The report draws on experience from the £120 million debt financing of its 249MW/373.5MWh Sheaf Energy Park project in the UK, closed in November 2023.
The report, Making project finance work for battery energy storage projects, includes contributions from NatWest, the UK Infrastructure Bank (UKIB) and legal advisor Gowling WLG. It highlights that, despite a limited number of BESS project financing deals to date, the market is reaching a turning point, as projects increase in scale and lenders work with storage developers to overcome barriers to capital deployment.
Key obstacles standing in the way of widespread BESS project financing have included the small scale of projects, complexity of revenue generation models, and limited technological track record compared to established generation technologies such as wind and solar.
Lender concerns around these factors are now easing, as early projects establish a track record of successful operation, the market better understands long-term revenue opportunities, and assets scale up from 50-100 MW to reach capacities of 250-500 MW.
Furthermore, recent deals – including the Sheaf project financing and its smaller predecessor, Richborough Energy Park – have sent a positive signal to the market that project finance is a viable option for BESS across all maturing international markets. Pacific Green’s report outlines the key factors that enabled its development team to successfully secure debt financing at Sheaf, which in turn may contribute to the success of future deals. These include:
A tried and tested, ‘investor-friendly’ project management framework – covering the entire lifespan of the scheme, from land lease option and grid connection agreement to the power purchase agreement (PPA) and O&M provision
A robust, well-contracted construction plan
Close management of the battery supply chain, including strong connections with leading manufacturers in China
An agreement with a proven, well-established project optimiser (SSE Energy Solutions), giving lenders confidence in the ability of the project to make the most of available revenue streams
“Project finance will become increasingly important in the rollout of large-scale battery parks, but the market needs a workable template to underwrite lender confidence and smooth the deployment of capital into new projects” said Scott Poulter, Pacific Green’s Chief Executive. “By sharing our experience and lessons learnt from Sheaf Energy Park - one of Europe’s largest non-recourse senior debt-financed projects to date- we hope to speed up the deployment of vital storage assets and the transition to a zero-emission society.”
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