Energy storage is a key technology in helping drive the decarbonization of the energy grid by supporting the adoption more renewable energy. It can help keep the lights on when the wind stops blowing and when the sun stops shining.
And for investors, it can do a lot more, delivering returns that make sound financial sense as well as being the right thing to do for the planet money-wise. The first reason investors should be interested in energy storage is because of its tremendous growth potential.
According to BloombergNEF’s head of decentralized energy, Yayoi Sekine, we’re already living in the energy storage decade. Speaking last year, he said: “We’ve been anticipating significant scale-up for many years and the industry is now more than ready to deliver.”
BloombergNEF predicts that, worldwide, the industry will have installed a total 358 GW and more than 1 TWh of energy storage capacity by 2030. Meanwhile, analyst firm IHS Markit predicts annual additions of more than 30 GW by 2030, a 250% expansion.
According to BloombergNEF’s head of decentralized energy, Yayoi Sekine, we’re already living in the energy storage decade.
Although the market includes technology options such as the thermal storage assets added to concentrated solar power, most investors need look no further than battery energy storage systems (BESS) for the lion’s share of growth worldwide.
What makes battery energy storage a good bet from an investment point of view? First, these are long-lasting infrastructure assets that can generate revenue over a decades-long horizon.
And these assets meet environmental, social and corporate governance criteria while offering high rates of return and low investment risk. Compared to other green investment options, BESS clearly has advantages.
Renewable energy plants such as solar or wind farms usually require grid connections and civil works which can further add to the timeline and risk profile of projects.
In contrast, a BESS system can avoid the need for grid strengthening (indeed energy storage would help make the grid more robust) and thus complement renewable plants and the grid. And this is an investment opportunity that has worldwide appeal.
Unsurprisingly, the world’s two economic powerhouses are both good bets for energy storage. In the US, the Energy Information Administration reports, 14.5 GW of battery storage is planned to come online between 2021 and 2024. In China there is a 30 GW target for 2025.
But canny investors can increasingly find energy storage market opportunities anywhere in the world. As an example, the UK is punching way above its weight in energy storage—and is continually breaking its own records.
There is more than 16 GW of battery storage capacity either in operation, under construction or being planned across more than 700 projects, representing north of 50% more than two years previously, according to RenewableUK, a clean energy industry body.
BESS projects can make money for investors in a range of ways. Storing access energy so it doesn’t damage the grid infrastructure and can be used when there is a net deficit of power has clear benefits which can be monetized.
But there is a lot more that the owner of an energy storage system can use to generate revenues, depending on the market. These can include, but are not limited to:
- Uninterruptible power supplies, providing resilient energy supplies.
- Selling electricity back to the grid to generate revenues.
- Buffering large loads, such as electric vehicle charging.
- Load shifting to save money for the grid.
To consider how these various income streams can work for investors, let’s take the specific example in the UK, a country where energy storage is enjoying a particularly encouraging boom.
In the UK, the existence of multiple trading markets makes the opportunities for energy storage revenue generation more diverse.
These opportunities include selling electricity to National Grid ESO capacity markets, participating in day-ahead energy auctions, and intraday trading. Another major source of income is through managing what’s known as frequency response.
This is where energy storage capacity is used to manage short-term imbalances between supply and demand, to ensure that electricity frequency remains within one percent, plus or minus, of 50Hz.
Previously supplied exclusively by coal-fired power plants, frequency response provides constant small tweaks to the grid to reflect fluctuations such as when more people ramp up the air conditioning or there is a bigger-than-usual gust of wind.
It is possible to see how BESS assets work for investors in the real world by examining how Pacific Green approaches its own project pipeline.
In the case of our most recent UK project, we’ve created a special-purpose vehicle, Richborough Energy Park (REP), to build a 100 MW, 100 MWh battery energy storage system in Kent.
There is a bespoke opportunity for investors through a preference share structure providing downside protection, preferred returns and a slice of the profits.
Batteries for the REP project will be sourced from Shanghai Electric Gotion New Energy Technology via a framework agreement.
Shell is the offtaker for the project and is also providing battery optimisation through its Limejump subsidiary’s market-leading trading team and machine learning-based intelligent dispatch platform.
The beauty of the opportunity from an investor’s point of view is that once the battery system has been commissioned it essentially becomes a money machine, buying energy when it is cheap, selling when electricity costs go up—and providing other services in between.
As an investor, you can be as hands-on or hands-off as you want, but since most battery operations are automated there is not much to worry about. And REP is just one of many opportunities for investors.
We have negotiated a long-term agreement with Tupa Energy, which specialises in developing utility-scale battery storage, solar generation and rapid electric vehicle charging, infrastructure to create multiple projects for development.
These ready-to-go projects will include the grid connection, planning consent and long-term lease agreements.
Our corporate strategy is to build a portfolio of highly desirable projects and patented competitive, cutting-edge technologies designed to meet increasingly stringent environmental standards, through development and acquisition.
Publish date: 30 August, 2022