Storage lenders cap merchant exposure at 60%, finds DLA Piper

DLA Piper’s latest survey of 550 battery storage investors and lenders, conducted by Censuswide between Feb. 27 and March 9, found that 25% of respondents named the United States as the most attractive market for battery storage investment, followed by the United Kingdom at 19% and China at 14%. Germany, Australia, and Canada tied for fourth at 11% each.

Half of the survey respondents said they expect returns of 11% to 12% to compensate for execution and regulatory risk, while 17% said they are seeking 13% to 15%. About 27% of the participants said they expect returns of 8% to 10%, according to DLA Piper.

The survey found merchant revenue exposure concentrated between 21% and 60% of total revenue, with 44% of respondents accepting 21% to 40% exposure and 34% accepting 41% to 60%. Lenders, classified in the report as the Finance Enabler group, favor the higher band, with 45% of that group accepting 41% to 60% exposure. Most strategic capital investors, including private equity and institutional investors, prefer the lower 21% to 40% band, at 46%, said DLA Piper.

“Our research highlights that financial return requirements in storage are shifting,” said Natasha Luther-Jones, global chair of energy and natural resources at DLA Piper. “Investor focus is moving from pure contracted revenue strategies to how revenues are structured, stacked and secured, especially counterparty strength and resilience.”

Steve Miller, chief investment officer at Clearway Energy, said the company’s investment strategy remains oriented toward long-term contracted cash flows, with merchant exposure carefully structured and underwritten conservatively. He said California has generally been easier to finance than Texas because of broader availability of long-term resource adequacy and tolling contracts, though Texas offers greater potential upside alongside materially higher volatility.

The survey found that 43% of respondents favor late-stage or ready-to-build projects, compared with 28% targeting early-stage developments. Germany, the United Kingdom, and China were exceptions, with respondents in those markets showing greater interest in early-stage projects relative to later-stage opportunities than the overall survey average.

Predictable market rules ranked as the top priority for respondents assessing potential investment territories, ahead of grid access and the availability of contracted revenue options.

German lenders have generally required 60% to 80% of project revenue to be contracted before extending debt for longer-duration battery projects, a more conservative threshold than the merchant exposure bands DLA Piper’s survey found acceptable across the broader international market.