Announcement: Moody’s: As cost declines and regulatory support boost demand for battery storage, project finance emerges as a viable financing option
New York — Moody’s Investors Service has released an assessment of the current status of battery technology as it relates to large-scale grid application. According to the report, energy storage is increasingly emerging as a viable project finance opportunity.
“While the developing technology presents some unique challenges, especially regarding operating risks, we view the financing approach of a battery storage project to be broadly akin to many of the risks associated with financing a conventional power project,” says Rick Donner, a vice president and senior credit officer at Moody’s.
The growth of renewable energy from solar and wind technology has led to a proliferation of intermittent generation entering the grid. Emerging battery storage technology is credit positive for grid operators, as it will become a key element in managing stability. Battery storage can help integrate renewables into the grid, and can also support natural gas “peaking” facilities, which take longer to power up fully.
Due to their emission efficiency and scalability, lithium ion batteries have become the technology of choice for the energy storage sector, and developers have seen significant cost reductions over the past decade. If current trends continue, lithium ion battery costs will drop to around $100 per kilowatt hour by 2020-2022 from around $200 per kilowatt hour today.
In addition to falling costs, regulatory support is driving volume growth in the energy storage market, which is projected to show a nine-fold increase from 2017 to 2022. The California Public Utility Commission, for example, has adopted the nation’s most ambitious storage procurement mandate of 1,325 megawatts of storage by 2020 for the state’s three investor-owned utilities.
“Hawaii, Massachusetts, New York, Maryland, New Jersey, Oregon and Nevada have also adopted storage mandates and regulations,” says Donner. “At the federal level, the 30% Investment Tax Credit remains available for energy storage, provided it is coupled with renewable generation.”
While some battery storage installations have been sponsored and financed by utility companies or grid operators on their balance sheets, others have been financed on a project finance basis, sometimes in conjunction with the financing of another generation source like a natural gas plant or solar installation. Much like other power projects, a primary determinant for using the project finance model for battery storage is the visibility and predictability of the revenue stream.
From a credit perspective, using a contracted revenue model is the least risky approach for a battery storage project, whether standalone or built in conjunction with other technology. The merchant revenue model, in which the market determines revenues, brings volatility and regulatory risk to a project. A combined contracted and merchant revenue model allows battery storage projects to make extra money by providing ancillary services outside its contract, but implies greater cash flow uncertainty and increases a project’s operating risk profile.
The report, “Energy Storage — Global: As costs decline, battery storage is emerging as a project finance opportunity,” is available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1110738.
************************************************************************
NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.
This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.
CREDIT RATINGS ISSUED BY MOODY’S INVESTORS SERVICE, INC. AND ITS RATINGS AFFILIATES (“MIS”) ARE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MOODY’S PUBLICATIONS MAY INCLUDE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY’S OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. CREDIT RATINGS AND MOODY’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY’S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.
Source: moodys
