So far, 2017 has been a year of milestones for clean forms of energy.
Energy experts are also expecting to see a huge uptick in the number of electric vehicles on the road over the next decade, which the National Grid has said could push peak electricity demand up by as much as eight gigawatts by 2030.
Emerging technologies in battery storage will have an important role to play in the move to a smarter and more flexible energy system, but as a new type of asset, batteries pose their own challenges.
Maria Connolly, partner at law firm TLT and leader of the firm’s energy and renewables team, said battery storage projects, which unlike solar or wind are not backed by subsidies, have complex income streams and financial models.
“The thing to watch in the next 12 months is what banks could do in this space,” Connolly said.
While energy storage projects are largely funded on a private equity basis, banks are starting to try to get their heads around how to fund these unfamiliar assets, for which the demand and the markets are not yet well established.
That is where Triodos comes in. Based in the Netherlands, Triodos is a sustainable bank, meaning it promises any loans and investments it makes will have a positive social or environmental outcome.
“The deployment [of renewable energy] has been a great story, but it does bring with it its challenges,” said Philip Bazin, environment team manager at Triodos.
Those challenges include intermittent energy supply and a mismatch between when supply is generated and demand rises.
“Now is the time to solve these grid management problems, and energy storage is part of that,” he said. “If we can find a way to support energy storage, that can support the integration and development of further renewable energy.”
Bazin is confident the UK will see the addition of around 500 megawatts of operational battery storage within the next 12 months.
“The demand for [battery storage], the need for it, is definitely there. Energy storage has to happen. The question is with whose money and at whose expense,” Bazin said.
TLT and Triodos have been working together in the sector to develop commercial energy storage models that align new technologies with market and policy signals.
They launched a paper this month examining the role of energy storage in a decarbonised and decentralised UK energy market. The paper said more work needed to be done to establish a “stable, medium to long term regulatory framework that will help make this a truly ‘bankable’ asset class”.
A virtuous cycle
Huge investments are being made into battery manufacturing capacity as automakers look to ramp up electric vehicle production.
Julian Critchlow, global head of energy and utilities practice at Bain and Company, called the process a virtuous cycle. “The faster we roll out electric vehicles the more we remove the carbon from the transport sector and the faster we get low-cost batteries.”
“The implications are fundamentally revolutionary not only for transport but for the entire energy system,” he said.
A regulatory framework
And as in all renewable spaces, Critchlow added that the influence of government regulation is very significant.
Tom Eldridge, partner in the banking and financing practice of law firm Mayer Brown, said recent proposals by Ofgem and the Department for Business, Energy and Industrial Strategy (Beis) are starting to build a regulatory framework capable of supporting the required levels of capital investment in battery storage technology.
“The proposals focus on co-location of storage facilities on subsidy-accredited sites and go as far as introducing regulatory changes to underpin these endorsements.”
Eldridge said proposals include legislative changes to ensure electricity storage is classified as a form of generation for subsidy purposes and simplifying the planning regime.
Co-locating battery storage alongside solar or wind energy developments can maximise the grid capacity. Earlier this year, Ofgem confirmed solar farms would be able to retain their subsidies when supplying electricity to batteries, which executive chairman of renewables firm Anesco, Steve Shine, called a “game changer” for the energy storage market.
Bazin said there is a political appetite for making a success of energy storage.
“If you look at the Industrial Strategy they [the government] can see opportunities for new businesses to be created or research and development centres to be created in the UK and for jobs to flow from that.
“It’s certainly a big driver for the UK government to make this a reality.”