ENERGY STORAGE

UK in danger of letting storage industry stall

The US and Europe seems determined to back energy storage, but will the UK follow suit or pass up the opportunity to cement its position as a leading storage market?

BEN COOK

February 3, 2023

  • US incentives for storage development attracting investors away from Europe
  • Europe looking to respond with ‘Green Deal Industrial Plan’
  • But UK government’s lack of action jeopardising domestic storage industry

The US and Europe seems determined to back energy storage, but will the UK follow suit or pass up the opportunity to cement its position as a leading storage market?

The signing into law of the Inflation Reduction Act (IRA) in the US last year was seen as a move that will turbocharge the nation’s energy storage industry. The act resulted in the introduction of a 30 per cent investment tax credit (ITC) for standalone energy storage projects.

The introduction of the ITC has led to predictions that energy storage will now boom in the US in the same way that the solar ITC kickstarted the US solar industry. It’s difficult to overestimate the sense of optimism that now abounds in the US storage sector – storage deployment projections for the end of the decade are now being upped, in some cases by double-figure percentages, and some observers have dubbed the 2020s as the “energy storage decade”.

Grave concern in Europe

It’s important to note that forecasts indicating that the IRA will lead to a US storage boom are not simply attributable to flag-waving patriotism on the part of American storage industry professionals.

The introduction of the 30 per cent standalone energy storage ITC has had reverberations beyond US borders, and there is grave concern in Europe that the attractiveness of the US ITC will result in potential storage investors diverting their interest away from Europe towards North America.

Prior to the introduction of the IRA, the European Union was already concerned about its clean-tech industrial capacity being lured to China – the advent of the standalone storage ITC in the US means the attack on Europe’s storage sector has now become two-pronged.

The fight for competitive edge

In its defence, the European Union has decided to fight back. At the World Economic Forum’s annual meeting in Davos, Switzerland last month, European Commission president Ursula von der Leyen acknowledged that, to keep European industry attractive, the bloc needed to be able to compete with the offers and incentives available in other global markets.

To her credit, Von der Leyen is acutely aware of the importance of incentivising clean-tech industries. As she put it: “The next decades will see the greatest industrial transformation of our times – maybe of any times. And those who develop and manufacture the technology that will be the foundation of tomorrow’s economy will have the greatest competitive edge.”

Europe’s answer to the IRA

But words are one thing, action is another. And Von der Leyen has decided to take action that is aimed at sparking the EU into life – at Davos, she took the opportunity to announce a ‘Green Deal Industrial Plan’, which she described as “our plan to make Europe the home of clean tech and industrial innovation on the road to net zero”.

The plan – which is being dubbed Europe’s version of the US’ Inflation Reduction Act and has the objective of scaling up the energy storage, wind, heat pumps, solar and clean hydrogen sectors – will have four “key pillars”: the regulatory environment, financing, skills and trade. With regard to the financing aspect, the plan involves making temporary changes to state aid rules that will make the provision of such aid easier and simpler.

That said, Von der Leyen has acknowledged that state aid is a “limited solution” that will only be available to some member states. There is also a concern that the use of state aid could fragment the EU single market. In order to minimise this risk, the European Commission has also proposed the creation of a European Sovereignty Fund to boost the resources available.

Funding delays and political infighting 

The problem for the EU is the development of the applicable European Sovereignty Fund seems a long way off. Von der Leyen has acknowledged this will “take some time” and that a bridging solution will have to be considered.

Another problem Europe faces in relation to this issue is that, as the process of allocating funding gets underway, there are concerns that smaller European nations could lose out to larger ones. While acknowledging that the Green Deal Industrial Plan is a good idea, Portugal’s finance minister Fernando Medina has stressed that “smaller European countries cannot lose to the larger countries in an internal competition”.

However, at least the European Commission is planning to take steps to combat the impact of the US’ IRA, what of the UK?

Real fear that UK storage will miss out on investment

There is a very real fear among the UK storage community that the introduction of the IRA will mean that investors will now redirect capital to the US rather than investing in the UK.

It is indisputable that the IRA is proving to be a significant pull for renewable energy investors. In December last year, London-based renewable energy investment manager Glennmont Partners entered the US solar-storage market via a joint venture with GreenGo Energy US, which will develop more that 1GW of combined and standalone solar PV and energy storage projects. At the time of the announcement, Dries Bruyland, head of US at Glennmont Partners, made it clear that the introduction of the IRA had made the US renewables market “increasingly attractive”.

The fact that renewables investors that were traditionally focussed on the UK are now instead diverting capital to the US should be cause for serious concern for the UK storage sector.

UK government’s stance turning off investors

Senior members of the government in the UK are concerned about the impact of the IRA, but unfortunately these concerns are merely ideological rather than being borne out of genuine worries about the future prosperity of the UK’s renewables industry.

Last week, UK Chancellor of the Exchequer Jeremy Hunt said: “Yes, we have some concerns about the Inflation Reduction Act, and the reason is that we believe in free trade.” It’s clear that Hunt currently has no plans to bolster the UK renewables sector – and by extension the nation’s energy storage industry – via the introduction of any IRA-type legislation. He added: “Are we worried about the long-term future of our clean energy industries? Absolutely not.”

But Hunt should be worried. His stance is increasingly turning off investors – from the UK and elsewhere – who are now opting to invest in the US rather than the UK. This is troubling – up to this point, the UK storage market has, from an investors’ perspective, been one of the most attractive in the world. It has also developed what is viewed as being the most sophisticated market for ancillary services. But now, at a pivotal moment in the development of the UK storage market, Hunt’s lack of pragmatism risks undoing all of this hard work.

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