Further to our previous articles on the market and sources of revenue for (standalone) project-financed BESS projects, this article considers the core transaction documents making up a project-financed BESS project and the similarity between these and the transaction documents commonly used in other renewable energy projects.  Whilst there are many commonalities with these other project-financed renewable energy projects, there are also key differences – in particular in respect of revenue contracts and the nature and terms of these. Below we briefly consider the transaction documents that are broadly similar to other (project-financed) renewable energy projects, and we then go on to consider in greater detail the relevant differences.

As covered briefly in our previous article, the “route to market” / offtake arrangements/ revenue contracts are perhaps the key difference between battery energy storage systems (BESS) projects and other project-financed renewable energy projects; often there is material exposure to market (or ‘merchant’) risk and this makes them arguably more challenging to project-finance for lenders.  In this article, we discuss the nature of revenue in a (standalone) BESS project, how electricity storage providers “stack” these revenues and we briefly introduce the contractual structures that are used in connection with the route to market for BESS projects (which we will cover in greater detail in our next article).

In a new series of articles we will explore: what BESS is;  why it is needed/what drives investment in BESS; key regulatory considerations for BESS; the structure and financing of BESS projects; the nature of revenues available to BESS projects, including revenue stacking and route to market agreements (RTMAs); and the future development of BESS.

The UK regulators (primarily the Prudential Regulation Authority ("PRA")) are currently reviewing consultation responses received on the proposed implementation of Basel 3.1 in the UK, with the final rules being published between December 2023 and May 2024, and implementation due to start in the UK in July 2025 (pushed back from the original date of 1 January 2025) and finish by 1 January 2030. On 12 December 2023, the PRA has published the first of two near-final policy statements covering the implementation of the Basel 3.1 standards. This policy statement did not address the real estate lending concerns outlined in this article. The second near-final policy statement is expected in Q2 2024 and is likely to address these. The US Regulators, i.e. the Federal Reserve, OCC and FDIC, have on 27 July 2023 published their proposals to implement Basel 3.1 (or Basel – Endgame, as it is increasingly referred to in the US) (the “US Proposals”). The consultation period ends on 16 January 2024 with the currently proposed start of implementation being scheduled for July 2025 Some of the proposals have potentially problematic implications for Real Estate Finance (“REF”) and, in turn, the wider UK and US Real Estate market. The US implementation proposal provoked an immediate and robust reaction by the US banks and other key stakeholders in the market.