US Battery Storage Financing ‘Has Become More Challenging’

Executive Summary

Financing for Battery Energy Storage System (BESS) projects in the US has become significantly more challenging, according to industry experts.

Rising interest rates are cited as a major hurdle, directly increasing the cost of debt and compressing project returns for developers.

Compounding this issue, complexities in deploying and utilizing Inflation Reduction Act (IRA) tax credits have slowed down the crucial tax equity market.

Lenders are demanding higher risk premiums and requiring developers to utilize more conservative revenue modeling, especially for projects relying on volatile merchant revenue streams.

Despite these headwinds, sophisticated financing structures and robust policy support continue to enable market growth, particularly where project sponsors can secure hybrid contracts or build assets adjacent to solar PV or wind resources.

Financing Conditions and Trends

After several years of rapid expansion, US battery storage project finance has become more demanding.

The most material shifts in 2025 include:

• Rising Equity Requirements: Market volatility in major grid markets, including ERCOT and CAISO, has led to tighter underwriting standards from lenders. Developers must provide stronger equity cushions or advance more robust merchant risk mitigation strategies.​

• Short-Term Contracts: Unlike solar, which benefits from growing data center-driven virtual PPA demand, standalone battery projects increasingly rely on 5–7-year contracted revenue deals, transitioning to merchant operations thereafter. Investors favor contracted projects for initial financing before accepting merchant risk.​

• Hybrid Finance Structures: Tax equity, construction loans, bridge financing, and sales of tax credits via Section 6418 are used aggressively to de-risk portfolios and support construction and term loan facilities.​

• Cross-Market Asset Pools: Developers often bundle solar-plus-storage assets to improve bankability and reduce financing pressure on standalone BESS, benefiting from cross-sector policy incentives and anchor contracts.

Market Volatility and Underwriting

Recent years have seen less grid volatility, especially during summer peak events, dampening BESS revenue certainty and increasing distress for merchant asset owners. Lenders are therefore focused on:

• Risk Assessment: Standalone storage projects require greater developer equity and face stringent risk review compared to co-located solar+storage projects, which enjoy anchor revenue and policy support.​

• Revenue Strategy: Some owners seek long-term tolling agreements - such as Strata Clean Energy's 20-year APS deal in Arizona - to underpin financing, while others opt for contracts and hedging tools to stabilize cash flows during merchant periods.​

• Underwriting Models: Leading banks and investors increasingly demand detailed technical guarantees (OEM warranties, robust fire safety mitigations), diversified supply chain partnerships, and operational flexibility to approve loans.

Sector Growth and Notable Financings

Despite finance challenges, 2025 is on track for a record year in US energy storage deployment:

• Recent Financings: Recurrent Energy secured $825 million in construction financing for Arizona BESS and solar projects, while Spearmint Energy and Strata Clean Energy raised $252 million for 2 GWh of new BESS capacity across Texas and Arizona.​

• Innovative Loans: Bridge Renewable Energy announced an $80 million term loan and preferred equity bridge for a 40 MW distributed solar+storage portfolio.​

• Expanded Targets: Department of Energy’s target for 100 GW of battery storage by 2030 is accelerating capital flows into the market, with advanced projects using merchant, tolling, and hybrid revenue models to de-risk investment.

Technology, Policy, and Bankability

The financing environment also reflects technological and policy drivers:

• IRA Incentives: Extensions of the ITC (Investment Tax Credit) and direct payments under the Inflation Reduction Act have reduced cost barriers and incentivized broader project portfolios (solar, wind, storage).​

• OEM Risk and Supply Chain: Projects using diversified battery OEMs and robust performance guarantees are more bankable; supply-chain flexibility and domestic content policy (FEOC restrictions) increasingly define market viability for both utility and distributed assets.​

• Fire Safety and Asset Management: Lenders, insurers, and investors are mandating advanced fire safety risk mitigation (infrastructure spacing, thermal management) in light of growing asset complexity and technological evolution. We've already started to see new legislation passed - such as SB283 in California to promote increased battery safety standards.

Analyst Opinion & Outlook

US battery storage finance is navigating a transition - pivoting from subsidy-driven, fully contracted models to merchant projects that require greater sophistication in underwriting and risk management. Developers and financiers are adapting with multi-layered capital stacks, hybrid contracts, and innovative insurance and performance structures. Market fundamentals such as grid volatility, data center loads, and domestic content policy continue to shape the trajectory of lending, equity, and asset deployment.

While financing challenges exist - especially for standalone BESS in merchant markets - the sector remains resilient, with multiple high-profile deals closing at scale in 2025. The continuing impact of the Inflation Reduction Act, along with evolving market structures and project bankability requirements, supports long-term sector growth and positions battery storage as a pivotal asset class in US clean energy transition.