AIP: ‘Senior lenders attracted to storage projects with resilient offtake structures’

• Storage becoming less risky for senior lenders because it is now a more established asset class, says AIP’s Greg Falzon
• Major revenue opportunities in storage mean merchant risk is becoming more attractive, he adds
• Using leverage when investing in storage is one way to enhance returns, but there are downsides that must be considered

The energy storage industry is beginning to attract an ever-widening pool of investors. It used to be the case that senior lenders, for example – such as commercial banks and institutional investors – were wary of investing in energy storage projects due to the technology being relatively nascent and lacking an established track record, but times are changing.

In an exclusive interview with Tamarindo insight director Ben Cook, Greg Falzon, partner and co-head of investments at Nordic-based investment manager AIP – and a panellist at the upcoming Investing in Battery Energy Storage 2026 conference in London – said senior lenders are now willing to invest capital in energy storage projects that have “resilient offtake structures”.

He continued: “As this asset class becomes more established and the scale of projects gets bigger and the investment need gets bigger, you need to attract the deeper pools of lower risk capital,” Falzon explained. “The risk level in the projects is reduced because it’s a more familiar asset class, and offtake structures are the other part of the equation – we are seeing the assets becoming more core and the offtake structures more established, meaning that the conditions are now there for senior lenders who are certainly happy to put capital at risk against well-structured projects with good resilient off-take structures.”

Merchant risk becoming more attractive

Falzon said that the energy storage market has good fundamentals, and that given the significant revenue opportunities, assuming merchant risk is becoming more attractive. “We don’t want to give away all of the risk and all of the return to someone else and just have an annuity income stream”. Falzon said. “We want to participate in that business model and in that opportunity.”

That said, Falzon added that traditional core infrastructure investors come from a “mindset of highly predictable contracted cash flows”. He added that, from a merchant perspective, while it was possible to perform an assessment of all the different elements of the revenue stack, it was difficult to predict what revenues would look like in, say, five years’ time. “That gives us the challenge of, how do we participate in this space where we like the fundamentals without being able to really pin down what our revenue is going to look like?” Falzon said this meant there was a tension between infrastructure investors’ desire for predictable cash flows and a “more conviction investing theme, which is to say, actually, looking at our energy system, looking at the trends and looking at the direction of travel, we know there’s an opportunity in this space”.

Using leverage is an option, but there are concerns

Falzon said energy storage investors are looking for some a blend of “downside protection and upside participation”, and the option they choose depends on their risk appetite. Another factor for investors to consider is potentially using leverage. He added that while some investors consider deals on an unlevered basis, others may seek to enhance their returns by using leverage. “So now you’ve got a new stakeholder in the equation that is also more risk averse and demanding a certain amount of contracted cashflows, and therefore that will drive them towards a slightly higher proportion of tolling or a higher floor and lower upside participation,” Falzon explained. “We quite often look unlevered and therefore tailor the arrangements to suit us and therefore can potentially take slightly more merchant risk than in a levered structure.” Falzon said that one of the concerns with levered structures is that when offtake arrangements are put in place “to have a certain amount of contractedness in your cash flows and a certain amount of resilience”, all of the contracted cashflows can effectively end up going to the senior lender and therefore the other capital provider is taking all the merchant risk.

• This is an extract from an in-depth interview with AIP’s Greg Falzon that forms part of our preview of the upcoming Investing in Battery Energy Storage 2026 conference in London –  to read the interview in full, click here