Challenges Remain in Understanding Energy Storage as an Investment

on December 27, 2019

Energy storage is a rapidly growing segment of the clean energy sector, and prices are dropping fast. Yet many are still struggling to understand how to value energy storage as an investment.

As a growing number of cities, states and businesses commit to 100 percent clean energy, storage is already playing a pivotal role in determining how they will meet these targets. Wood Mackenzie’s latest Global Energy Storage Outlook projects that deployments will grow 13-fold over the next six years, from a 12-gigawatt-hour market in 2018 to a 158-gigawatt-hour market in 2024.

This emerging market represents a huge opportunity. Global investments of $374 billion a year will be needed to upgrade the grid with enough flexibility to account for the variable power generation profiles of renewable technologies like solar and wind. Storage solutions are now a growing part of this energy transition and will represent a $150 billion industry in the U.S. alone by 2023.

However, massive deployment numbers and dropping costs won’t streamline project finance for energy storage in the short term. As a nascent industry, battery storage lacks historical data, requiring investors and lenders to familiarize themselves with its unique qualities.

Installing storage, whether as a standalone asset or by adding it to an existing utility power source, is highly individualized from one project to another. So extrapolating risk and returns from any given asset is not straightforward. Each project draws power from a unique generation source (renewable or traditional power plants) and is interconnected to a regionally regulated power market and a unique revenue stream.

Some storage projects are able to generate income both while charging and deploying energy, while others are focused just on deployment. There are also interconnection considerations depending on how and where your storage project plugs in. Are you directly charging from the grid? From a solar or wind farm or some other standalone generation facility?

Another consideration for investors is that batteries in a storage project have shorter lifespans of 10 to 15 years versus solar or wind energy assets that may last twice as long. And similar to PV modules, which lose efficiency as they age, it’s critical to understand the factors that impact a battery’s ability to store energy as it ages and to factor in the cost of replacement as needed. Understanding the intricacies of asset management and optimization is highly complex, but it is necessary in order to adequately mitigate risk for each storage portfolio.

To realize the full potential for the investment markets and the global energy transition, it’s critically important to understand the entire value stack that integrated storage brings to the table.

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Fractal Energy Storage ConsultantsChallenges Remain in Understanding Energy Storage as an Investment