How Battery Tolling Agreements Support Project Finance

Battery energy storage projects can generate substantial revenue from wholesale electricity markets, balancing services, congestion management and ancillary services.

That does not automatically make them easy to finance.

The fundamental project finance problem is revenue predictability. A lender considering a 7-year, 10-year or longer facility needs enough visibility over future cash flow to determine how much debt the project can safely service.

A major battery transaction announced in the Netherlands on August 31, 2026 shows one way sponsors are solving that problem. Return has reached financial close on Sirius, a 200 MW / 800 MWh battery energy storage system in Winschoten, after entering into a long-term fixed-fee tolling agreement with Vattenfall.

The Financing Problem With Merchant Battery Storage

A battery does not produce electricity. It earns money by moving electricity through time and by providing flexibility to the power system.

The operator can charge when electricity is abundant or inexpensive and discharge when electricity becomes scarce or valuable. Batteries can also earn revenue from balancing markets, ancillary services and other grid-support activities.

Those revenue streams can be attractive for equity investors because volatility creates trading opportunities.

Senior lenders look at the same volatility differently.

If a project depends almost entirely on merchant revenue, future cash flow becomes difficult to forecast. The lender must determine how much of the projected trading income can realistically support contractual debt service through different market conditions.

What Is a Battery Tolling Agreement?

A battery tolling agreement separates ownership of the physical storage asset from some or all of the commercial optimization of that asset.

The project company owns the battery.

A utility, energy trader or other creditworthy counterparty receives contractual rights to use the battery's charging, storage and discharge capacity.

In return, the project receives an agreed payment.

The precise allocation of operating rights, dispatch responsibility, market revenue, degradation risk, availability obligations and performance risk depends on the contract.

How the Sirius Tolling Agreement Works

Under the Sirius agreement, Vattenfall receives access to the battery's charging, storage and power-delivery capacity in exchange for a fixed fee.

Vattenfall determines when the battery charges and discharges.

That allows Vattenfall to use Sirius to manage fluctuations in its renewable generation, balance its customer portfolio and participate in real-time balancing of the Dutch electricity system.

The project company therefore does not need to rely entirely on unpredictable merchant spreads to generate revenue. A significant part of the commercial proposition is converted into a contractual payment stream.

Why Fixed Tolling Revenue Can Support More Debt

Project finance lenders size debt against cash flow.

The question is not simply whether a battery is expected to be profitable. The lender needs to know how much cash remains available for debt service under conservative assumptions.

Contracted revenue can materially change that analysis.

A lender can examine:

• the fixed tolling payments;
• contract duration;
• counterparty credit quality;
• termination provisions;
• availability requirements;
• performance guarantees;
• operating expenses;
• battery degradation;
• augmentation expenditure;
• debt-service requirements; and
• residual merchant exposure.

These inputs allow lenders to build downside cases and determine a supportable debt amount rather than relying solely on an optimistic merchant forecast.

A Tolling Agreement Can Function Like an Offtake Contract

The comparison with renewable power purchase agreements is useful.

A solar project with a long-term power purchase agreement has a contractual buyer for electricity. That contract can establish price visibility and create a predictable revenue base against which lenders underwrite.

Battery storage does not sell a continuous stream of generated electricity in the same way.

The bankable contract can instead be the right to use the battery's flexibility.

For financing purposes, the tolling agreement can therefore perform an economic function similar to an offtake contract by converting uncertain future market revenue into a more predictable contractual cash-flow stream.

Counterparty Credit Quality Matters

A contract is only as useful to lenders as the counterparty expected to perform it.

If the project's debt-service capacity depends substantially on tolling payments, lenders will underwrite the tolling counterparty alongside the physical project.

That analysis can include:

• credit rating;
• financial strength;
• parent guarantees;
• contracting entity;
• termination rights;
• replacement-counterparty risk; and
• whether lenders receive appropriate contractual protections.

The presence of an established utility counterparty such as Vattenfall is therefore commercially significant to the Sirius financing structure.

Contract Length Must Match the Debt Structure

Revenue certainty becomes less valuable if it disappears long before the debt matures.

Lenders therefore examine the relationship between contract tenor and loan tenor.

If a project has ten years of debt but only three years of contracted tolling revenue, the lender still faces substantial refinancing or merchant exposure after the contract expires.

The debt structure can respond through shorter maturity, accelerated amortization, conservative terminal-value assumptions, cash sweeps or restrictions on distributions before the contracted period ends.

Sirius Uses Portfolio Financing Rather Than a Standalone Loan

Another important feature of the transaction is that Sirius is financed within Return's broader battery portfolio financing framework.

The framework provides commitments of up to €400 million for investment across Return's battery storage portfolio.

Sirius itself represents approximately €180 million of total project investment.

The lending group includes ING, NatWest, Deutsche Bank, ABN AMRO and Rabobank.

Portfolio financing can become attractive when a developer has several similar projects rather than one isolated asset. Lenders can underwrite a repeatable development platform, standardized technology and a broader pool of assets instead of rebuilding the financing structure from zero for each project.

Standalone Project Finance vs Portfolio Financing

Grid Connection Is a Financing Condition, Not a Technical Footnote

Revenue contracts cannot make a battery financeable if the project cannot reliably access the grid.

Grid availability has become a major development constraint in European power markets.

Sirius connects to TenneT's Meeden substation under a Time-Dependent Transmission Rights agreement.

Under this arrangement, charging and discharging are adjusted according to available grid capacity.

The project can therefore use existing infrastructure while responding to periods of grid congestion rather than requiring unrestricted transmission rights at every hour of the year.

Construction Risk Still Has to Be Underwritten

Sirius is expected to begin commercial operations in the fourth quarter of 2027.

Until then, lenders are exposed to construction and completion risk.

Return has identified Huawei, Hanab and Omexom as the parties involved in battery technology, construction and installation.

A project finance lender can examine:

• EPC scope;
• fixed-price protection;
• completion dates;
• liquidated damages;
• equipment warranties;
• battery performance guarantees;
• contingency;
• delay risk;
• testing requirements; and
• conditions required before debt converts into the operating phase.

Battery Degradation Changes the Debt Model

Battery capacity declines over time.

That makes degradation a financial assumption rather than merely an engineering issue.

If the tolling agreement requires the project to provide 800 MWh of usable storage capacity, the project company needs to understand how that obligation will be maintained as the cells age.

The financial model may therefore include augmentation capital expenditure, replacement reserves or contractual performance guarantees from equipment providers.

Lenders need to understand who pays for that future capacity and whether the project remains capable of meeting both tolling obligations and debt service after those costs are included.

How Debt Service Is Sized

The existence of a tolling agreement does not mean lenders simply finance a fixed percentage of project cost.

Debt sizing normally starts with projected cash flow available for debt service.

The lender applies assumptions for contracted revenue, operating expenses, taxes, degradation, reserves and any merchant component. The resulting cash flow is then tested against required debt-service coverage ratios.

A stronger contracted revenue profile can improve downside visibility and potentially support greater leverage or better financing terms, although final sizing remains transaction-specific.

Merchant Upside Can Remain Above the Contracted Base

Bankability does not necessarily require eliminating all merchant exposure.

Hybrid structures can combine contracted revenue with market upside.

For example, a sponsor might contract part of the battery's capacity or establish a minimum fixed payment while retaining exposure to additional trading revenues.

Senior lenders may give full credit to highly predictable contracted cash flow while applying a haircut to merchant projections.

Equity investors can retain some upside while lenders obtain enough downside protection to underwrite the facility.

A Fixed Toll Does Not Transfer Every Risk

Sponsors should not assume that signing a fixed-fee contract automatically makes the project bankable.

The project company may still retain:

• construction risk;
• equipment availability risk;
• degradation risk;
• operating-cost risk;
• grid curtailment risk;
• augmentation requirements;
• insurance risk;
• regulatory risk; and
• counterparty replacement risk.

Project finance structuring is the process of determining where each risk sits and whether the party holding it has the financial and operational capacity to manage it.

What BESS Sponsors Should Have Before Approaching Lenders

Battery developers often approach the debt market too early with little more than a site, grid application and revenue forecast.

Institutional project finance usually requires considerably more.

• project SPV structure;
• site control;
• permits;
• grid connection agreement;
• EPC or construction package;
• battery supply agreement;
• warranties and performance guarantees;
• tolling, optimization or offtake arrangements;
• independent market assumptions;
• base-case financial model;
• downside sensitivities;
• sponsor equity plan;
• insurance package;
• operating strategy; and
• clear sources and uses.

Financely's project finance debt and capital advisory work focuses on preparing these elements into a lender-ready financing structure before broad capital-provider outreach.

Limited-Recourse Debt Requires Contractual Risk Allocation

In ordinary corporate lending, the lender primarily relies on the balance sheet and general cash flows of the borrowing company.

Project finance is different.

The lender may have limited or no recourse to the sponsor after completion.

That means the contracts surrounding the project have to carry much of the credit structure.

Construction obligations sit with contractors. Equipment performance sits partly with technology suppliers. Revenue risk is addressed through tolling or other commercial contracts. Grid rights establish the project's ability to operate. Insurance addresses defined casualty risks.

Financely's non-recourse project funding work is built around this principle: the SPV and its contracts need to support the debt independently rather than relying on an unsupported request for project capital.

Why Sirius Is a Useful Model for Battery Developers

Sirius brings several financing components together at the same time.

The project has scale at 200 MW / 800 MWh. It has a defined commercial counterparty. It has a fixed-fee long-term tolling structure. It has a workable grid-access arrangement. It has identified construction and technology counterparties. It sits within a larger financing framework supported by five commercial banks.

None of those elements should be viewed in isolation.

Together they convert a battery development opportunity into an infrastructure credit that lenders can analyze.

Project Finance Starts Before the Lender Introduction

The biggest mistake in project financing is treating lender outreach as the first step.

A lender cannot repair missing grid rights, an incomplete construction contract, unrealistic merchant assumptions or an undefined equity requirement simply by issuing a term sheet.

The capital structure needs to be designed before distribution.

Sponsors seeking institutional debt should first establish the financing amount, sponsor contribution, contractual revenue base, completion package, debt-service capacity, security structure and credible repayment profile. Only then can the transaction be matched with lenders whose mandates fit the project.

Battery Tolling Agreement Project Finance FAQ

What is a battery tolling agreement?

A battery tolling agreement gives a counterparty contractual rights to use or optimize battery capacity in return for agreed payments. Depending on the contract, the counterparty may control charging and discharging while the project company continues to own the physical asset.

Why do lenders prefer contracted BESS revenue?

Contracted revenue reduces dependence on uncertain merchant-market forecasts. It can give lenders greater visibility over cash flow available for debt service and therefore make debt sizing more defensible.

Can a merchant battery project obtain project finance?

Potentially, but lenders generally apply more conservative assumptions to merchant revenue. The resulting leverage, pricing, amortization and coverage requirements can differ materially from a project supported by strong contracted revenue.

Does a tolling agreement guarantee financing?

No. Lenders still evaluate counterparty credit, construction, grid access, technology, degradation, operating costs, sponsor support, insurance, legal structure and the complete financial model.

What is portfolio financing for battery storage?

Portfolio financing places multiple battery assets within a broader financing framework rather than financing every project independently. This can support repeat deployment and diversification, subject to the lender's eligibility, concentration and security requirements.

How much debt can a BESS project raise?

There is no universal leverage ratio. Debt capacity depends on contracted and merchant revenue, counterparty strength, project cost, DSCR requirements, technology, degradation assumptions, grid rights, construction risk and lender appetite.

What is the difference between a PPA and a battery tolling agreement?

A power purchase agreement typically governs the sale of electricity generated by a project. A battery tolling agreement generally governs access to storage and flexibility capacity. Both can create contractual revenue that supports project finance underwriting, but the underlying operating and market risks are different.