Battery energy storage

Battery energy storage provides flexibility and stability to electricity grids. An increase in electricity grid system volatility is expected as markets shift from fossil fuels to intermittent renewables to meet net zero targets and battery storage will be essential in complementing this implementation of renewables. The battery storage sector benefits from rising volatility in the electricity market by charging batteries when electricity prices are low and releasing to the grid when prices are high. The current energy crisis has brought volatility together with higher prices to the system earlier than expected. Battery energy storage will play a role in two of our global themes: decarbonisation and energy transition.

Capacity needs to grow significantly

National Grid estimates that current battery storage capacity of 1.6GW in the UK will rise to 16GW by 2030, while global installed capacity needs to grow from 16GW at the end of 2021 to 680GW by 2030 to meet the International Energy Agency’s (IEA) global energy roadmap, Net Zero by 2050. 6GW were added globally in 2021, up by 60% from 2020, and this was led by the United States with 2.9GW, followed by China with 1.9GW and Europe with 1GW. This growth will need to increase significantly to meet the 2030 capacity target, with the IEA estimating that an average of 80GW will need to be added per year to 2030.

Favourable investment and regulatory environment

Battery storage developers should benefit from an increasingly favourable investment and regulatory environment, supporting targeted renewables penetration over this decade. For example, under the US Inflation Reduction Act, standalone battery energy storage projects became eligible for investment tax credit subsidy from January 2023, which is expected to reduce capital costs by c 30% and will be in place for 10 years. For Europe, Deloitte estimated in January 2021 that distribution grids will need investment of €375–425bn out to 2030, while UK regulator Ofgem has already approved £40bn in grid investment for 2021–26. We expect these estimates to be revised upwards to take into account the most recent energy security packages in the EU, such as the REPowerEU plan that was announced in response to the Russian invasion of Ukraine and the more recent Green Deal Industrial Plan, and the UK. Recent projects in the UK include Fotowatio Renewable Ventures’ £1bn partnership with Tyler Hill Renewables to develop, build and operate up to 1GW in battery energy storage systems (BESS) projects in the UK over the next five years.

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