2021 was a landmark year for battery storage, with record deployment and now over 20GW of capacity in the planning process. But are batteries investible over the long-term?
New analysis from LCP’s Energy Analytics team highlights the growing opportunity for batteries to play both a larger role in the UK energy system’s net zero transition and reduce the reliance on gas. Investment in longer duration batteries is growing as investors turn their attention to the Balancing Mechanism and Capacity Market for future revenue streams.
We find that while there are a range of uncertainties facing battery storage, and investors must be aware of how the market will change significantly over the asset’s lifetime, we remain cautiously optimistic about the potential for battery storage in GB.
What’s inside the report:
- An in-depth look at the fundamentals of the key revenue streams available to battery asset owners, including energy arbitrage, balancing, frequency response and capacity provision.
- How we believe revenue streams will evolve over time, how susceptible they are to cannibalisation and how this impacts the ‘sweet spot’ of battery duration to build.
- Key factors, opportunities, and risks for investors to inform their investment strategies to maximise return.
To date batteries have primarily focused on supporting the energy system through the frequency response markets but in the coming years we are likely to see a change as these markets become oversubscribed. We have begun to see new strategies adopted to maximise returns not only from frequency, but also from wholesale and balancing markets which offer a great opportunity for investors to stack their revenues.
The frequency response market will still be an important revenue source for shorter duration systems, but asset owners will increasingly be looking towards the lucrative opportunities in wholesale and balancing due to the current market conditions.