The UK could learn from Australia’s strategy of developing transmission and renewables along with storage, a new report concludes – meanwhile, there is uncertainty about how the phasing out of tax credits for US solar and wind projects will impact on battery storage build-out
The UK needs to make a greater effort to take a more “strategic approach” to the deployment of renewable energy generation and storage, having “gone long” on renewables, but “short” on infrastructure and storage, a new report has concluded.
The report – which summarises the key conclusions of a panel of energy storage sector experts convened by Tamarindo, in partnership with law firm Troutman Pepper Locke – also said that there is uncertainty about how the phasing out of tax credits for solar and wind projects in the US, in accordance with the provisions of the One Big Beautiful Bill Act (OBBBA), will impact on battery storage build-out.
Australia provides ‘valuable lesson’ for UK
The report, entitled ‘How are geopolitical trends impacting global energy storage markets?’ – highlighted how, in the Australian market, there had been more of a focus on developing transmission and renewables along with storage and this offered a “valuable lesson” for the UK. “We’re getting out of balance in the UK and Ireland, where we’ve gone long on renewables, but short infrastructure and storage,” Brain Perusse, managing director, UK & Ireland at Fluence Energy, and one of the panellists, said. “Pairing those together is key to learning from them [the Australians].” Perusse added that the Australian market adopted an admirable approach to storage market knowledge-sharing. “Australia did a great job of publishing a lot of their early reports and continuing to publish and get learnings out – it wasn’t just on safety, but also technical performance and market outcomes. I’ve read several reports coming out of Australia on grid forming, for example. That does start to open up the market and accelerate the learnings.”
Meanwhile, The One Big Beautiful Bill Act (OBBBA) led to some “rethinking” of battery storage pipelines and financings, but, on the plus side, it gave batteries a “pretty long runway to be eligible” for investment tax credits compared to solar and wind, said Troutman Pepper Locke partner John Leonti. As a result, Leonti said he anticipated continued growth in battery storage, though he added that, with tax credits being phased out for solar and wind projects it was, as yet, unclear what impact this would have on battery build-out.
Europe: Co-locating batteries with renewables generation assets on the increase
Elsewhere, the report said that co-locating batteries with renewable generation assets – such as solar – is a growing trend in Europe. Ingmar Grebien, managing director at Goldman Sachs, commented: “Historically, we’ve seen the battery being more of an afterthought to the solar, for example, with the battery being relatively small in terms of capacity. But that is starting to flip, which then also has a knock-on impact on the financing structure, because if it’s very small, renewable lenders will look at it like an additional merchant asset that they can finance, but then once the capex starts to go higher, that starts to change, and you need to look at different capital structures.”
Samuel Merlin, partner at Hannam & Partners, said European battery storage investors had, in some cases, put investment in the US market on hold due to their being too much macroeconomic uncertainty. He added that whether this meant they would invest more in Europe was open to question, but also acknowledged that while batteries will be less impacted, the US market would probably remain considerably volatile under the current administration.
With tax credits being phased out for solar due to the OBBBA, Merlin said that many solar projects were being repositioned as co-located solar plus storage projects. However, while many renewable energy developers are now trying to incorporate batteries to make their projects more economically viable, many do not fully understand how to maximise the revenues generated by batteries, Merlin added.
Uncertainty will be exacerbated by geopolitical trends
Given the uncertainty regarding battery storage costs, Niels Jakeman, head of energy origination, structured finance Europe, at NORD/LB, said he hoped European finance structures for battery storage would “maintain some discipline about the need for tolls or capacity payments or contracts”. He added that the uncertainty would be exacerbated by geopolitical trends: “Although lenders will always structure against conservative downside market scenarios, there remains considerable uncertainty in longer-term BESS revenues and I think for that to fall on lenders and equity investors is a big ask.”
However, battery storage is one of the most “deployable energy transition asset classes for both debt and equity”, Jacob Lloyd, managing director at NatWest, said. While investors and lenders have given serious consideration to other asset classes such as hydrogen and carbon capture, battery storage is the one that has been the most attractive and has been deployed at the fastest rate, Lloyd added. He also said, while few lenders were interested in battery storage assets around five years ago, now major battery deals are being agreed with the backing of large numbers of lenders.
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