Summary: Battery storage has an increasingly important role to play as we build out an electricity grid dominated by renewables. The sector is at a tipping point. Current revenues from filling the generation gaps left by variable renewables are actually small, with the main income stream being from the smaller grid stability market. Is change coming and when?
Why this is important: From a financial perspective, as we shift to the electricity grid of the future, the risks and opportunities will change. The notion of an electricity utility being a safe investment needs to be rethought. Some of the new services will have "merchant " type characteristics, taking more market and price risk than before. This is not a bad thing, its just going to be different from before.
The big theme: As we add more renewables to our electricity generation mix, we create a greater challenge in keeping the grid stable, and in ensuring electricity supply meets demand at all times. These changes are creating some really exciting opportunities for new approaches to grid management, including battery storage, demand management, and interconnectors.
Why this is important
When I first started researching this, this was going to be a blog about how batteries, especially Li Ion batteries, were playing an important role in balancing out the gaps left when renewables such as wind and solar were not generating electricity. This is clearly a really important topic for sustainability professionals (who want an electrified economy), investors and asset owners.
But the more I listened to experts and spoke with investors, the more I realised that this was not what was happening, at least not yet. Outside of a few countries, the use of battery storage is still nascent. And where it does exist, its an industry mostly focused on providing what are called electricity grid ancillary services, basically keeping the grid stable. The market for providing electricity when the wind doesn't blow and the sun doesn't shine is only just starting to emerge at scale. One reason is regulation, another is cost.
But that is starting to change. The longer term forecasts we all read about how big this market has the potential to become, could just turn out to be right. This is something we all need to understand and care about, buildings the right foundations will be critical. As a consequence, this blog became more about the bigger picture, we will dig further down into the detail in a later blog.