Are storage developments now investment-grade?

Are energy storage developments now investment-grade? It’s a question we’ve asked many times over the years, but now it looks like they just might be.

US battery project developer esVolta last month won a $140m credit facility to fund the construction and operation of a portfolio of eight projects with capacity of 136MW / 480MWh. This is one of the largest debt transactions in energy storage so far, and the line-up of investors is also highly significant.

The company gained funding from the power and energy team at CIT, which was mandated lead arranger, as well as ACB, CoBank, KeyBanc Capital Markets and Siemens Financial Services as joint lead arrangers. It is looking to invest the funds in the projects in its esFaraday portfolio, which are located in California and range in size from 75MW down to 2MW. The main goal of these projects is to boost grid stability and provide ancillary services.

ESR spoke to esVolta president Randolph Mann to find out more about the company’s plans, as well as his views on storage as an investment class.

Mann has worked in energy storage for 25 years, which stretches back to his time as investment director at Edison Capital from 1995 to 2004, and included stints at NRG Energy and Salt Creek Energy Advisors. He has been at esVolta since late 2017, and said the $140m fundraising would be key to growth.

“It is a very capital-intensive industry and so access to capital is important,” he said. “Accessing this level of institutional capital on a project financing basis is consistent with our business plan, and will be helpful as we move forward with our growth plans over the next couple of years.”

He added that institutional investors were seeing the opportunity in storage projects, and that the industry was close to a tipping point.

“It’s taken a bit of an evolution for financial markets to understand and get comfortable with energy storage technology and the business model and the way the cashflows work,” he said. “We believe it’s conducive to project financing and believe that there’s much more of that to come.”

EsVolta is an independent power producer and its strategy is to develop standalone front-of-the-meter projects, rather than pairing storage with other schemes. This means it can buy and sell power on the grid, and can help its utility clients to manage fluctuating levels of electricity production.

The company doesn’t develop its own storage systems, and instead uses a modular lithium ion phosphate battery system from Powin Energy.

Mann said using a modular system meant that it's easier for esVolta to develop schemes that answer a particular market need. The largest in the esFaraday portfolio is the 75MW / 300MWh Hummingbird, where its customer will be Pacific Gas & Electric, followed by the 30MW Santa Paula.

So are energy storage developments now investment-grade assets?

Well, we think that the $140m esVolta debt deal has shown that they can be. We want to see more transactions of that kind before giving a definite yes.

Mann is confident. He said the trend in storage was towards larger projects. This can provide greater economies of scale, which helps the storage sector’s investment credentials, and means that storage schemes can play a bigger role in grid balancing.

Mann added that it was good to see more US states supporting the sector, including in policies such as committing to 100% electricity from renewables by 2050. This is an important step to giving institutions the confidence that energy storage is here to stay and will play a crucial role in the grid. We're heading in the right direction.