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Spurring Battery Investment From New Sources

The evolution of the battery storage industry has EVs and stationary storage vying for scare capital. The scope of the opportunity is significant and is driving new sources of financing to support CAPEX plans.

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By Ralph Ibendahl, Paul Betts and Ross Board
Published April 17, 2023 | 3 min watch
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Key Points

  • As the storage space evolves, there’s more of a mix of institutional investors, infrastructure funds and private equity players.
  • Financing for battery companies often has to come as both debt and equity, including project financing, VC and private equity funding and infrastructure funding.
  • Across the battery value chain, from manufacturing to EVs and storage, the size of the opportunity is significant.

A key part of the evolution of the battery value chain lies in its shift from a nascent high-risk technology to a more established industry. In stationary storage, for example, the investor mix is shifting considerably in resonse to its growth as a sector.

“We're getting phone calls nearly every week, from a mix of institutional investors, both international and domestic, but also infra funds, private equity players, and there's various different angles being looked at here,” said Ross Board, Director in EMEA Energy Transition at RBC Capital Markets.

RBC Capital Markets has advised RWE on their entry into the UK market, when they acquired JBM Solar, a business with over 6GW of storage and solar capacity. And infrastructure investors like GLIL and Brookfield are buying up battery pipelines and partnering with operators.

“It's a mix of strategics and financials right through the the risk spectrum… Low-risk revenue structures with floors and access to debt capital markets are attracting more infra-like investors. Whereas others that are taking more sophisticated views on market risks, such as commodities houses, have entered the marketplace with very different approaches. It'll be very interesting in the coming years to see how that starts to converge,” said Board.

“Low-risk revenue structures with floors and access to debt capital markets are attracting more infra-like investors. Whereas others that are taking more sophisticated views on market risks, such as commodities houses, have entered the marketplace with very different approaches.”

ROSS BOARD, DIRECTOR, EMEA ENERGY TRANSITION, RBC CAPITAL MARKETS

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The debt/equity mix

Paul Betts, Managing Director in M&A Europe at RBC Capital Markets, said that the mix of investors also leads to a mix in funding. Companies need to be able to seek out project financing alongside debt and equity capital and think about how these instruments will complement each other.

“On the project financing side of things, which is the typical type of debt financing you would see for projects of this nature, the issue that the lenders are facing is that without a firm binding contract and a pathway to revenue, it's very difficult for them to lend against because they can't see what sort of security they can get,” said Betts.

“We saw that with Northvolt, it was only when they got binding contracts from VW and BMW that they were then able to go and tap the debt markets and raise $1.6 billion of project financing.”

Binding contracts for EVs help, but investors also need to think about EV penetration. Ralph Ibendahl, Managing Director and Head of EMEA Energy Transition at RBC Capital Markets pointed out that investors really need to take a position on how many EVs they believe will be on the roads and monitor the legislation supporting that.

"On the EV side, $150 billion needs to be deployed by 2025, that's basically a threefold increase versus 2021 numbers. That shows just a massive increase in EV penetration and with that, the requirements to build out the infrastructure to support it."

RALPH IBENDAHL, MANAGING DIRECTOR, HEAD OF EMEA ENERGY TRANSITION, RBC CAPITAL MARKETS

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“To date, basically all of the EV charging side has been equity funded. But as people get more comfortable around EV charging and EV penetration, we're starting to see debt instruments and companies raising debt to support that CAPEX plan,” he said.

“On the EV side, $150 billion needs to be deployed by 2025, that's basically a threefold increase versus 2021 numbers. That shows just a massive increase in EV penetration and with that, the requirements to build out the infrastructure to support it.”

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