BESS virtual tolling represents a useful counterbalance to physical tolls, attendees at the Tamarindo Investing in Battery Energy Storage 2026 conference were told, but panellists warned about basis risk
Renewable energy developers are increasingly seeing the benefits of virtual tolling agreements for battery storage projects, but such agreements do increase basis risk and should be used sparingly. This was one of the conclusions from the recent Tamarindo Investing in Battery Energy Storage 2026 conference that took place in London. Panellists said that virtual tolling arrangements can represent a useful counterbalance to physical tolls, which can pose lease accounting issues – such issues can negatively impact on the financial metrics of offtakers. However, they also warned that virtual tolls should be used in moderation given that they introduce basis risk, that is the financial risk that arises due to the discrepancy between the price used to settle the virtual contract and the actual lower price at the specific location where the battery discharges.
Speaking in a panel discussion focused on new offtake strategies, Josh Brown origination team manager at SSE, said that while the company had limited experience of virtual tolling agreements, they offered a number of advantages. “We haven’t done anything that isn’t physical yet, but we’re very open to it [virtual tolling] because physical tolling has lease accounting issues – they can be quite challenging to overcome…I believe a virtual structure might be able to work around, so I think it seems like a good place to go,” he said. “It still keeps our traders happy in that they get to choose to do what they want with an asset to a point, but then the developer isn’t just giving up everything to us.”
Warning about potential risks
Lisa Mackay, chief operating officer at Fidra Energy, which is developing the UK’s largest battery energy storage project, the 1,400 MW / 3,100MWh Thorpe Marsh scheme, said virtual tolls were welcome if utilised along with other types of offtake arrangements, but warned against potential risks. “I think [virtual tolls] as part of the suite, great, but you’ve got basis risk, you’ve got the fact that you are expected to be available 100 per cent, so you’ve got to know what you’re doing the rest of the time. How are you unwinding that risk in your portfolio?” Fellow panellist Vincent Fosse, investment director at Prime Capital, added that, while virtual tolls simplified matters from a commercial perspective, they “increase complexity on the technical side and the tenure and the price may not be there”.
Virtual tolling increases speed of execution
The simplicity of virtual tolls is important from the perspective of lenders because it increases the speed of execution, said Peter Allcock, director (sector lead energy transition) at SMBC. “If you’re looking at a 250-megawatt battery storage plant with about a hundred million of debt on a two-lender basis, you want to be executing that from origination to execution in around four to five months,” he said. “What you don’t want to be doing is that dragging into eight, nine, ten months, because it should become a quicker-processing type of product.” Allcock added that, in contrast, closing physical tolls can be a lengthy process because extended negotiations take place every time the physical toll terms change.
Virtual tolling offers wider pool of counterparts
Allcock added that another benefit of virtual tolls was the fact that they also provide a wider pool of bankable counterparts. He added that virtual tolls should also be more replaceable because they are not directly linked to assets. “They [virtual tolls] should be quicker to replace, which helps in terms of thinking about different types of optimisers. If you’ve got a financial toll in place, the actual optimiser…you’ve probably got a little bit more flexibility. You could do it in- house. You could go for one of the smaller niche optimisers that perform better.”
Allcock concluded by telling the panel – which was moderated by Katie Duffield, partner at CMS – that, while he saw the advantages of virtual tolls, he did not envisage them contributing 100 per cent of a battery asset’s revenues. He said: “I think it [virtual tolling] is going to be part of a revenue stack and there will be an element of merchant there and hopefully a little bit of capacity market.”
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