‘No better due diligence than a developer keeping skin in the game’: BW ESS talks multi-market approach

A small outfit in a global market

“Our approach has been to combine the strength and expertise of BW as an energy infrastructure investor of close to seven decades with local partners who have expertise in local markets. We have a fairly lean team working on energy storage and we lean on the wider BW Group for finance and other resources,” Strømsø says.

BW ESS invests minority stakes in battery energy storage system (BESS) project developers and majority stakes in developers’ projects, who retain a minority stake in those projects.

It entered the storage space with an investment in UK developer Penso Power in 2021, a firm with a pipeline including a 330MWh unit under construction which will be among Europe’s largest when online.

Strømsø: “We started looking at expansion to other markets at the time of the Penso investment, asking ourselves how we could use that presence in the leading UK market to enter others at an earlier stage in the cycle. We weren’t a first mover there; we didn’t have to be, but for others, we have gone in slightly earlier in the cycle as we have the UK experience.”

In Sweden, that market entry is via an investment into, and development partnership with, developer Ingrid Capacity with construction recently launched on the country’s biggest BESS portfolio at over 200MW.

In Italy, BW ESS, Penso and local developer ACL Energy announced a partnership in February 2024 with three projects totalling 395MW, while in Australia, BW ESS has partnered with Gaw Capital Partners with a 1.6GW pipeline entity called Valent Energy, announced a month earlier.

“Partnering with local developers is how you get local knowledge and expertise, and we also look for partners that want to keep skin in the game. There is no better due diligence you can do on a project than finding a developer that wants to keep equity in it,” Strømsø, whose background is in investment banking, adds.

Sweden and Italy

The discussion hones in on Sweden and Italy, part of the next wave of big grid-scale energy storage markets in Europe after the UK and (to a lesser extent) Germany. The two opportunities are very different, however, and necessitated different approaches, Strømsø says.

“There was one leading company and one attractive opportunity in Sweden, and we invested in it. I wouldn’t have invested in other opportunities in the same way. Italy is a much larger market with more opportunities to go around and it’s possible to do partnerships with lots of developers.”

“Sweden is an ancillary services market similar to where the UK was five years ago. Returns are attractive, but it has a high saturation risk, factored into our business case, so we’re future-proofing our sites.

“Italy, meanwhile, is partly an auction-driven market, partly a capacity-driven one, and then a combination of ancillary or wholesale arbitrage markets, creating a business case that is deeper and larger than what we see in Sweden currently. Sweden, in comparison, is quite simple.”

Technology and procurement

Strømsø says BW ESS can get efficient pricing from BESS suppliers via long and close relationships with Tier 1 companies and scaled procurement across geographies, particularly through the experience gained from Penso Power.

On deciding on which provider to go for, he says it depends on the market while not revealing any specific providers it has contracted with.

“Different OEMs are strong in different markets. Even if we wanted to, it wouldn’t make sense to have one partner across the whole portfolio. We’ll always be working with a handful of players. In Australia, for example, none of the Chinese suppliers are big on the BESS side, while in the UK, Sungrow is market-leading.”

In response to a question about China’s providers, he emphasises that BW Group’s presence in Asia – with headquarters in Singapore, Hong Kong and offices throughout the region – does not give BW ESS any special inroads into China. “It’s still a long way from Singapore, and our relationships there are more based on people in our business with experience.”

Financing

As mentioned earlier BW ESS can lean the wider BW Group for finance, both operationally but also in terms of the company’s strong relationships with banks and decades of experience in the space.

“We can bring a certain credibility to the table with banks in some markets. We can talk to them about structures that are being deployed in markets where batteries are recognised as bankable, where there is a consensus about how to finance these assets and use those frameworks to arrive at attractive financing deals for our projects,” Strømsø says.

In Sweden, BW ESS is starting to build the projects using its own equity before financing them soon after their commercial operation date (COD). Australia is moving towards merchant financing of projects that have until now been heavily reliant on direct subsidies or long-term tolling agreements.

Italy, again, is more complicated: “There, it will depend on the revenue model you end up with, like whether it gets a 15-year contract with the MACSE auction. There are a number of different ways projects will be financed and getting the best cost of financing is going to be really important.”

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