Reducing counterparty risk is a crucial aspect in the German battery storage sector, especially given the ongoing policy uncertainties that continue to pose challenges for the energy storage industry. This viewpoint was expressed by Eike Ahrens, the deputy director of energy and infrastructure at Berenberg Bank, during a panel discussion at the European Battery Exhibition’s energy storage summit in Germany this week.
Dr. Stefan Englberger, the head of business and investment analysis at ECO STOR (right), spoke at the panel discussion at the European Battery Exhibition’s energy storage summit.
Ahrens stated: “Collaborating with reliable and experienced counterparties is of great importance, as it is reflected in how they deploy storage projects and handle various matters.” He pointed out that some of the challenges faced by the German battery storage industry are not unique, and therefore collaborating with financing and underwriting partners with experience in the energy storage sector can bring significant benefits.
He continued: “Many of these topics have existed for quite some time, such as the uncertainty of revenue and the availability of contract revenue. In the battery storage industry, some new entrants do not always manage to address these challenges.”
Reducing this risk is crucial because, according to James Adams, a partner at Alexa Capital and a member of the panel discussion, the German battery storage market remains a high-potential investment environment.
Adams said: “I believe that as an asset class, the German market can offer one of the best risk-adjusted returns in any infrastructure asset class globally. The US energy storage market also presents opportunities, but the combined risk-reward performance of the German energy storage market is second only to that of the US.”
However, this does not mean that regulatory uncertainty can be ignored – this is a common topic in this summit’s panel discussions. Oliver Prokein, the energy director at KfW (German Reconstruction and Development Bank), who also participated in the panel discussion, said that the uncertain policy environment in Germany makes it more difficult to predict and quantify key financial indicators, such as risks and revenues.
Prokein said: “I fully agree that obtaining a stable income stream is a major challenge. From the perspective of priority creditors, an important element of an energy storage project is having a reliable regulatory framework – that is, a set of rules that can be relied upon to quantify risks in financial models.”
Market mechanisms aimed at providing predictable income (such as capacity lease agreements) may be particularly common in this environment. In another panel discussion at the summit, Stefan Englberger, the head of business and investment analysis at ECO STOR, explained that the availability of financing is one of the main reasons driving the increased demand for capacity lease agreements.
He explained: “When obtaining debt funds and debt financing, risk mitigation measures are needed, so we need capacity lease agreements or contract income.”
Ingrid Capacity’s global market director, Amanda Niklaus, added: “Equity investors are also seeking some form of fixed income.” She believes that various investors will view capacity lease agreements as a popular form of security. This model is not only applicable to debt lenders but also to equity lenders.
Niklaus and Englberger both stated that capacity lease agreements can also include some flexibility to adapt to different investment portfolios and investor preferences.
Niklaus explained: “Most of our energy storage systems operate in a fully market-based trading model, so we will combine contract revenue assets to balance overall risk.” We rarely adopt the full capacity leasing model; instead, we mostly combine partial capacity leasing with market-based value-added income. ”
Englberger agreed: “The mixed income model also has significant value, and we will not choose the single model of full leasing either.”