ENERGY STORAGE

The 10 most attractive energy storage investment markets

Reliable electricity grids backed up by battery energy storage systems (BESS) are vital for the energy transition – but investing in BESS is complex, so which markets offer the best opportunities?

BEN COOK

June 19, 2024

  • Rapid electrification of transport and heating is a vital part of the energy transition
  • However, electrification is dependent on reliable electricity grid backed up by battery energy storage systems (BESS)
  • But investing in BESS is complex, so which markets are the most attractive?

The indications are that, at the current rate of deployment, the global community will fail to reach COP28’s target of tripling renewables capacity by 2030. A new report from EY, Will growing volatility see battery investment charge ahead or power down?, concludes that the surge in clean energy investment last year – when a record US$1.8 trillion was invested in the sector – will mean that renewables capacity will only grow by two-and-a-half times by the end of the decade.

So what can be done to accelerate the wider deployment of renewables and meet climate goals? As EY points out, rapid electrification – particularly in transport and heating – is key with a view to electricity making up the majority of all energy demand by 2050, usurping gas and other fossil fuels. However, the electrification process is heavily reliant on a reliable, resilient electricity grid. And deploying battery energy storage systems (BESS) at grid scale is vital in order to ensure the electricity grid is sufficiently resilient.

While investor interest is increasing, EY points out that mastering the BESS market poses considerable challenges. There are three significant dynamics that need to be understood if BESS investment is to be successful – they are:

  • BESS investments are a long-term commitment; projects typically run for 20 years or more with battery upgrades.
  • Investments are also highly localised and carry more risk than some other clean energy investments.
  • Success depends on an understanding of the dynamic interaction of regional variations, electricity market design, technology and financing — as well as an acceptance of volatility.

In addition, there are notable regulatory barriers to wider storage investment in a number of jurisdictions. A Tamarindo Energy Storage Report debate staged earlier this year highlighted that the classification of batteries in certain jurisdictions acted as a significant obstacle to storage investment. For example, a “patchwork” of regulatory frameworks in the US make storage investment challenging, while in parts of Asia, investors claim a lack of national focus on securing power supplies in some jurisdictions serves as a disincentive for investing in storage.

So which are the best BESS markets to invest in? Given the complexity of BESS investment, EY has ranked the attractiveness of the 10 top global battery investment markets. The ranking – which takes into account factors such as installed capacity and pipeline, as well as government support such as tenders, subsidies, policy and deployment targets – is as follows:

 

1. USA

Why invest? The introduction of the Inflation Reduction Act is driving substantial growth in the US battery market. Meanwhile, California, for example, is mandating BESS in all new buildings. Elsewhere, independent system operators such as NYISO, CAISO, ISO-NE have facilitated the participation of battery storage in ancillary markets.

 

2. MAINLAND CHINA

Why invest? Significant government support in the form of subsidies is rapidly accelerating energy storage development. Other incentives include the introduction of plans to reduce BESS costs by 30 per cent by 2025. Also, China contributes more than 50 per cent of global lithium-ion battery storage exports.

 

3. UK

Why invest? UK battery storage capacity is expected to reach 24GW by 2030. The UK has a highly developed and innovative market design, which includes a well-established and diverse revenue stack for BESS. Meanwhile, upgrades to the National Grid ESO’s Open Balancing Platform supports the bulk dispatch of battery storage in real time. A new energy bill classes BESS as a generation asset, which eases rules around construction and offers specific tariff structures. The government is committing £20 billion (around US$25 billion) with a view to establishing a ‘world-leading’ battery industry by 2030.

 

4. AUSTRALIA

Why invest? Daily spot markets for power and system frequency control services provide diverse revenue streams. Storage capacity from batteries, virtual power plants and pumped hydro are expected to hit 61GW in 2050. The federal government has agreed with states to establish a Capacity Investment Scheme, which will allow BESS to tender to fill expected reliability gaps.

 

5. GERMANY

Why invest? Favourable market conditions – which include a number of grid fee exemptions and construction subsidies – are creating more opportunities for BESS. Energy storage is able to participate in day-ahead and intraday markets.

 

6. ITALY

Why invest? Target of 71GWh (or 12 GW to 15GW) of Terna [Italian transmission system operator] storage tenders by 2030. Up to 14-year fixed-price long-term contracts are offered, indexed to inflation, with Terna as the counterparty. First auctions scheduled for December this year, with first capacity delivery expected from 2027. The government will soon tender for utility-scale storage capacity and will issue a regulated framework for BESS investments.

 

7. SOUTH KOREA

Why invest? Significant BESS-related ambitions –South Korea is aiming to become the top BESS market after China and the US. Mandates call for energy storage systems in all new public buildings. Government incentives will include tax breaks for BESS installation.

 

8. INDIA

Why invest? India joined the Global Energy Alliance for People and Planet’s BESS Consortium, which is a multistakeholder partnership that aims to bring clean, affordable energy to Africa, Asia, Latin America and the Caribbean. As part of the consortium, India has agreed to secure 5GW of BESS commitment by the close of 2024. Meanwhile, a new government funding scheme will award funding for BESS projects of 4GWh capacity, with financial support of up to 40 per cent of capital cost.

 

9. FRANCE

Why invest? France is significantly accelerating battery capacity via the use of tax credits for BESS investment. More BESS projects have prompted the energy regulator to reopen a postponed auction for demand response power.

 

10. JAPAN

Why invest? Japan provides multiple revenue streams for BESS, including rolling weekly and day-ahead markets. Meanwhile, EY also highlighted that BESS can compete for three-hour blocks in capacity auctions. Winners will receive subsidies equivalent to the “fixed costs” of a qualifying project, which would include a stand-alone facility, for a period of 20 years.

 

  • Tamarindo, the publishers of Energy Storage Report, has launched the Energy Storage Investment Awards 2024 – you can download the entry pack here: https://hubs.la/Q02z4wk50