Earlier this year, Battery Energy Storage Solutions (BESS), a UK-based independent system solutions and flexibility services provider, received £28.5m in project finance investment from Santander.

The funding is crucial in helping BESS to meet its short term strategy target to build and operate a portfolio of 100 MW of grid scale battery storage assets by the end of 2018.
Howard Whitehead, Head of Infrastructure & Renewable Energy, from Santander Corporate & Commercial
Howard Whitehead, Head of Infrastructure & Renewable Energy, from Santander Corporate & Commercial  spoke to Power Engineering International about why it took the decision to back storage, and also the challenges associated with funding the sector.

Whitehead is in charge of a renewable energy  team at the bank providing in the main for UK Corporate and Commercial clients.

“We typically operate in the onshore wind and solar market but over the last couple of years we have seen opportunities within the storage market , providing backup power to the National Grid in times of peak demand.”

“BESS has invested in purchasing containerised battery units and they’ve entered into the capacity market and firm frequency response market and essentially our funding would help them roll those units out across the UK.”

Looking at the current and projected UK energy landscape, Santander took the view that the role of battery storage will be a prominent one.

“There is a varied energy mix in the UK but, as coal comes offline over the next ten years, that capacity will be replaced by nuclear, new gas and an increasing amount of renewables. Intermittent renewables add up to volatility on the grid. What storage does, when connected with a renewable energy generator, is effectively get close to baseload, meaning you have constant power. With the extent of intermittent supply, this is important for energy security.”

“We went through an internal governance process for funding battery storage, which is part of our overall renewable energy lending mandate. From there we got approval to fund battery storage last year. That was in conjunction with the work we were doing in terms of structuring the BESS transaction which was really helpful in terms of running a deal at the same time that we were running our strategy.”

“A lot of the due diligence we did for BESS we could obviously use in tandem and get a lending mandate.”

Now that the bank has made its initial foray, it plans to finance similar projects, where feasible.

“There is a lot of interest in battery storage because of that intermittency factor and lack of coal power options. One such option is to replace power with batteries and gas peaking plants which is where you have a gas-fired power station on a smaller scale and that enters into contracts with the national grid to provide power when required. These gas plants will sit dormant until power is required then will start up and draw gas from the supply network and essentially produce power.”

“The difference with gas and battery is battery draws power from the national grid and site there idle fully charged like a phone. When you turn it on you discharge that battery into the grid either fully or intermittently.”

Ofgem allocates a variety of ways for a battery storage provider to participate, such as capacity market, T1 or T4 auction process and the firm frequency response market.

Typically the latter is a short-term 2-year contract entered via an auction process.

“When you’re seeking senior debt, banks would much prefer to lend against a long-term revenue stream which is known,” says Whitehead. “The issue for funders at the moment are a lot of the contracts are short term. It’s much harder to lend long term when you only have a one or two-year contract.”

Globally Santander is one of the largest lenders into the renewable energy sector by project finance and currently provides a full market offering in the UK from SME’s to multinational utilities. A complimentary renewable energy team in Global Corporate Banking, in London looks after Santander’s international corporate, utility and fund clients.

Whitehead says the nature of policymaking in recent years has counted against traditional renewable energy technologies to some extent.

“It’s been unfortunate that a lot of the subsidies available for the traditional technologies such as onshore wind and solar have been eroded and removed. It’s unfortunate because the technologies are the cheapest available to deploy compared with the likes of nuclear which are long term construction projects and obviously very expensive for the taxpayer.”

“It would be great if some form of subsidy or contract for difference is available for the more traditional technologies.
“There are positive noises coming out of Scotland – obviously with Scotland being a devolved government, with potential support for onshore wind in particular. The market will look at that with interest and hope.”

Whitehead’s team is not yet focusing on some of the considerable innovative technologies supporting the emerging clean energy system, but they are watching the story evolve.

“Santander has funded smart meters so that is a sector we, as a bank are active in, but in terms of cutting edge, Artificial Intelligence, Internet of Things, that would be difficult for a senior lender. That’s in more of a development phase and you have very niche, sophisticated equity players involved there. They need to be proven by equity first ahead of a major lender.”

For now, battery storage and gas peaking will remain the chief interest for Whitehead, and spotting potential clients set to successfully contribute to the security of the UK’s power supply.

“Certainly we have a number of deals we are looking at in terms of the battery storage and gas peaking sector. In identifying those clients its helpful that those that go into the capacity market auction are listed by the regulator, so we know who is active or who isn’t, and that provides us with a prospect. And equally as we get our message out that we are supporting battery storage and gas peaking those players will know we are here, open and ready and able to assist.”

One potential future opportunity for the lending facility lies in the area of electric vehicles. Whitehead anticipates a future comprising smart houses, local grid networks and EVs.

“It will be about powering the house from your car. A balancing mechanism as we move away from dirty cars to EVs and hybrids, and there will be a requirement for more and more EV charging infrastructure. EVs are certainly a potential future opportunity.”

RELATED NEWS
Santander enters realm of financing for battery storage
Quercus secures debt financing for trio of UK windfarms