Tolling Agreement
Definition
A tolling agreement is a contract under which a buyer, the toller, pays the owner of a power plant or battery a fixed fee for the use of its capacity, supplies the fuel or charging electricity, and controls when the asset runs and what it sells. The owner keeps the asset available and within its technical specifications; the toller takes the market risk and the market revenue. Clearway describes its Carlsbad gas plant as under 'a long-term tolling agreement whereby the Company does not control the dispatch of the facility.'
Why it matters
For investors in a storage or gas project, a tolling agreement turns uncertain market revenue into a fixed capacity payment from a single buyer, much like a lease. The cash flow then depends on keeping the asset available and on the toller's credit, and the value after the toll depends on merchant conditions or a new contract. Tolls also differ from as-generated PPAs because the owner does not decide when the asset runs.
Common misconceptions
- •A toll is not a guarantee of payment regardless of performance; capacity and availability tests usually apply.
- •The owner does not benefit from high market prices during the toll; the toller does.
- •Battery degradation matters even under a toll if payments are based on actual capacity.
- •The label is only a starting point. Investor outcomes usually depend on the governing documents, cash-flow priority, valuation policy, disclosure quality, and manager discretion surrounding the term, not just the shorthand definition used in marketing materials.
Technical details
Worked example: NiSource and AGP Group (8-K, October 15, 2026)
Asset: 600 MW AC / 2,400 MWh stand-alone battery, interconnected to MISO, to be built, owned and operated by an AGP Group subsidiary.
Term: about 20.5 years from the first phase's commercial operation, expected by December 1, 2027.
Toller (NiSource's generation subsidiary): supplies charging power, instructs dispatch, keeps market revenues; holds an option to buy the project at set intervals and at the end of the term.
Conditions: effectiveness depends on an EPC contract and an interconnection agreement by January 31, 2027.
Questions to ask
How is the capacity payment adjusted for availability, capacity tests and efficiency?
Who bears degradation, and is augmentation required?
Can the toller terminate, and is there credit support?
What is the asset assumed to earn after the toll ends?
How investors apply the term
Investors usually apply this term by tying the definition back to the controlling documents and then asking which cash flows, rights, restrictions, or valuation assumptions it changes. A useful review looks at the term alongside fees, leverage, liquidity, reporting frequency, and manager discretion rather than treating it as a standalone concept.
The practical diligence test is simple: identify who benefits if the assumption is wrong, who has control when conditions change, and what evidence the investor receives after closing. Terms that cannot be reconciled to documents, cash movements, and monitoring data should be treated as marketing shorthand until proven otherwise.
Frequently asked questions
- What does the asset owner earn?
- A capacity-based payment, not market revenue. In NiSource's October 2026 battery tolling agreement the owner receives 'regular storage payments based on a fixed rate (subject to certain adjustments) and the Project's actual power capacity,' expected to total about $2.2 billion.
- What does the toller get?
- Control and the revenue. NiSource 'will supply, at its expense, the electricity used to power the Project and will have the right to instruct dispatch of the Project and receive the economic benefits of its available capacity, discharged energy, energy storage services, ancillary services' and any environmental attributes.
- What risks stay with the owner?
- Construction, availability and performance. Payments typically depend on the asset's actual capacity and availability, so degradation, outages and efficiency shortfalls can reduce them; the owner also bears the toller's credit.