ENERGY STORAGE

Pacific Green CEO: Storage industry ‘getting comfortable’ with project finance

Scott Poulter discusses the company’s strategy for securing BESS project finance and explains why he has his sights set on Italy, Australia and Poland

BEN COOK

February 8, 2024

  • Pacific Green is targeting 12GWh of storage capacity in four global markets
  • Last year, the company closed one of the ‘largest BESS project financings in the world’
  • UK-headquartered company eyeing up opportunities in Italy, Poland and Australia

This week, energy storage company Pacific Green announced it will be targeting more than 12GWh of battery energy storage capacity across four global markets. Having grown its pipeline to 6GWh in 2023, the company said in a statement that it was “taking scale positions in the emerging Italian and Australian energy storage markets”, as well as moving its first project – the 100MW Richborough Energy Park in Kent in the UK – into operation. In addition, the company stated that it would be “taking its first steps” into the emerging Polish energy storage market.

The setting of the ambitious new capacity target comes in the wake of Pacific Green achieving a major milestone in 2023, when it reached financial close on the 373.5MWh Sheaf Energy Park in the UK, a project the company describes as one of the “first and largest non-recourse debt financed BESS sites in the world”.

With the UK-headquartered company embarking on a push to establish itself in multiple overseas markets, Energy Storage Report sat down with Pacific Green CEO Scott Poulter to discuss why the company had been successful in securing project finance for Sheaf Energy Park and why it had decided to target the Australian, Italian and Polish markets.

In an engaging discussion, Poulter also talked about the challenges posed by the US market, prospects for growth in Spain and Germany, as well as alternatives to lithium-ion battery storage.

Pacific Green has described the Sheaf Energy Park in Kent as one of the “largest project-financed BESS” sites in the world. Why and how was the project finance successfully secured?

Scott Poulter: If we take the whole project finance process – that is, using senior debt, non-recourse project finance – we look first at ‘What is financeable?’ rather than the development itself. It’s almost a reverse engineering of the process, where we consider what’s going to get a tier one bank comfortable through full visibility, and confidence in the project returns.

Fundamentally, that’s how we’ve approached it in a different way to some of the other energy park developers in the industry. Rather than starting a negotiation with the suppliers and the counterparties, you’re starting with an agreement that is bankable. You put that on the table to the counterparties and then have that priced, rather than following the traditional method, which is to say: ‘I would like a 100 megawatt-hour battery, how much do you charge?’

Will we see more of this type of project financing in the storage sector?

SP: I think the whole industry is getting more comfortable, more confident. The underlying trading is also becoming something everybody’s more confident in now, and we’re starting to see banks looking at merchant-traded assets as ‘bankable’. Maybe the loan to cost ratios are slightly diminished compared to what they would be with a floor or a guarantee, but we’re starting to see a lot more comfort. They’re looking across all their books right now, and they’re seeing that the market is confident that the product is technically secure and technically capable of delivering. By contrast, four or five years ago, storage was a technical challenge as well as a trading challenge.

Pacific Green has an ambition to hit 12GWh of storage capacity, how does that break down?

SP: We are responsible for 100MWh in operation right now – Richborough Energy Park – and there is 373.5MWh in construction with Sheaf Energy Park. The balance is in various stages of development.

We aim to double our total pipeline of projects in origination, development and construction to 12GWh, across the UK, Italy, Australia and later this year, Poland. That’s going to mean doubling our greenfield pipeline in Australia to 6GWh, expanding from 2.8GWh to 5GWh in Italy – and in Poland we’re looking at an initial origination pipeline of around 400MWh. In the UK we’re looking for opportunities to grow the origination pipeline.

Does Pacific Green adopt the same strategy for all its BESS projects?

SP: When we got into batteries in late 2020, we firstly bought development rights from the originator because we saw that the market was developing pretty quickly and taking greenfield land at that time wouldn’t allow us to demonstrate our capabilities and be able to commercialise the project that quickly.

But just over a year ago we started the operation in Melbourne. The Australian market is less mature than the UK market and that allowed us to look into greenfield sites – to secure land and grid connections as the starting point of the process, and we still had the opportunity and time to do that and benefit from the value that brings.

In the UK, for those kinds of opportunities, you’re looking at a site for 2030 or beyond. So we saw that the margins [in Australia] are much greater, gave us much more control of the process itself, all the way through, and allowed us to negotiate terms with landowners in a form that we were comfortable about with regard to bankability.

In Italy, we saw substantial demand, and we saw that, for us really to get into it, we needed a little bit of scale. Without around a gigawatt hour as a minimum, economically it’s difficult for us to set up an operation. So we entered an agreement with the originator to acquire five separate projects, each with four to six hours duration depending on the location.

In Poland, the capacity market is quite strong and this year seems a good year for us to be looking to bid into that market. So, to get into it, we’ll probably do something similar to Italy.

Regarding the push into overseas markets, does this reflect fewer opportunities in the UK?

SP: The margin in the UK in 2023 started to come off a little, while we have seen some of the other markets starting to expand because they’re running behind the UK, so as a consequence those opportunities are a lot earlier in the process. We didn’t have the benefit of that in the UK, being a reasonably late entrant into the market, so we didn’t want to lose the opportunity in other countries.

Why did you choose Italy, Poland and Australia as target markets?

SP: We took a lot of market data forecasts for the next ten years and beyond, and we identified Italy as a reasonably virgin market that was going to become number three in Europe. We saw Poland expanding, and we’re thinking of operating in that market from the Italian office. We saw that the Australian market was moving very quickly and we already had some other business interests and relationships there.

What about the US?

SP: As a company we made a conscious decision not to progress the US right now – it’s a very competitive market. We would have to do it extremely well and that would mean a significant amount of resource and investment, which would be a distraction from other markets where we could see more immediate opportunities. In the US, each state has to be viewed as a separate country, so you’re identifying three or four core states to pursue and even that’s incredibly competitive. We haven’t ruled it out, we’ve seen opportunities, just not one that allows us to be the catalyst.

Will Pacific Green be targeting other European markets?

SP: Certainly, we’re looking at Spain and Germany, but we need to get a little more runway with our current programme. We need to scale up with personnel and we’ll be looking at that later this year.

Lithium-ion batteries are currently the most commonly used storage technology, but do you think others will come to the fore?

SP: We’ll start to see different forms of storage playing different roles, there will be very specific types of storage and there’ll be very specific types of generation, and they will be aligned for purpose. We’re moving to more sophisticated types of energy and methods of generation and energy storage, so there’ll be more demand for different types of storage, such as flow batteries, which will have a place in the market for sure. We’re also seeing pumped hydro storage becoming used a lot more in different forms.