- Lenders now anticipating explosive growth for the battery storage sector
- Banks excited by EV sector battery innovations that they expect will inevitably transfer to the utility-scale storage sector
- ‘Round the clock’ solar power – facilitated by battery storage – now seen as increasingly viable by lenders
- Despite growing protectionism and associated tariffs, as well as supply chain bottlenecks, banks believe declines in battery tech costs will keep projects viable
Historically, lenders have been sceptical about providing capital for the battery storage sector. Go back just five years and banks were admitting that their knowledge of battery storage was very limited and that they needed to educate themselves, particularly due to the complexity of the various use cases. Another barrier to battery storage projects getting bank finance was that such innovative technology lacked, by definition, an established track record. Lenders rely heavily on historical data, which they use to assess the risk-weighted cost of financing – in this context without such data, battery storage projects seeking finance were on shaky ground.
But the market slowly began to change. This was partly because the wind and solar markets – which had been heating up for a number of years – slowly began to cool and lenders realised they would have to diversify and enter new markets. In addition, solar project developers, in particular, increasingly saw the benefit of adding battery storage to solar assets to make energy production more consistent and reliable. Consequently, lenders began to see an increasing amount of battery storage-related deals landing on their desks.
Battery storage economics improving
Fast forward to today and lenders acknowledge that the economics of battery storage projects have “drastically improved”. HSBC for example, has predicted explosive growth for the battery storage sector between now and the end of the decade and stated its expectation that global BESS capacity will quadruple during the period 2025 to 2030. Lenders are satisfied that battery technology has been substantially improved over the last ten years and this – coupled with a 90 per cent decline in battery pack costs between 2014 and 2024 – means lenders are convinced battery storage is a safe bet.
The technological improvement in batteries that is giving lenders a greater sense of reassurance has been driven by a wave of innovation, particularly in the electric vehicle (EV) sector. The desire to make electric vehicles cheaper, and safer, has resulted in massive expenditure in battery storage research and development. For example, scientists at EV manufactures such as BYD have developed sodium-ion batteries, which they say could be utilised for electricity grids. This striving for improvement in among EV manufacturers is giving lenders more confidence in the battery storage industry more generally as they know many EV battery innovations will inevitably transfer to the utility-scale battery sector.
Combining solar and storage provides boost to bankability
Solar plus battery storage projects are also viewed as a significant opportunity by lenders. Banks know that declining battery pack costs for example are, in part, responsible for solar and storage projects becoming increasingly cost competitive when compared to alternative forms of power generation. ‘Round the clock’ solar power is now seen by lenders as a concept that is becoming increasingly viable. Last week, it was announced that Sunraycer Renewables had closed a $901 million financing facility with a consortium of banks – including MUFG Bank, Ally Bank, NORD/LB and Societe Generale – for three projects in Texas, totalling 479.5 MWac of solar generation and 236.5 MWac of paired two-hour battery energy storage systems. Sondra Martinez, head of structured finance originations at NORD/LB, said the portfolio of assets represented a “strong combination of solar and storage assets”. One of the key reasons Sunraycer has secured significant backing from lenders is its strong focus on combining solar generation and energy storage.
In addition, banks expect the development of longer duration storage (with durations of up to six hours or more) to significantly disrupt the battery market over the next ten years. Last year, BW ESS secured financing for its operational 331MWh Bramley BESS in the UK from lenders Westpac and UOB, a development that Sarah Heavey, Westpac’s head of energy, infrastructure & resources, described as an “important milestone in longer duration energy storage”.
Further declines in battery costs forecast
What is giving lenders further confidence in battery storage buildout is that battery costs will decline further in the next decade. Yes, rising protectionism is giving rise to concerns that higher tariffs imposed by the Trump administration in the US, for example, will act as a brake on storage deployment – some analysts have predicted that the US tariffs could reduce 2050 cumulative US lithium-ion battery installations by up to 38 per cent. In parallel, as the IEA as highlighted, with batteries becoming a “foundational component of modern economies”, the risks associated with supply chain bottlenecks are escalating. However, lenders are taking comfort from the fact that such challenges will be offset by further decreases in battery technology costs, with LCOE reductions of 25 per cent in battery storage anticipated between now and 2035.
Lenders’ attitude to battery storage has evolved beyond recognition compared to just five years ago and they now view the technology as a credible and bankable investment. This is partly due to a wave of innovation in the EV battery industry, which is filtering through to the utility-scale battery industry. Meanwhile, combining solar with battery storage is increasingly seen by banks as a smarter way of generating stable returns by strengthening project resilience. While tariff uncertainty and supply chain challenges mean there are still choppy waters ahead, further drops in battery technology costs mean storage assets will remain attractive to lenders.