Large-scale storage financing: “There must be no uncovered risks”

pv magazine Germany: We’ve reported extensively on the numerous grid connection requests for large-scale storage in Germany. Has this momentum reached you yet?

Marcus Starke: It’s important to distinguish between projects still in early planning stages and those already feasible. The number of truly concrete projects is significantly lower but has been increasing in recent months.

What is particularly important for you when developers approach you?

Florian Hock: For project financing, a coherent overall concept is crucial. For instance, involving participants whom the bank is willing to support. This includes everyone involved: who are the suppliers for the project, which municipalities are involved, who are the manufacturers, which region is affected, and, of course, who is the customer? Additionally, coherence must be substantiated with documents. This includes contracts suitable for financing. There must be no uncovered risks. Risks must be well-distributed. Participants should only undertake obligations that incentivize them to actually carry out the project.

What does that mean?

Florian Hock: For example, if a contract with a construction company is very favorable from our client’s perspective, it might be very unfavorable for the contractor. The contractor might then be unwilling to fulfill the contract. That would lack coherence. Revenue stability is also very important for a bank to ensure debt service can be met.

When do you consider the income side to be stable?

Florian Hock: At least part of the revenue must be secured in some form. For batteries, there are various types of offtake agreements. In some countries, such as Italy or the UK, there are also revenues from participation in the capacity market. Typically, there are two types of offtake agreements: one with a floor that guarantees a certain minimum income and includes upside sharing if the market yields more than the floor. The other is a tolling agreement, which secures a fixed income without upside. Projects marketed through one of these three variants are ones we are happy to finance.

Is it easy to find such agreements?

Florian Hock: It’s difficult to assess because we don’t see every project and don’t follow all market discussions. It’s also not the case that you wish for a tolling agreement and immediately get one suitable for the project. You have to convince tolling providers that your project is sufficiently advanced. The project must be as coherent for the tolling provider as it is for a bank.

Some banks also finance fully merchant projects, where the storage operator is directly involved in market revenues without further security. How do you explain the differences?

Florian Hock: We finance projects across Europe, in various markets. We need to manage our risk across such a global portfolio. Therefore, we have a clear approach that we do not want to finance battery projects that do not have at least partial revenue security.

You mentioned that municipalities play a role. If all permits are in place, why is that important?

Florian Hock: In project financing, there is always a permitting risk, where the municipality can still play a role. One must check whether there are planning conditions that are difficult to fulfill.

What requirements do you have regarding the bankability of components?

Florian Hock: It’s important that a technical advisor can confirm that the technology is proven. This applies to all renewables.

Marcus Starke: For long-term financing, long-term warranty packages are also particularly important from a bank’s perspective.

From pv magazine Germany