The Role of Battery Storage in Achieving Net Zero

Battery storage systems play a key role in achieving the Net Zero scenario by supporting the integration of renewables such as wind and solar into the grid and ensuring grid stability. The intermittent nature of renewables such as wind and solar poses increased risks of downtimes and imbalances in energy production. As such, grid operators must seek out ways to bridge the gap between demand and supply.

Battery energy storage systems (BESS) provide ancillary services and solve the challenges associated with interrupted energy supply as they allow excess energy to be stored and used at a later time.

Battery storage systems are an emerging growth category and will continue to play a significant role in driving global decarbonisation efforts. Globally, the battery storage market is predicted to grow from $10.88billion in 2022 to $31.20billion by 2029 - indicating a compound annual growth rate of 16.3% over a 7-year period. This growth will be driven by the increased innovation and demand for lithium-ion batteries and alternatives as well as global efforts to achieve lower carbon emissions.

Battery Storage in the UK

Similarly, in the UK, the government have made significant commitments and strides towards building out the UK’s renewable energy infrastructure and creating a cleaner, more efficient and more secure grid. These initiatives include the offshore renewable energy partnership and sustainable biomass production funding. As renewable energy projects in the UK are set to increase, we are also likely to see a rise in BESS projects such as the one in Spalding, Lincolnshire which is expected to have a capacity of 550 megawatts for a 2-hour discharge duration with no greenhouse gas emissions.

The government has also shown increased support for energy storage projects with five energy storage projects receiving assistance from the £32 million government funding to build a more efficient energy system.

These projects offer significant benefits to investors, renewable energy providers and wider market participants given the UK’s commitment to net zero by 2050. These projects will provide reserve services to the National Grid - ensuring higher grid stability as the grid integration of renewables continues. Furthermore, increased innovation and decreasing costs of production will make battery storage assets an increasingly viable option for sustaining the grid.

Investment Opportunities in Battery Storage

The 2022 IEA energy investment analysis reports that grid-scale investment in battery storage increased in 2022 with the US and China leading investments in this market. The former has over 20 Gigawatts (GW) of grid-scale projects in the planning stage or under construction while China aims to generate an estimated 30 GW of non-hydro energy storage capacity by 2025.

The investments in this asset class signal new opportunities for investments to not only diversify their portfolio but to hedge against inflation given its impact on investments. The four key revenue streams for batteries - arbitrage, capacity provision, balancing and frequency response - provide market participants with the opportunity to switch their strategies and maximise the return/value of their battery storage assets.

Battery Storage as a Key Driver of Decarbonisation

As we continue to see greater shifts towards greening the grid, investors will need to adapt their trading strategies to reflect changes in the market and to understand the revenue potential of their assets. Furthermore, growth in the production and use of battery storage assets rests largely on the ability to source the various mineral components - many of which are highly sensitive to supply chain fluctuations and bottlenecks.

Efforts to drive increased production and adoption of battery storage systems and grid-scale deployment should also factor in strategies to enhance global supply chain networks and drive down the cost of production of battery storage systems.

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