The broader portfolio and management team are critical to securing investment for individual energy storage projects, said senior figures at asset managers Blackrock and Impax.
The topic was dicussed at the Fast and Efficient Ways of Obtaining Investment’ panel discussion on day two of the Energy Storage Summit EU in London last week (22/23 February).
On the question of Blackrock’s approach to financing projects, VP for climate infrastructure Lori Qin gave an idea of what the asset manager — the biggest in the world with nearly US$10 trillion under management — looks for in early-stage projects.
“We want to see land and grid planning being in place. The biggest bottleneck is grid connection timing, so the earlier you get that the more attractive your project is. It’s easier to finance a development-stage project if you have a portfolio of development and operational assets.”
Seán Maguire, Managing Director, Impax Asset Management said that the firm’s sweet spot is late-stage development but it could go early too and, like Qin, pointed out that you can’t just assess each project in a vacuum.
“When we look at a developer we don’t necessarily look at the projects that much, we look at the people. We back the management team rather than the projects. A good developer will make a bad project work.”
Discussing which markets outside the UK that Blackrock was interested in, Qin said that island-like grid markets like Ireland and Italy were interesting to the firm. Monika Paplaczyk, investment director at Thrive Renewables, said that although the firm didn’t have plans to diversify outside the UK, it is diversifying its technology portfolio.
Discussing other markets, Maguire pointed out that, unlike the UK, the ultimate revenue stack of battery storage projects in continental Europe was not yet known because of the earlier stage those markets are at.
Discussing internal rates of return (IRR), most of the panel that gave numbers said they generally targeted high single-digit to low double-digit returns.
“A lot of investors are taking positions in the UK storage market to get experience and may be paying more than the projects are worth,” Maguire added. This correlates with how some developers have characterised the UK market in the last few years, with one calling it a “land grab” for development rights.
Both Maguire and Paplaczyk said that co-located projects pairing renewables and storage were harder to make work economically.
In response to an audience question about the idea of contracts for difference (CfDs) specifically for battery storage, Oscar Piepers, Director, Structured Finance Utilities, Power & Renewables, ING said they could work “as they have done for wind and solar”.
Maguire was a more sceptical: “Greece just announced a CFD for storage. But the question is: how do you ensure that the battery operates correctly? A CFD would be great but it needs to come with strict rules.”
On the subject of other renewables, he was concerned that battery storage deployments might outpace other renewables and that storage’s future reliance on energy trading made this possibility problematic. “Arbitrage and trading is a risky market in the case of oversupply,” Maguire said.
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