Energy storage is playing a key role in renewable investments

As the UK’s energy and infrastructure system continues to evolve, including the recent focus on electric vehicles and their associated charging infrastructure, energy storage is playing a determining role in clean energy investments.  

In spite of changes to the storage market, notably brought on by the Tempus challenge to capacity markets last year and the Court of Justice of the European Union ruling on the matter meaning that financial remodelling is ongoing, the market remains buoyant and promises growth.

As the prospects for energy storage have become self evident, there has been a significant increase in both the number and capacity of new schemes being developed.

The types of battery projects being carried forward are also extremely varied — a further sign of sustainable growth and playing an important role in different areas of the UK’s clean energy future. Indeed, standalone schemes are being developed for smart mini grids as well as larger projects connected to the national grid.

As well as a growing number of schemes coming online, the even better news is that there is a very strong pipeline of storage projects in pre-development phase in England and Wales i.e. at the stage of securing planning permission and necessary funding. The fact that so many of these projects are continuing to move forward is extremely encouraging and speaks to the increasing appetite to fund energy storage schemes in the UK market.

One of the biggest turning points last year was that battery projects are now receiving debt as well as equity funding, but the capacity for further investment remains large. Institutional investors are looking closely at the risk profiles and potential returns on technologies such as energy storage and renewable generation.

Further government action to establish greater regulatory certainly would, for example, help bring reluctant investors on board and could significantly accelerate funding in the clean energy and storage space. We are expecting to see greater debt financing from banks but this will for the time being at least depend on there being a strong corporate counterparty.

Many of the schemes that are being funded, and a key reason behind the increase in the number of battery projects being developed, is colocation i.e. installing energy storage infrastructure alongside an existing or new energy scheme. Battery colocation is particularly prevalent in the clean energy space because while clean energy has become reliable and efficient, power generation can be intermittent (depending on wind speeds or daylight for example) and so battery technology naturally complements the scheme, storing energy for when it can be used.

Colocation has not only represented fresh opportunities for sites providing subsidy free wind or solar, however. Colocation at sites that combine electric vehicle charging infrastructure (EVCI) with energy storage has also spiked investor interest. The UK is at a tipping point and needs to significantly scale up its EVCI. Indeed, data from Emu Analytics predicts that there will be more than one million EVs on UK roads by 2020, which will require around 100,000 charging points — far more than the approximately 18,000 currently available.

Significant investments are being put into EVCI, notably in terms of equity funding. Having become a major focus for the infrastructure industry, EVCI needs to be made financially viable and this can notably be done through charging sites that combine EVCI with clean energy or battery technology — resulting in ancillary revenue streams and maximising the revenue potential of a site.

Given the ever growing role colocation is playing in the UK energy system, the government has launched a consultation to look at how energy storage is considered in the planning system and to remove barriers to smart technologies.

The key issue the consultation looks at is how energy storage projects are evaluated under the Nationally Significant Infrastructure Projects regime and this, in due course, will determine whether a system emerges that provides permitted development for schemes or more stringent planning processes. Needless to say, simplifying planning procedures for such schemes would accelerate the adoption of battery technology.

Energy storage colocation, whether on sites for power generation or associated with EVCI, will be a strong growth area for the coming years therefore but so could behind the meter storage. While there are limits regarding the development of this model, notably due to some schemes or sites being incompatible with battery co-location, the behind the meter model represents significant opportunities.

Large corporates in particular aspire for frameworks to balance energy demand and supply, through the use of battery technology. An excellent example of this is the Lyreco site, which combines a 500 kilowatts storage system with solar PV and EV charging stations — such projects are precursors and many schemes of this nature are likely to be developed in the coming years as storage solutions are brought online for new and existing schemes.

Through the development of colocation and behind the meter models, as well as more traditional stand alone grid connected schemes, there looks to be a bright future for the energy storage market.

Further clarifying regulation from government, to standardise EVCI or simplify planning for batteries for example, could also help strengthen the sector. Investments are fuelling a strong pipeline of energy storage schemes, but more can still be done to unlock the growth potential of battery technology and bring all stakeholders on board.

By Maria Connolly of TLT Solicitors