Tamarindo’s Energy Storage Report convenes panel of experts from the UK, US and Europe to analyse regulatory barriers to storage deployment
Investor interest in battery storage is at an all-time high. Early estimates from the International Energy Agency put the total amount of global investment in battery storage in 2023 at record $35 billion, a massive 75 per cent increase on the 2022 total of $20 billion. It is now widely recognised that, with the ever-increasing deployment of renewables around the world, battery storage has a crucial role to play in maximising returns from wind and solar projects in particular.
Yet, despite the record amounts of funding being ploughed into battery storage in recent years, it is clear that more could be done in many jurisdictions to facilitate even higher levels of investment. Although there is significant enthusiasm for battery storage among investors, some are being deterred from putting more capital into the sector due to regulatory barriers in some jurisdictions. Tamarindo’s Energy Storage Report, in partnership with Eversheds Sutherland, convened a panel of energy storage industry experts – including representatives from Fluence, Santander, Spearmint Energy, Greenvolt Power, Malta Inc., and Ion Ventures to highlight such issues and explore potential solutions. Panellists concluded that regulatory approaches to storage had a significant impact on grid fees in Europe, for example, while in the US, the rapidly evolving nature of regulatory frameworks for energy storage has been highlighted by storage developers and asset owners as major obstacles to investment.
Elsewhere, there are scenarios – in parts of Asia, for example – where investors claim a lack of national focus on securing power supplies in some jurisdictions has resulted in some investors viewing storage as a capital cost with “no obvious upside”. Among a wide range of issues, the panel discussed the challenges that arise from storage being classed as generation, as well as concerns around securing grid connections. In addition, the panel highlighted the emerging trend for portfolio-based optimisation, changes in the approach to storage financing, and the importance of battery warranties.
‘Clear grid code’ for storage at EU level needed
The classification of batteries in certain jurisdictions is proving to be an obstacle to energy storage investment. Julian Jansen, senior strategy, market development & policy director at Fluence, noted that, in the EU market design, storage is defined as a singular technology, but despite this, grid codes – and other codes – consider storage as generation when connecting. “Regulatory barriers create challenges for investors and asset owners – a clear grid code for storage at a European Union level would provide more clarity for the member states on how to deal with storage and how it should be treated in relation to grid fees,” he said. “This is a particular problem in markets like Germany and the Netherlands where grid fees that are based on the current grid codes create a major barrier for storage.” In a recent effort to address this issue in Germany, it was announced that there would be an extension of the 20-year exemption from the duty to pay grid access fees in order to include battery energy storage systems (BESS) commissioned up to 4 August 2029 – previously the exemption only applied to BESS commissioned up to 4 August 2026).
The transposition of EU directives to national storage markets has also proved problematic. Antonio Montoto, the Seville-based senior energy storage manager at Greenvolt Power, said that because grids in Europe are not homogenous, transposing European directives, and sometimes local directives, to apply to grids across the continent can be challenging. “The long time it takes to apply such directives is delaying the time it takes to introduce storage in Spain and Italy, for example,” he explained. Montoto added that, in contrast, storage implementation has been much quicker in other markets, such as the UK.
Spain: ‘Huge push on battery development’
Regulation has posed particular challenges for storage sector financing in Spain. William Evans, executive director – structured finance, at Santander, said: “Spain has all of the right characteristics to have a pretty high penetration of batteries. It’s got a heavy solar-driven energy market that brings you intraday volatility, which is perfect for short duration storage.” However, he added that one of the reasons why storage in Spain has yet to experience a high level of deployment is that when storage is added to the grid, it is given the same regulatory treatment as power stations. But there are signs of progress on this front according to Evans, who added: “We strongly believe that next year there will be a huge push for battery development in Spain.”
US: Rapidly evolving regulatory frameworks make storage investment ‘difficult’
In the US, there is a “patchwork” of regulatory frameworks, depending on the independent system operator (ISO), regional body and state involved, explained Andrew Waranch, CEO of Spearmint Energy. “In the last couple of years, ISOs like those in California and Texas have had programmes that rewarded storage and have been very attractive – in recent years, we’ve actually seen individual states provide more subsidies,” he said. But Waranch added that this patchwork of frameworks makes it difficult to invest in storage. “We take the approach that over the next seven to ten years the regulatory framework, at the state, ISO and federal levels will evolve quite often – we are broadly diversified to try and de-risk but I spend 20 per cent of my time focused on both macro and micro regulatory issues,” Waranch said.
Al Morales, CFO of Malta Inc., which manufactures a thermo-electric energy storage system that utilises turbo machinery, said that while his company is subject to the same market forces as short-duration battery manufacturers, it also faces some unique challenges. “Like lithium batteries, our system is a generation source and also a load –many markets, particularly in the US, are making progress in classifying storage as its own unique asset class,” he explained. However, another challenge is that Malta’s systems can be considered both generation and transmission, Morales said. “One of our facilities brings benefits for storage and generation, but at the same time, particularly given the longer durations and the scale, we can assist with deferring certain transmission expenditures,” he added. “In some areas, there’s the regulated transmission utility, and there’s the non-regulated generation, and they can’t even talk to one another. It’s very difficult to contract across that divide.”
More must be done to develop alternative revenue streams for storage assets
Panellists said it was imperative that grid connection processes are speeded up and that permitting processes are made easier. In addition, in some jurisdictions, more needs to be done to remove uncertainty with regard to market access, as well as provide greater opportunities for the development of alternative revenue streams. It is also vital that storage assets are appropriately compensated for all the services they provide. In addition, there needs to be a change in perception in the sense that storage needs to be more widely recognised as an independent asset class, rather than as merely a “subset of renewables”. A key aspect is starting from the premise that energy storage has a “neutral impact” on the grid system in the sense that it is not a generator or a source of demand, panellists said. More specifically, there is a need – especially in more mature markets – to unlock “stability services and the transmission segment” and create the necessary frameworks for storage to be deployed in those areas. There should also be a concerted effort to ensure regulatory frameworks do all they can to accommodate long-duration storage.
This is an abridged version of a special report, ‘Overcoming regulatory barriers to energy storage investment’, which offers insights into the regulatory challenges facing global battery storage investors from a panel of experts convened by Tamarindo’s Energy Storage Report, in partnership with Eversheds Sutherland. To download your free copy of the full report, click here.
Main image, members of the expert panel (top row, left to right): Hassen Bali, Co-Founder, Ion Ventures; Julian Jansen, Senior Strategy, Market Development & Policy Director, Fluence; Al Morales, CFO, Malta Inc; Andrew Waranch, CEO, Spearmint Energy; (bottom row, left to right): William Evans, Executive Director – Structured Finance, Santander; Antonio Montoto, Senior Energy Storage Manager, Greenvolt Power; Caroline Clapham, Partner, Eversheds Sutherland.
The panel discussion summarised in the report was the first of a series of three such debates organised by Tamarindo’s Energy Storage Report in partnership with Eversheds Sutherland. For information about upcoming panel discussions and to enquire about participating, email Energy Storage Report editor Ben Cook at email@example.com