A review of energy storage financing—Learning from and partnering with the renewable energy industry

Abstract

Abstract The energy storage industry has made great progress in developing technology, standards, and market policies and is poised to offer solutions to rapidly changing energy markets. Currently, energy storage as a solution is more inhibited by project financing than by the technology itself. High capital costs and a lack of financing options and incentives make it difficult for large scale energy storage to be realized. These same challenges were faced by the renewable energy sector a decade ago and have since been largely overcome through a decrease in costs and in perceived risk, innovative financing mechanisms, incentives and subsidies, and renewable portfolio standards. However, it will not be as simple as transposing the incentives and mechanisms that worked for renewables to the energy storage industry. This research will evaluate which elements and mechanisms of renewable energy financing can be applied or adapted to fit the energy storage industry and which cannot. As renewable energy makes up more of the supply mix, the need for storage will be greater. Most states and provinces are planning for increased renewables, however, without also providing adequate incentives for storage, there will likely be disconnects between long-term planning and market designs. As technologies matures, prices are likely to decrease, however, as has been seen in the renewable industry, market rules and regulations can have strong influence on whether energy storage is economically feasible. New project finance models and a favourable regulatory environment will be key to transforming and unlocking the energy storage market. Innovative financing mechanisms such as corporate power purchase agreements (PPAs), hybrid bonds, co-operatives, and flip-models have played a pivotal role in financing the development of renewable energy projects. Some elements of these mechanisms can apply to energy storage as well however, energy storage PPAs will be more complex than renewable energy PPAs due to the multifunctional capability of an energy storage facility. Energy storage developers can look to renewable energy as a guide for how nascent technologies can compete against established energy technologies in the market. The industry is in need of case studies, not to showcase that the technologies perform, but to demonstrate different mechanisms that projects can implement to achieve successful commercialization.