Energy storage is a fast-growing clean energy market segment, and prices are falling rapidly. Yet many also struggle to understand how to make an investment in energy storage.
As an increasing number of cities, states and companies are dedicated to 100% clean energy, storage is already playing a crucial role in determining how these targets will be achieved. Wood Mackenzie’s new Global Energy Storage Outlook projects will expand 13-fold over the next six years, from a demand of 12 gigawatt-hours in 2018 to a market of 158 gigawatt-hours in 2024.
This emerging market is a huge opportunity. Global investments of $374 billion per year are required to update the grid with adequate flexibility to take into account the variable power generation profiles of renewable technologies such as solar and wind. Storage solutions are now a growing part of this energy transition, reflecting a US-only $150 billion industry by 2023.
Massive installation numbers and declining costs, however, will not streamline short-term energy storage project financing. Battery storage as a developing industry lacks historical data, allowing investors and borrowers to get to know their unique qualities.
Space is highly individualized from one project to another, whether as a standalone asset or by connecting it to an existing utility power source. So it is not easy to extrapolate risk and returns from any particular asset. -the project draws power from a specific source of generation (renewable or conventional power plants) and is interconnected with a regional power market and a unique revenue stream.
Many storage ventures, when charging and distributing electricity, will generate income while others are based on deployment. Based on how and where the storage project fits in, there are also interconnection considerations. Do you charge directly from the grid? From a solar or wind farm, or from some other stand-alone installation?
Another concern for shareholders is that batteries in a storage project have a shorter lifespan of 10 to 15 years compared to solar or wind assets that can last twice as long. And similar to PV modules, which lose capacity as they age, it is critical to understand the factors that affect the ability of a battery to store energy as it ages and factor in replacement costs as required. Knowing the intricacies of asset management and optimization is highly complex, but for each storage portfolio, it is important to effectively mitigate risk.