Abstract

As power markets and the generation mix continue to evolve in the United States and elsewhere, the need for flexible power systems increases. To achieve power system flexibility, developers of new power projects and owners of existing projects have increased their use of battery energy storage systems (BESSs) as a cost-effective option. Until recently, BESSs were typically sponsor/owner financed. However, as more BESS projects are seeking external funding, investors need to rely upon independent engineers with battery storage expertise to perform due diligence evaluations to characterize project risk and recommend mitigation strategies in support of project financing.

This white paper highlights Sargent & Lundy’s methodology for independent engineering (IE) due diligence review of BESSs. The goal of these reviews is to assist financiers in the due diligence of BESS projects to understand risks and mitigation options for potential investment opportunities. Our methodology is based on our extensive experience designing utility-scale BESSs and advising potential investors and owners with due diligence evaluations of renewable projects.

There are several critical aspects to consider when evaluating a BESS project for potential investment: the planned use case(s) and revenue streams; equipment selections and the system design; commercial agreements; and construction, commissioning, and operating plans. This white paper provides BESS-specific methodology and best practices for these reviews.

Among the critical aspects, the use case identification, fire protection design, and battery module supply warranty terms are of particular importance and unique to BESSs:

• Thorough identification and evaluation of the BESS use case, or cases, is important to verify consistency across the design, battery technology selection process, and financial modeling.
• Fire protection and suppression are also critical design considerations that must be verified to be in accordance with local and national standards.
• Battery warranty terms are of concern because commercial protections are contingent on adherence to the BESS’s operational limitations (depth of discharge, cycles, temperature, etc.).

The interdependence of the BESS use case, system design, and commercial terms necessitates an integrated full scope due diligence review be performed.

To address these key considerations, Sargent & Lundy has developed a carefully considered methodology founded on both renewable energy project due diligence experience and our industry-leading BESS engineering design and advisory qualifications.

Authors: Adam Loeding, Sang Gang, Michael Sagan, and Eric Soderlund