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KBRA ESG KNOWLEDGE HUB

The Coming Charge: Energy Storage Impacts on Project and Corporate Credit Quality

Aerial view of wind turbines and agriculture field

In this report, Kroll Bond Rating Agency (KBRA) examines some of the key considerations around energy storage.

Governments, businesses, investors, and other key stakeholders are doubling down on efforts to decrease carbon emissions from the electric grid to mitigate climate change. Wind and solar power deployments have grown exponentially and are expected to continue representing most of the new generating capacity in the coming years, particularly in the U.S. and Europe. While the continued growth of renewable energy is vital for reducing carbon emissions, the intermittent nature of wind and solar creates operational challenges for balancing electric supply and demand. As a result, energy storage is likely to be a critical piece of the clean energy transition as it can store excess clean energy for later discharge when supply outpaces demand. While storage development remains limited to date, continued maturation and cost declines of storage technologies coupled with expanding revenue-earning opportunities are likely to support accelerated growth of this technology.

In this report, Kroll Bond Rating Agency (KBRA) examines some of the key considerations around energy storage, including how the technology may impact both project finance and corporate credit quality.

Key Takeaways

  • While energy storage technologies and use cases continue to evolve, there is broad consensus that the technology is likely to play an increasingly important role in facilitating a transition to a clean energy economy. As such, KBRA anticipates a growing number of energy storage project finance transactions and greater likelihood for electric utility companies to actively consider the technology as a key component of their long-term growth strategies.

  • Like other project finance transactions, KBRA evaluates energy storage projects based on their ability to generate revenues sufficient to cover future debt service obligations.

  • Given their relevance to the counterparty exposure and competitive position credit determinant within project finance transactions, KBRA monitors how both (1) federal regulatory and policy actions, and (2) energy supply and demand evolution may materially impact an energy storage project’s creditworthiness.

A Primer on Energy Storage

There are many elements to consider when determining the likely impacts of an energy storage project. In this section, KBRA provides a short overview of the technology types that fit within the broader energy storage bucket as well as the range of services energy storage can provide.

Technology Types

While energy storage refers to a broad resource type, there are important differences between the varying technologies comprising this category. The following represents a simplified breakdown of commercially available energy storage technologies that are undergoing research, development, and demonstration activities:

  • Batteries: Entails a bevy of electrochemical solutions, including advanced chemistry batteries (e.g., lithium-ion, lead acid, sodium, etc.), flow batteries, and capacitors.

  • Thermal: Heating and cooling applications to store and release energy (e.g., ice storage, dispatchable hot water heaters, etc.).

  • Mechanical: Technologies that leverage kinetic or gravitational energy to store electricity (e.g., flywheels, pumped hydro power, etc.).

  • Emerging Technologies: A range of technologies that are still in more nascent stages of development (e.g., compressed air, superconducting magnets, hydrogen, etc.).


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