The energy storage industry needs better financing to break out of its early stages. So far, commercial project financing is becoming more widely available, but residential financing has barely gotten started.
The high upfront cost of storage makes it hard for behind-the-meter customers to purchase out of pocket, and they can’t call on the kind of capital available to utilities or large power producers. For financiers, meanwhile, energy storage poses several risks: It’s a relatively new technology with emerging business models and revenue streams, both of which are subject to the influence of shifting tariff structures.
“If the energy storage market is going to grow beyond the early adopters, there’s going to have to be more widely available, low-cost financing,” said Brett Simon, a behind-the-meter storage analyst at GTM Research, who recently published a report on storage financing.
Here are the key indicators of where storage financing stands today.
Commercial financing is growing, with a clear pathway to success
The pool of project financing is swelling. It jumped from almost nothing in 2015 to $796 million in 2016, and the storage financing in 2017 hit 51 percent of that amount by mid-May. That money is going almost exclusively to commercial projects, although a growing cohort of lenders now at least cover residential storage.
The minimum internal rate of return needed to attract financiers ranges from the high single digits to the low 20 percent mark, according to Simon’s latest research on the topic. The bulk of financiers are looking at the low to mid-teens.
Contracted revenue streams can cut the cost of capital for a project, the study notes. Capacity payments from utilities are an early form of this, and many utilities are examining new ways for distributed storage to provide grid services. Such an arrangement provides the lender with greater certainty that the storage installation will bring in revenue.
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