When will there be nationwide financing solutions for battery storage systems in Germany?
Possible applications for battery storage systems
In addition to home storage systems, for the singular and private use of a battery storage system together with a photovoltaic rooftop plant, and use as a large-scale storage system for renewable energies or for the industrial intermediate storage of energy, the question arises as to where battery storage systems can still offer added value. The use of battery storage systems could facilitate the green transformation of commercial and logistics real estate and transform such in an ESG-compliant way. A battery storage system, together with a properly dimensioned photovoltaic rooftop plant can help to make a property future-proof and energy self-sufficient.
Where does the financing come from?
So far, the financing of large and commercial battery storage systems in Germany is still a fairly new field. However, more and more banks and investors are trying to penetrate the market. In addition, there are also ideas to finance battery storage systems through other financing solutions, such as crowdfunding.
Some banks have already developed solutions for the financing of battery storage systems. However, these solutions are currently not available on a widespread basis and are still a niche product. The main factors for the success of the financing are the profitability of the project, the duration of the financing, and the possibility of providing valuable collateral. When it comes to financing battery storage systems, this raises a number of additional questions that need to be solved.
How can the financing be structured?
Overall, a solid financing structure is crucial for the success of battery storage systems. Banks will regularly structure the financing as project financing. The priority for this is to ensure the profitability of the project and risks must be quantified and assigned accordingly. A battery storage system must generate enough income to be able to service bank financing.
Profitability will often be an issue if the battery storage system is considered individually or without bundling different income streams. Income streams are usually too small, too diversified or too complex to fully generate the required debt service for the bank financing. As financing is difficult to structure, often the only option is to increase the profitability of the project. On the one hand, this is possible if the revenues from the battery storage system itself are increased by offering other ancillary services and these are bundled. If this is not sufficient or possible, combining the battery storage system with the renewable energy project can be a solution. If this succeeds economically, the revenues from the project and from the battery storage system can be used jointly for financing and this can be structured.
If the income streams are structured, all relevant risks must be allocated and hedged. Without this allocation, no bank will be able to structure financing. If this also happens, two further hurdles will have to be overcome: the term of the financing and the possibility of providing valuable collateral. The latter, in particular, can pose problems. This applies in different forms both to the financing of the battery storage system alone and in combination with a renewable energy project.
How is collateral allocated?
Legally-complex questions always arise for the provision of valuable collateral – and in some cases due to the linking of the various project spheres in the case of a combination of the battery storage system with the renewable energy project. These include, for example:
- How are the individual assets (such as land) allocated and how can they be used to provide collateral in favour of one or more banks?
- How can this collateral be realised?
- Are different banks involved in the financing or are there different groups of financiers, and therefore, intercreditor agreements which will become required?
- How can compliance with capital maintenance rules be ensured if the battery storage system and the renewable energy project are held by different project companies that are supposed to provide collateral for all parts of the project?
Is green and sustainable finance a solution for battery storage?
Green finance and sustainable finance are, in this case, not about the allocation in the regulatory categories of the EU taxonomy but about the design of the financing itself. A renewable energy project or battery storage system basically can be a green project. This results in the potential to design the financing as green finance if the corresponding specifications and parameters are complied with, which make financing green financing, which – roughly outlined – is above all the financing of a green project. In contrast, sustainable finance does not have to have a green purpose but instead links lending to certain sustainability goals.
State subsidy opportunities?
In addition to the use of bank financing, the additional allocation of subsidies would certainly be desirable to facilitate the financing of battery storage systems. At the moment, in Germany, subsidies are available primarily for home storage systems or, in some cases, for combination projects that benefit from EEG subsidies. For large battery storage systems and thus the commercial use of battery storage systems, currently no subsidies are foreseen nationally. This means that the use of subsidies as “financial aid” to supplement or simplify the required debt financing is generally not available. Therefore, financing depends solely on the financial strength of the relevant stakeholders and the possibility of securing external financing from a bank or other financing provider.
Result
The possibility of financing battery storage systems is a decisive factor for their distribution and use. However, financing solutions are not yet available as a standard solution across the industry and it is crucial that more standardised financing solutions become generally accessible to encourage a more widespread planning and use of battery storage systems.
About the author:
Nadine Bourgeois is a partner at the law firm Addleshaw Goddard. She specialises in debt financing and capital markets transactions and has more than 19 years of experience advising banks, alternative lenders, financial sponsors and medium and large-sized companies on acquisition, real estate and corporate lending transactions. In addition, she has in-depth knowledge in the field of financial restructuring and advice on specific debt capital market products.