Energy Storage Financing
Energy storage vendors face a challenge familiar to other purveyors of capital-intensive products: Most customers can't pay cash.
The key to reaching mainstream audiences, then, is to offer financing at a reasonable rate along with the product. Such programs have long been available for cars and houses. They have become mainstream for rooftop solar installations, thanks to services like Mosaic that offer zero-money-down financing online in a matter of minutes. Until very recently, storage didn't have a similar service to offer.
That's starting to change. This summer, Advanced Microgrid Solutions and Stemraised big new money for storage project financing -- $200 million and $100 million, respectively. In September, both Tabuchi Electric and Sharp announced new funding specifically for financing solar-plus-storage systems. VC funding for no-money-down distributed storage financing is approaching $700 million for this year, more than triple the last major wave of funding, which occurred in 2014.
The new programs alone won't take storage mainstream, but if they demonstrate success, they could inspire additional monied institutions to get into the game, and that would have major consequences for the modernization of the grid.
Banks or other tax equity investors want to get a return on their investments, and that means offering loans to projects they feel sure will pay them back.
That caution held back investments in solar projects in the early days, but now solar providers have a lot of data to call upon: They can tell the bank how much sunlight a particular site gets in a year and how much power they can expect to produce there. Advanced energy storage, on the other hand, is still making a name for itself.
"There’s no track record of five or more years of real returns out of these systems," said Carl Mansfield, general manager and founder of Sharp’s energy storage division. "Bankability for storage is still a challenge."
The same applies to storage companies, according to GTM Research energy storage analyst Brett Simon.
"Battery storage is a relatively young technology and a significant number of storage companies have only been around for a few years, and may not be around for the length of the system warranty," he said.
The complex hybrid nature of solar-plus-storage, which Sharp specializes in, made third-party financiers uneasy. That left potential customers facing high upfront costs and needing drastic measures to afford the storage component. The main possibility, Mansfield said, was collateralization of assets, like taking out a loan on a building. That's highly risky.
"It’s clear that financing is essential to enable a market to grow," Mansfield said. "Just as with PV, people would find ways to finance it by themselves, but it was really once the turnkey, readily available PPA financing and lease financing appeared that the market really took off."
Now Sharp has a pilot program of $25 million from an unnamed third-party financier to lend to its customers. A single contract covers the whole solar-plus-storage system and comes with a 10-year asset management service agreement and demand-reduction performance guarantee; by ensuring the customer gets value from the project, Sharp can assure the lender that the money will be paid back.
The immediate impact will be a drastic expansion of the customer base.
"We have a pretty significant pipeline of commercial and industrial customers, but we find that more than 90 percent of those customers need some kind of arranged financing," Mansfield said. Now they can get it.
Additionally, the knowledge that this financing is available and costs nothing upfront could speed up the sales cycle.
Sharp's project lead times are long even if the storage will save the customers money, Mansfield said. It's a structural challenge: When a company has extra capital to spend, it will usually use that money to grow in size or revenue. A solar-plus-storage system doesn't add any new business capability, it just saves on operating expenses.
A hybrid storage system that costs the customer nothing and saves money on the next utility bill, then, makes for a much more enticing offer.
Tabuchi is finding that to be true, as well.
The American arm of the Japanese inverter company received $300 million from GeoSmart SolPower to offer no-money-down loans in 17 states, ranging from 10 years at 1.99 percent to 20 years at 4.99 percent. (There's also a much smaller leasing program.) The solar-plus-storage product includes a 5.5-kilowatt solar inverter with a bidirectional DC-to-DC battery power converter and a 10-kilowatt-hour Panasonic lithium-ion battery pack managed by Geli software.
"It was obvious something needed to happen," said Daniel Hill, Tabuchi America's sales and marketing director. "Without it, we were missing a big chunk of the market, as well as a very powerful sales tool."
In arranging the financing, Hill said it helped that his company had a long track record. Tabuchi has been operating in Japan for 90 years, making inverters for 20, and has sold "many thousands" of storage systems in Japan. It was an established player, bringing an established product to American consumers.
Most storage companies lack that kind of history. They may need to bank on early adopters paying cash for a few more years until they've built up the kind of track record banks want to see. By then, if these early loan programs have proven themselves secure and reliable, a loan program might be a lot easier to pitch.