White Paper: Solving the Pain of Decommissioning Bank Guarantees
Executive Summary
Decommissioning obligations at the end of solar and battery project lifecycles create a significant and long-standing pain point for developers. Traditionally, these obligations have been secured through long-term bank guarantees, which lock up capital, increase financing costs, and complicate project sales. With Basel IV making long-dated guarantees even more capital-intensive for banks, the problem is becoming more severe. This white paper explores how Telios Land Partners can provide a more efficient, land-backed solution to address this challenge.
1. The Developer Challenge
Developers are required to guarantee the removal of equipment and restoration of land at the end of a project’s 25–30 year lifespan. Current practice relies on bank guarantees, which present several challenges:
Locked Capital – Guarantees tie up capital for decades, reducing developers’ balance sheet flexibility.
High Cost – Banks charge ongoing fees that accumulate significantly over time.
Complex Exits – Project buyers demand clarity on decommissioning, and guarantees often add friction in due diligence and transfers.
2. The Regulatory Backdrop
Under Basel IV, long-dated guarantees are treated as high-risk, illiquid exposures for banks. This results in:
Higher capital requirements for banks, increasing costs for developers.
Reduced bank appetite for issuing such guarantees.
Greater pressure on developers to find alternative, bankable solutions.
3. The Telios Solution
Telios’ land-backed financing model allows decommissioning obligations to be addressed within the lease structure itself, removing the need for traditional bank guarantees.
Key features:
Embedded Decommissioning Reserve – A small CPI-linked addition to annual lease payments funds a dedicated reserve over time.
No Separate Bank Guarantee – Developers avoid decades of locked capital and high guarantee fees.
Bankable Structure – The reserve is integrated into the SPV cashflow waterfall, transparent to lenders and acceptable for project finance.
Simplified Exits – Buyers see a standardized, predictable solution for decommissioning risk, enhancing the attractiveness of portfolios.
4. Benefits to Developers
Lower Cost – Avoids costly bank guarantee fees that compound over decades.
Freed Balance Sheet – Developers retain capital for growth instead of locking it up in guarantees.
Faster Exits – A standardized lease-based approach simplifies due diligence for buyers.
Investor Confidence – Provides a transparent, bankable solution aligned with project finance requirements.
5. Conclusion
Decommissioning obligations will remain a core requirement of solar and battery projects, but traditional bank guarantees are becoming more expensive and less available under Basel IV. Telios Land Partners provides a forward-looking solution: embedding decommissioning costs into a land-backed lease structure. This approach not only relieves developers of a major long-term burden but also improves project economics, accelerates timelines, and enhances bankability.
