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The financial sector is increasingly supporting battery energy storage systems (BESS), but transparent regulation is needed to sustain investment. This was one of the most resounding messages from the 2nd Investor Summit of the German Federal Association of Energy Storage Systems (BVES), held last week in Berlin.
Infrastructure investors are used to stable returns, but for BESS, high volatility means high upside potential, and there is still work to be done to reconcile the two.
The good news is that financiers are increasingly interested in betting on BESS. However, since batteries are still a relatively new asset class and often hampered by complex regulatory frameworks, non-recourse financing is not easy to access. Creating a lending solution for this asset class is challenging due to the nature of the BESS revenue stack – it is almost impossible to predict what it will look like in five years.
These were some of the key points of the 2nd Investor Summit of the German Federal Association for Energy Storage Systems (BVES), held last week in Berlin. The event brought together more than 300 international investors, banks, funds and insurers, who discussed with representatives of the industry and the market the opportunities and challenges of investing in storage technologies.
“A few years ago, the financial sector had to get used to these new players in the energy system and in their investment portfolios. Today, we see widespread recognition and huge interest in this market. Private capital is helping to drive the energy transition without subsidies,” said Urban Windelen, CEO of the BVES.
Windelen also stressed the importance of legal certainty for investment security and called on Germanys next federal government to "allow industry and business to pursue their own paths towards decarbonisation and create space for private capital and investment to jointly shape our future energy system."
Although the energy storage market is growing by leaps and bounds, Maria Leis of Breakthrough Energy stressed that we are not yet on the right track to scale up storage solutions. To bridge this gap, financial vehicles need to make these capital-intensive investments attractive to the financial sector. Flexible solutions are essential, with a mix of short- and long-duration storage technologies needed to meet the various demands of the market.
Casimir Lorenz of Aurora Energy Research noted that the business case for batteries is constantly evolving due to cannibalisation in ancillary markets and regulatory changes in capacity markets, the latter being the most common contractable revenue stream across Europe. Building a strong business case is therefore critical to scaling up energy storage, Lorenz said.
Christian Bauer and Britta Wissmann of law firm Watson Farley & Williams discussed large-scale storage as an illiquid but vital infrastructure asset. They suggested that the grid connection problem in Germany could be solved by flexible grid connection arrangements and cable bundling, while further flexibilisation of energy storage systems (ESS) for full participation in the electricity market would remove regulatory bottlenecks faced by systems that are partly charged by renewable energy and partly by the grid.
Many speakers have highlighted the rapid decline in investment costs due to the almost 40% drop in BESS costs over the past 12 months. However, Ralf Bucher of H&MV Engineering said that the cost of early works is not falling, although the size and duration of projects are increasing. The electrical engineering work is almost the same for large or small projects, he noted, adding that there is a trend among grid operators towards higher voltage levels – up to 380 kV, longer distances from the HV grid access point to the site, and the requirement for underground cables (110 kV).
Lars Stephen of Fluence took a look at the different European battery markets, highlighting their different revenue potentials. He noted that making money with BESS is easier than ever, but that the individual investment profile will define the exposure to volatility compared to an average but guaranteed income.
To unlock this potential, AI-based optimisation platforms are needed, as tapping into the various revenue streams requires much faster decision-making than humans are capable of. Steffen Schülzchen, CEO of Entrix, says that more than 350 contracts are made every day across different markets to achieve the best results, with 95% of trades being done virtually without battery degradation. Lennard Wilkening from Suena outlined the different pricing models for storage and renewables in electricity trading, with toll deals leading to the highest contracted revenues and therefore the lowest exposure to volatility that BESS can best exploit. |
