2023
Energy Storage Report
Conclusion
Conclusion
The global energy storage industry is taking centre stage in the ongoing energy transition, marked by significant capacity growth and increasing investment commitments. Various stakeholders, including technology providers, developers, investors, and regulators, are actively shaping the trajectory of this growth. Notably, certain technology configurations, such as co-located battery storage, are emerging as viable options for capacity expansion due to their favourable risk-return trade-offs. Additionally, traditional yet well-proven technologies like pumped hydropower are experiencing renewed investor interest in diverse contexts.
This concluding section summarises the critical points of the battery storage industry that hold significance for its growth outlook.
Leading companies’ investment plans support the emerging energy storage theme.
Growth of the Energy Storage Asset Class
In the clean energy sector investments, storage accounts for a relatively insignificant share. As of the end of 2023, global investment commitments for storage reached $36 billion (Energy Storage News, 2024). However, this was a 76% year-on-year growth, and it is set to accelerate to keep up with the renewable energy sector’s expansion. BNEF estimates point to an annualised $93 billion in spending on storage over the next decade. The opportunities will be manifold across markets as renewable energy penetration rises significantly in the power mix.
Leading companies’ investment plans support the emerging energy storage theme. The survey of 2023 Reuters Energy Transition Insights report had over 40% of the respondent companies focusing on energy storage systems over the next three years (Reuters, 2023). Notably, this survey had storage exceeding the solar PV investment plans. The takeaway from such studies is the favourable outlook on storage as an asset class within the energy transition segment. Storage technology is thus placed among the top priorities of energy transition spending commitment during 2024-2026.
The power sector offers a vast and untapped scope for energy storage capacities. Decarbonisation and energy transition progress have imposed a greater need for utility-scale storage to manage grid fluctuations and ensure reliability. The rising instances of capacity market auctions by transmission system operators globally offer clear evidence in this regard – battery storage projects are making inroads in the capacity market auctions due to advantages in emissions profile besides costs.
Of note here is the demand for Long Duration Energy Storage (LDES), generally referring to storage duration of 6-10 hours and above. The LDES segment is critical in power systems and is primarily met by the legacy hydropower generation capacity base. Existing battery storage systems have been unable to get this right, hence the race among technology providers for the early-mover position. The near-term visibility of a few leading battery technologies, such as sodium-ion, is based on recent deployments. The commercial-scale rollout of LDES batteries could mark the next growth phase for battery storage systems.
Revival of Pumped Hydro in Power Mix
The unmet demand for LDES-based battery solutions makes investors and policymakers revisit hydropower generation. It is a mature and proven technology and can be instrumental in bridging the storage gap in most of the power systems globally. The legacy pumped hydropower capacities are, in fact, the predominant storage systems at present. The stagnant growth seen in this segment will likely give way to a sharp turnaround.
Policy-led funding in some of the major markets would help enable private investments. In February 2024, the US Department of Energy announced its most significant single investment in hydropower, with a selection of 46 projects to receive up to $71.5 million. The UK’s largest pumped hydropower project, Coire Glas, with planned 40GWh storage, could have a final investment decision by 2024. Other European countries like Romania and Bulgaria were notable for the recent developments in reviving pumped hydropower projects in the respective countries.
Though the capital markets are yet to show a tangible shift in interest towards hydro-based storage projects, the acquisitions of pumped hydropower assets indicate the developers’ priorities. Some pointers supporting the hypothesis are notable cases such as Statkraft’s and EDF’s acquisitions. Also, it opens up the space for entrants with innovations – the Swedish entity Mine Storage International, for instance, has been working on developing abandoned open-cast mines into pumped hydropower storage facilities.
Market Readiness for Standalone Battery Storage Business
The standalone grid-scale battery storage is at a nascent stage of its business growth. It significantly depends on the policy and regulatory structures in the respective markets. Market access in turn determines the revenue stack associated with any standalone battery storage project, impacting its financial viability.. The capacity growth observed in the US, UK, and other select European countries reflects the progress made in power market regulations and corresponding incentive structures. The same does not hold equal strength for other countries, such as Chile. This might mean a lag in battery storage investment. As planned by several TSOs, auctions could help get the momentum for the process.
In line with regulations, the policy-level credibility in decarbonisation and renewable energy targets is an essential signal for investors. The European region’s binding renewable energy penetration goals highlight this well. Storage investment prospects can be strengthened or weakened depending on the pace of the energy transition process. Though renewable energy targets need not be the only factor for battery storage, they are certainly among the significant factors in consideration. The top ten ranked countries in the World Economic Forum’s Energy Transition Index rankings (October 2023) are from Europe, followed by the US and the UK. As the rankings improve with progress in significant areas like shutting coal and gas power plants, so does the market’s attractiveness for standalone grid-scale battery storage capabilities.
Globally, the grid Infrastructure capacity is under strain, not least because of an accelerated rate of capacity added from renewable resources. This impacts everyone in the business, including storage developers. Long interconnection queues, as seen in the US energy markets, affect the projects’ viability. Ageing grid assets require expansion and refurbishment on a priority basis. It may become a focal area for practically all the countries seeking private investments in clean energy. Also, it is pertinent to highlight the role that interconnectors could play. Transmission interconnector lines, as typical in Europe, are also instrumental in the power system’s balance. As Denmark’s experience shows, the interconnector network could obviate the urgency of battery storage capacity.
The top ten ranked countries in the World Economic Forum’s Energy Transition Index rankings (October 2023) are from Europe, followed by the US and the UK.
Institutional Capital with Sector Maturity
The shift in its investor mix marks the battery storage industry’s gradual progression towards a maturity stage. With some established use cases of the technology and its revenue models, a mix of institutional investors, such as infrastructure funds and private equity, join the fray. As of Q42023, eight Private Equity deals in energy storage were worth $1.1 billion.
In February 2024, the Ardian Clean Energy Evergreen Fund reported its first investment in the battery storage business through a Finnish project. With this, the Fund extended its energy transition and renewable energy assets’ base to the batteries. This development builds upon the steps taken by other infrastructure investors, such as GLIL and Brookfield, which have entered this business through acquisitions of battery project pipelines and partnerships with operators.