Battery storage projects

How are battery storage assets depreciated?

By component under IAS 16. Battery cells lose capacity with every charge and discharge, so their life depends on how hard they are worked; many owners depreciate them on a units of production basis using expected cycles, or over the years implied by the warranty and expected cycling. Power conversion systems, such as inverters, last longer, and the grid connection, transformers and civil works longer still. See wind and solar asset lives for componentisation in renewables.

Battery storage: depreciation and revenue in year one

A 100 MW, two-hour battery cost US$ 80 million: cells 40 million, expected to last 4,000 cycles; power conversion 15 million over 15 years; and grid connection and civil works 25 million over 25 years. In year 1 it completes 400 cycles.

In the same year the battery earns 4 million from a capacity agreement and 3 million from frequency response, both recognised evenly over the contract periods, and sells 9 million of electricity bought for 5 million, a trading margin of 4 million.

How is augmentation accounted for?

Owners often add or replace cells during the project's life to restore capacity lost to degradation. Augmentation that restores or increases capacity and will benefit more than one period is capitalised as a component, and the carrying amount of any cells replaced is derecognised. Routine maintenance is expensed. Where augmentation is planned from the start, the expected timing helps set the lives of the original cells.

How are capacity and ancillary services recognised?

Capacity payments and ancillary services, such as frequency response and reserve, pay the battery to be available to act within seconds or minutes. These are stand-ready obligations satisfied over time, so revenue is recognised over the service period, adjusted for availability penalties as variable consideration. See capacity payments.

Is energy trading revenue gross or net?

When the battery owner buys power in the market, stores it and sells it later as principal, the sales are revenue and the purchases are a cost, usually presented gross, because selling electricity is part of its ordinary activities. Power held in the battery at the period end is inventory, usually immaterial. If the owner's contracts to buy and sell power are settled net or held for trading, they may be derivatives instead; see energy contracts and own use.

When is a tolling agreement a lease?

In a tolling agreement, an offtaker pays the owner a fixed fee for the battery's capacity and decides when it charges and discharges, keeping the trading revenue. If the agreement relates to a specified battery, the offtaker obtains substantially all its economic benefits and directs its use, it contains a lease under IFRS 16, and the owner is a lessor. An optimisation agreement, where a specialist trades the battery on the owner's behalf for a fee or share of revenue, is usually not a lease: the owner remains principal for the trading revenue, and the optimiser's fee is a cost. Floor-and-share deals, with a guaranteed minimum and a share of upside, need both analyses. See identifying a lease.

What about batteries next to solar farms?

Batteries are often co-located with solar or wind farms and share their grid connection. Shared assets are allocated between the projects, or depreciated over the longer-lived project if they will serve both, and the combined site is often one cash-generating unit for impairment. See power and utilities accounting.

This guide is general information. It is not tax or legal advice for your situation.