Does record Zenobe debt financing prove confidence in storage is solidifying?
London-based battery storage developer Zenobe has announced that it has won a multi-million pound pot of debt financing from five banks - one of the largest such deals to be arranged in Europe to date – to fund 1GW of new battery storage capacity in Scotland.
Does the deal prove that investors are fully behind the UK energy storage sector and its position as a growing asset class?
Inspiratia insights
- As a result of the deal, Zenobe will now begin construction on battery storage projects with a value of £750 million (€844m US$904m) in Scotland
- The new projects will deliver what Zenobe claims will be the world's first contracts for stability services using transmission-connected batteries
- The deal represents a vote of confidence in the UK battery storage market, which has sometimes repelled investors over merchant risk fears
Zenobe's deal
As a result of the agreement, Zenobe will receive £235 million (€265m US$ 283m)) in non-recourse project finance debt from a club of five banks.
The banks on the deal include: Canadian Imperial Bank of Commerce, Rabobank, Santander UK, Siemens Financial Services and NatWest, which also acted as the sole debt advisor.
The debt deal has also been structured to include a £400 million (€450m US$482m) accordion facility, which will be implemented to finance new capacity at existing Zenobe sites. The company has said that it wants to use the funding to extend the size of its portfolio to 1.5GW in Scotland by the middle of the decade. Currently the company has 400MW in place.
The number of banks on the deal meant that the agreement did take several months to conclude. "What we have been doing as a company is spending a lot of time educating banks about the storage sector because historically there have been very few banks that really understand the market," Nicholas Beatty, co-founder and director of Zenobe told inspiratia.
"We have financed three battery storage projects in the past with Santander and that relationship goes back a long way. Our assets were historically connected to the distribution network, but what we've done with these assets is to link into the transmission system in order to supply a much wider range of services to network operators.
This means our assets are much more contracted and we can offer more services at the same time, which are of more value to operators. Over time, we have built a highly contracted revenue stack with long-term floors with companies such as EDF, and as a result of this and other deals, we have a higher level of contracted revenue."
Assets
New Zenobe assets that are being lined up include the 200MW Blackhillock project near Elgin in Scotland, where construction has already started, and a 400MW scheme near Inverness, which are both due to be complete before the end of 2024. A further 200MW site is also being developed close to Kilmarnock near Glasgow. All three projects have scope for further extensions. The projects are being sited close to substations and locations where interconnectors will come onshore from offshore wind projects.
The new projects will all be contracted to provide stability services to the National Grid Electricity System Operator (NGESO) to improve grid reliability, a deal which, Zenobe claims, involves the first commercial contracts in the world to use transmission connected batteries to provide short-circuit level and inertia to the grid to support the removal of fossil fuel plants from the UK energy mix.
The batteries will also act to ease network constraints faced by the National Grid during periods of heavy usage, by importing electricity at times of peak renewable generation.
Pinsent Masons acted as borrower legal counsel on the deal, while Gowling was lender counsel. Other advisors included Baringa and Cornwall Insight (commercial), DNV (technical), Aon (insurance) and RSM (auditor).
Rising confidence
The deal will be perceived as an example of the growing levels of confidence that investors now have in the UK battery storage market – while giving credence to the Scottish government's aim to have 20GW of additional low-cost renewable electricity generation capacity in place by 2030.
In the past, some investors have bolted when faced with the opportunity to invest in battery storage schemes.
Investor concerns have largely been prompted by fears over merchant risk in the sector and - in the past - the lack of the safe harbour offered by government contracts.
Instead, the battery storage space has largely developed without large-scale subsidy and is succeeding regardless to stand tall without crutches, a fact that has surely acted to settle investor concerns.
"The merchant element of Zenobe's portfolio is around 60%, but because the projects have been sited at locations where there are stresses on the grid system, the ability for us to provide further merchant services is much enhanced by the location, which helps us to get much better debt terms, because of the degree of contracted revenues that we have," Nicholas Beatty added.
And, although today's financing certainly breaks records, there have been a growing number of successful battery storage financings in recent months, which have set the tone for today's news.
For example, in the summer of last year [2022], UK-based storage developer Field secured £46 million (€52m US$55m) in debt financing from Triple Point, an innovative deal that was rightly honoured at last year's inspiratia Energy and Sustainability Awards.
The money is being used by Field to finance the construction of four battery storage projects in England, Scotland and Wales, with the capacity due to come online before the end of this year.
Other significant deals last year included Harmony Energy Income Trust winning a £60 million (€68m US$72m) financing facility from NatWest to back the acquisition and construction of a 99MW battery storage scheme in Buckinghamshire.
Santander also made an investment in the French company RGREEN Invest, which is supporting the construction of 107MW of battery energy storage capacity across England.
Expect more large-scale battery storage financings in Europe over the coming year – as a sector that has been so long in the building – finally begins to achieve its full potential.
