Bracewell ( UK ) LLP 3
■ The terms of any existing lease agreement or planning permission will need to be considered in order to determine whether the addition of the battery will require any amendments or supplemental applications in respect of such lease or permission .
■ Any activities in connection with the battery installation will need to comply with the terms of the existing project ’ s financing arrangements .
■ Insurance policies covering the existing project should be reviewed to confirm the new development will not automatically void any coverage .
■ Both EPC and O & M contractors for the generation asset and the battery storage asset should be engaged with from an early stage to consider the practicalities of working on the site and how that is to be managed . For example , if there is a single accessway , how are access schedules to be managed and will one or another project require priority at certain times ?
Financing and Bankability
As referenced above , there are distinct benefits from a finance perspective to having the asset revenues aggregated . Nonetheless , it should first be established that the two projects are independently ‘ bankable ’ or , if the battery storage asset is intended to balance the offtake of the generation asset , that it provides a net revenue benefit . A lender will not wish to invest in a project where the value is impaired by the addition or inclusion of a battery . This is likely to become less of an issue over time as the proposition of a limited recourse financing for a battery storage project is proved in the market , but it remains a point of consideration for the time being as certain battery offtakers remain less established ( for example , some of the start-up optimisation service providers ) and long-term revenue streams remain uncertain compared to that of traditionally financed renewables projects ( which invariably benefit from some form of long term PPA or government support mechanism ( such as the UK ’ s contract for difference )). That said , the terms available from optimisation service providers and the related optimisation agreements have advanced significantly in recent years and can form a key part of the bankability of a project .
Other than establishing that the project will provide returns of a sufficient magnitude ( often as set out in the optimisation agreement ), there is little about the project structure that will influence a lender ’ s decision as to whether a co-location asset is ‘ bankable ’. The key will be to demonstrate , regardless of the nature of asset interaction ( i . e . whether the battery is load sharing / arbitraging with the generation or is entirely independent and providing grid services ), that the revenue streams and the project characteristics that safeguard them , namely the PPA and grid connection agreement terms , will not be compromised by the battery , as discussed above . In addition , a lender may consider a co-location project to be more complicated from a construction perspective due to the perceived ‘ project-on-project risk ’ of having two separate elements . However , as mentioned above , this risk can be mitigated if both elements can work independently .
The single versus multiple SPV structuring question is largely insignificant when compared with the issue of revenue security . Whilst it can be argued that a single SPV with stacked revenues is simpler from a security and enforcement perspective , a multiple SPV structure will afford each project a degree of insulation from losses that may affect the other . This latter potential benefit may be a determining factor for project structuring where there are to be multiple lenders , simplifying enforcement , payment flows and other matters that would need to be managed by way of intercreditor arrangement .
Conclusion
We have seen that battery co-location is an effective method of optimising renewable generation and maximising grid connection value on a project-by-project basis .
Battery storage has swiftly moved from an emerging technology to an asset class that is attracting significant attention from major developers and financiers . The growth of co-located battery storage assets would appear to be assured as intermittent generation assets constitute an expanding proportion of the increasingly crowded global energy matrix . However , it remains important for sponsors to look closely at their contracting and permitting arrangements to ensure there is adequate flexibility for the inclusion of battery storage , whether at the outset or for retrofitting an existing generating asset .
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