Battery storage report: risks, rewards and business cases

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Businesses surveyed by The Energyst have significant appetite for battery storage, but revenue visibility and regulatory uncertainty are investment barriers.

Half of firms surveyed said they were mulling behind the meter storage projects, with around a quarter considering collocation and a quarter standalone batteries.

However, these definitions are not clear-cut. Some collocated projects may also be behind the meter and vice versa – and seven in ten firms said they plan to combine batteries with other assets.

A third of respondents believe their planned projects would pay back in 3-5 years, and just over a third 5-7 years.Around four in ten firms considering battery storage are already involved in demand-side response. Two thirds of respondents plan to finance the battery internally, suggesting some appetite for risk, given lack of long-term visibility over revenue streams.

 

Peak charge avoidance was cited by 58% as a means of monetising the asset, with 55% stating they would pursue frequency response, should they decide to invest in storage. Some 44% said they would try to make revenue from the capacity market.

However, a significant review of network charging arrangements is underway, and regulatory intentions regarding behind the meter storage are not yet clear.

While Capacity Market contracts provide longer term certainty, these are a relatively small part of the revenue ‘stack’ required to reduce rates of return to acceptable levels for many companies. Meanwhile, batteries will be de-rated within the Capacity Market, which could affect earning potential.

Frequency response contracts are currently valuable, but only provide visibility for up to two years with analysts warning of “acute risk of revenue compression” due to the volume of potential providers eyeing a relatively small market.

While only a third of respondents said regulatory uncertainty had posed a challenge securing funding, many considering storage projects are not yet at the investment stage, given only 25% of respondents had either applied for or secured a connection agreement.

Interviews with respondents and investors suggested both regulatory uncertainty and unpredictability of revenue (cited by 47% of survey respondents as a funding barrier) are the key challenges – and essentially part of the same equation.

The report contains qualitative interviews with end users in the public and private sector, as well as input from consultants and analysts and views on the market opportunity from co-sponsors Endeco and Eon. National Grid also outlines its plans to level the playing field for storage within balancing services.

Download the report, free of charge, here.

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