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Powering the investment case for battery storage

The U.K. government was the first major economy in the world to pass laws to end its contribution to global warming by 2050. But to achieve this ambition is going to take some major changes – not least of which to the U.K.’s power network.

According to energy market analyst, Aurora Energy Research for the United Kingdom to reach net zero by 2050 will require solar and wind capacity to increase to more than 140 GW – a big jump from around 33 GW today.

The report estimates that as these renewable power sources form an increasingly large part of the generation mix, this, in turn, will call for up to 30 GW of short-duration energy storage to help balance the grid and a further 20 GW of longer-duration back-up capacity.

Balancing the grid

The role battery storage has to play in stabilizing the U.K. energy system continues to be the subject of intense scrutiny; something that only intensified in recent months when the country suffered the largest power outage it has seen in a decade.

With all future energy scenarios seeing demands placed on the grid as increasing, along with the need for greater flexibility, it is clear battery storage needs to form a vital part of the energy network of the future. Which raises an important question: How is the U.K. going to fund the growth in battery capacity needed to ‘keep the lights on’ while reaching net zero?

With the country relying on investors to fund the switch to a low carbon energy network, proving the financial case for such technologies remains key. It is not subsidy that is required, but certainty and unfortunately that’s something which has been seriously lacking in recent years.

Without joined up thinking and one clear strategy, the picture has been bleak and progress slow. In relation to storage, build pipelines ground to a halt, with the merchant risk viewed as too great and the stability of the U.K. as an environment for investment in clean energy being called into question.

But the tide is now turning! Positive noises are starting to be made by government and Ofgem, and climate change is riding high on the political agenda – public backing for making the U.K. ‘carbon neutral’ a policy priority reaching a whopping 85%.

Against this backdrop, new research modelling the economics of storage scenarios is also driving greater confidence; one area of particular note being co-located solar and storage.

The benefit of hybrid solar and storage sites

Solar has long been seen as a solid choice for investors, offering good and generally stable returns. However, solar is particularly susceptible to situations where there is high price volatility and high cannibalization (i.e. too much competition).

In contrast, battery storage excels at these times, and as well as providing a route to additional revenue streams, can open the door to greater optionality.

What this means is that one of the best scenarios for investors is a portfolio, which capitalizes on the strengths of both technologies, to fully optimize the potential returns.

Indeed, it’s been estimated that when co-locating solar and storage, the internal rates of return could be between 6.6% to 7.6%, potentially reaching as high as 7.6% to 9.8%, as modeled in Aurora’s top market estimates. This compares to an overall IRR of just 4% for standalone solar and battery projects.

The future

While no one knows exactly what will happen in the future and where the market may land, it is clear we need action. If the U.K. is to reach net zero by 2050 then we need more solar and more storage, and the good news is that when built together these technologies provide a strong investment case.

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Steve Shine
executive chairman, Anesco
pv-magazine.com