Litium webinar: financing stand-alone batteries on a merchant basis, from revenues to DSCR and debt

Alter5 presented Litium, its stand-alone battery financing programme, and worked through a case from start to finish: from revenue estimates to DSCR and the debt a project with merchant revenues can carry.

Madrid, 15 October 2026. Alter5 held a webinar on Litium, its energy storage financing programme, launched in part with the backing of a European guarantee programme. It was presented by Salvador Carrillo, partner at Alter5, and Rafael Nevado, Head of Investment and Structuring. Below is the full recording (in Spanish) and a summary of what was covered.

Watch on YouTube

Litium: financing for energy storage

Alter5 is a capital markets platform that connects institutional capital with projects and companies, historically tied to the energy transition. It also runs a debt issuance vehicle in Luxembourg, with more than €100 million in loans, which is a financial intermediary of a European guarantee programme: a programme that covers up to 80% of a loan's losses in the event of default.

With around €200 million available to invest, of which between 70% and 80% is guaranteed, energy storage is one of the priorities, and Litium grew out of it. The programme currently has two lines: stand-alone batteries and industrial behind-the-meter batteries, for large consumers that install them themselves or through an operator under a power purchase agreement (PPA). Solar hybridisation will follow shortly: the team is working on the legal formula to add the battery and ring-fence its revenues so it can be repaid.

From traditional project finance to merchant batteries

Project finance rests on predictable cash flows. In a solar or wind plant, output is a given and banks' risk committees rely on price forecasts from international advisers. With a battery, revenue complexity takes a big step up: the aim is therefore to assign different probability levels to each revenue source and build a limited-recourse structure, or even non-recourse where possible.

As a result, the lender's base case for batteries necessarily applies a haircut to the revenue stack. And because lenders must justify their decision to their own committee, the key is to document assumptions in detail and make the risks understood.

What banks have financed in other European countries

Wherever banks have entered storage, there was either secured income or several years of real revenue data. A battery earns through three channels, its "revenue stack": arbitrage (charging when power is cheap and discharging when it is dearer), ancillary services (the system operator pays it to be available to balance the grid) and capacity (a regulated payment for guaranteeing power at peak demand). Financial tolling adds to this: leasing the battery to a third party that takes the market risk and guarantees a minimum income.

United Kingdom: banks came in on the back of long-term capacity payments, with contracts of up to 15 years, and more than five years of real data. Frequency services were extremely profitable between 2020 and 2022 but saturated as many batteries entered the market, and the main income is now the energy market. The lesson for Spain: ancillary services saturate, although the first batteries earn very high revenues and some can pay back in around 18 months.

Germany: projects are financed without a public contract because price volatility is structural and there is a revenue track record, with private financial tolling contracts with a floor signed with utilities and energy retailers. Batteries entering before August 2029 pay no grid charges for 20 years. In September 2026 Brussels approved the German capacity mechanism, with payments from 2031. The lesson: a private tolling contract with a floor does not depend on the regulator and can be signed now.

Italy: the battery becomes a contracted income, as the developer assigns capacity to the system operator in return for an annual premium, on contracts averaging 15 years. The first auction, in September 2025, awarded about 10 GWh to enter operation in 2028, at an average price of about €13,000 per MWh per year, well below the €37,000 cap. Banks treat it like a PPA with high debt and a long tenor. The lesson: capacity auctions will bring stability, but at tight prices compared with selling to the market.

Spain: wide price spreads, little track record

Spain has one of the widest hourly price spreads in Europe: solar pushes the midday price down and the evening price spikes. Today revenues come from arbitrage and ancillary services, which pay well but are small markets that will saturate soon. Very few batteries are operating and, without a track record, banks find it hard to step in. A capacity market with contracts of up to 15 years has existed since September 2026, and the first auctions are expected in 2027. In the meantime, public grants reduce the investment.

The largest financing closed in Spain so far, in July 2026 and with several banks, included a tolling component. What is missing is financing for the merchant part, and that is where Litium comes in. With the European guarantee, lenders come in protected and the first batteries can pay back in around three to four years, or less, before deciding whether to keep arbitraging or combine another source of income.

According to Atlas, Alter5's free service covering renewable projects in Spain, there are 384 battery projects from around 103 identified developers: 229 in permitting and 154 authorised, 147 stand-alone and 237 hybrid. Catalonia has the most capacity (1.6 GW); Andalusia, Castilla-La Mancha and Extremadura each have close to 1 GW.

How debt is sized with merchant revenues

Litium connects Alter5's financial model to a battery optimisation algorithm that allocates the revenue stack. Each revenue source is given a probability level and, with it, a different debt service coverage ratio (DSCR). Debt is always sized over 10–15 years, because a battery's life is not that of a 30-year generation plant. Ancillary market revenues could fall by almost half as new batteries enter: that shapes how the debt is structured, and revenues left out of the sizing can speed up repayment. In a sponsor base case, the battery could be paid off in 5 to 7 years, not over the sizing tenor.

There is a hard cap on leverage, whatever the revenue scenario would theoretically support, because lenders ask for it. UK experience shows that real revenue volatility can cause falls of 30% even when the sizing ratio is high. The approach is therefore to apply the restrictions to the average ratio rather than the minimum, with transitional solutions for one or two periods at tight ratios. Inputs are key and, before a lender, will need due diligence and the sign-off of an independent adviser.

Litium's two structures

Merchant project finance. A loan to the project company with a bridge tranche until a long-term refinancing, with the usual security package (coverage ratio, reserve accounts, etc.). It gears less — the lenders on the platform are at around 50%, with variations, and more with tolling — and costs more. Even so, equity returns can be much higher, because for the first batteries it allows a very short balloon and makes the later refinancing easier.

Facility with a European guarantee. Sized exactly like project finance, but the guarantee protects the loan and allows up to 80% debt, at a different, fixed price depending on repayment capacity. It requires a contingent corporate guarantee that would only be called if, after all prior protections were exhausted, there were a default. The probability is minimal: the base case is always that the project repays itself. To be eligible, the company must have fewer than 500 employees and, if the battery charges from the grid, show guarantees of origin or that at least 90% of its activity is sustainable, as a renewables developer or independent power producer would.

While the financing process takes shape, Alter5 distributes both term sheets so that the developer chooses. Timing is key: the battery that enters first can earn more, so it pays to pin down the construction and commissioning schedule.

The financing simulator for BESS projects

The webinar showed in a video how the simulator works. The developer enters the battery's power and capacity, province and substation, start-up date, CAPEX, guaranteed cycles, OPEX and main revenue source (merchant or financial tolling). From there a revenue model is built from historical series and hourly bands, a calculation that takes about 20 minutes. The output is a financial model, which has passed an independent financial audit and is valid for a bank, plus an indicative debt sizing. If it fits, the developer can request the term sheet, which arrives automatically. The financial model is not shared until the financing letter is distributed to lenders.

Questions from the final session

Minimum size and due diligence. The practical floor for bank project finance is around €15–20 million of debt. With a European guarantee, due diligence costs are falling and the review is less exhaustive. Below €5 million it is harder; the aim is to reach smaller projects before year-end through a warehousing line with a lender.

What lenders look at. Beyond the battery, the solvency and track record of whoever operates it, especially in arbitrage, since a battery cannot arbitrage and provide system services at the same time. The most relevant technical guarantees are degradation and cycles, as sizing is long-term even if the tenor is five years.

Tolling and amortisation. With long-term guaranteed income, long-term financing fits and gears more. It all depends on the contract and who stands behind it, as with a PPA, with the advantage that there can be extra income shared with the developer. In merchant, the usual structure is short-term with a balloon, with a cash sweep so that everything is not left to the end, which would put the refinancing at risk, and with amortisation sculpted over the life of the loan. Distributions are allowed while the coverage ratio is met. On an advanced project, even with a cash sweep, the remaining balloon is very small because the battery earns so much.