Breakthrough Insurance Deal Offers Storage Developers a Revenue Floor

Energy transition software and consulting business Ascend Analytics has closed a second insurance deal that guarantees a minimum level of revenue for energy storage projects in the Electric Reliability Council of Texas (ERCOT) market.  

The risk transfer transaction that the Boulder, CO-based firm has put together with managing general agent USQRisk will provide a revenue ‘floor’ over a term of five years for a standalone storage project in Texas with a nameplate capacity of over 200MW that UBS Asset Management is expecting to bring on stream later this year.  

First Insurance Policy  

The deal with UBS follows the December 2023 signing of a first insurance policy for energy storage in the ERCOT market that Ascend arranged with New Energy Risk for a portfolio of unnamed smaller projects.  

Canada Life Reinsurance and two other big reinsurers are backing the UBS policy, on which insurance broker CAC Specialty helped to secure the necessary risk taking capacity. Troutman Pepper provided legal advice to the developer, while DLA Piper acted for USQRisk.  

Ascend Expertise  

As with the earlier transaction in December, the insurers are covering Ascend’s expertise in forecasting and energy dispatch (which includes the firm’s SmartBidder bid optimization and PowerSIMM portfolio management platforms) rather than the actual performance of the asset.  

Keeping the Upside  

If a developer makes full and consistent use of the Ascend tools to operate its energy storage facility, the policy will assure the project a minimum level of revenue without removing the potential upside of periods of high volatility in the ERCOT market. This is in marked contrast to a tolling agreement that offers a set price for a unit’s entire output. “They get a revenue floor, and they get to keep the upside,” confirmed Adam Hise, Ascend Managing Director of Storage Risk Solutions. Signing up to such a policy does not prevent a developer from operating the battery as it chooses if it believes it can outperform the Ascend optimization strategy. However, it would lose the protection of the revenue floor if it incurred losses below that level by doing so.

Lower Cost of Borrowing  

While Hise declined to disclose what percentage of a project’s capital budget the one-off upfront premium for an Ascend insurance policy would represent, he stressed that the outlay would be more than offset by the benefits that the cover would deliver in terms of reducing the size of a developer’s equity contribution and securing the project a lower cost of debt.  “The sponsor can now see a project that offers both a high rate of return on equity and a reduced cost of borrowing,” he said.  

Third Transaction  

Ascend is looking to close a third transaction in the coming weeks and to deploy around USD1bn of risk cover across 1.5GW of energy storage capacity by the end of this year.  

While fully merchant projects in the ERCOT region clearly stand to gain the most from this type of insurance, the firm is also looking at opportunities in all the main North American energy markets as well as overseas.  

Incremental Assurance  

Hise explained that while projects in other jurisdictions would almost certainly have some form of revenue guarantee in place already – such as resource adequacy (RA) contracts in California – these might not be sufficient to meet lenders’ requirements, and that term insurance policies could provide the incremental level of assurance needed to satisfy lenders’ credit committees.  

Ascend is now projecting that the risk transfer market for energy storage assets will total as much as USD10bn over the next five years.

First published in Voltility, March 14, 2024. Author: Andrew Cavenaugh

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