortable with lithium-ion batteries, a technology that has lasted a long time in our lives. “These are the battery of your Tesla, of your iPhone,” explains Mike Lorusso, CEO of CIT.
CIT was the lead bank on a $ 140 million loan last month for a portfolio of projects developed by esVolta, a California-based developer. The deal came after about six months of talks between CFO Krish Koomar and the banks. This is esVolta’s first debt financing. Mitsubishi UFJ Financial Group Inc., one of the world’s leading project finance banks, expects at least three autonomous battery deals in the United States this year, said Erik Codrington, chief executive.
Able Grid funded its first two projects with backing from an undisclosed private equity firm. These investors expect a return of at least 10%, while bank debt can often be contracted for 4 to 5%. Cieminis is more optimistic that his latest projects will attract bank financing.
“There is a learning process,” he says. “It takes time for the market to gain momentum. “
This is the previous model, in which storage companies relied mainly on equity investors. It includes major successes and notable bankruptcies. I was peripherally involved with MIT’s A123 batteries, one of the market failures listed in this article. They supplied the Lithium Iron Phosphate (LiFeP) batteries for the One Laptop Per Child XO in 2007, and were among the first to provide a network storage facility, in their case in Peru, in the Atacama Desert. They lost out to other less environmental but more powerful lithium battery formulations.