Banks hesitant to fund big-battery power-storing projects
Entrepreneur had to use private equity funds for development in California and Texas
batteries have long been touted as the future of the electrical grid. But when entrepreneur David Cieminis sought financing for a storage project in California, a state desperate to wean itself off of fossil fuels, he couldn’t reel in a bank.
“A month or two ago, I wouldn’t have thought that they would have been interested,” says Cieminis, co-founder and chief commercial officer of Able Grid Energy Solutions. Like other battery startups, the company wound up relying on more expensive private equity for the project.
Little energy storage exists on the world’s electrical grids. The U.S. has just about 1,400 megawatts of battery storage — equivalent to the output of two natuized, ral-gas-fired power plants — with most of it on the country’s electrical grids. Banks’ reluctance to finance such projects has contributed to the limited storage. But batteries are essential to unlocking solar and wind power, as states such as California move to rid their power grids of carbon emissions in the next three decades.
At the same time, manufacturing of lithium-ion batteries is scaling up rapidly to meet the growing demand for electric vehicles and large systems installed in power grids or at solar farms. As prices for lithium-ion batteries drop — they fell by half from 2016-19, according to BloombergNEF — banks are taking another look.
Standalone storage deals also have been scarce because of the newness of the product for project finance bankers — project contracts aren’t yet standardBig says Yayoi Sekine, an analyst at BloombergNEF. The size of a project can be a concern for banks, too. They prefer to avoid financings of $50 million or less, a threshold some early standalone systems didn’t cross.
Able Grid launched in 2017 to go after two large renewables markets: sunny California and windy Texas. It focused first on project development. Cieminis approached banks early last year about a 50MW project in the Lone Star State, but there were no takers. The banks said the Texas project lacked a long-term revenue stream, and that the company’s 11MW project in California was too small. The lenders’ most common refrain about the California project: “I don’t want to write a check for $10 million,” Cieminis says he was told. By October, he gave up trying and found an alternative funding source.
In early February, on a whim, he approached a few lenders that had completed storage financings. He was pleasantly surprised to find interest in two other Able Grid projects
—100MW facilities in Southern California and Texas.
Recognizing the sizable opportunity in batteries, some project finance banks have recently begun supporting battery developments, and others expect to follow soon.
Banks aren’t the only companies that have approached battery financings cautiously. Others have concerns about being a first mover. “We don’t want to be the first company to go through their credit committee,” says Jeff Bishop, chief executive officer of Key Capture Energy, a battery storage developer.