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This week we speak to Gurpal Ruprai, Consultant in our Energy Consulting Team, about all things batteries – the thesis, the impact of 2021 and current events, and what the future could hold for battery storage investment.

Links mentioned:

• Report: Has 2021 changed the outlook for battery storage investment?
• Podcast episode: Inside GB's power market with Rajiv Gogna

We discuss:

• Different types of battery storage
• Longer durations (4 hours) focussed on balancing prices: bulk transferring energy from points of low demand to points of high demand: they sell back when prices are high, and charge when prices are low
• Shorter durations (0.5-2 hours) focussed on frequency response markets, which help keep the system ticking on – eg avoiding your lights flickering because the frequency had dropped

• Why recent trends of high gas prices have led to elevated returns in 2021 and this year so far – returns of maybe 19%+ pa
• The impact of the climate transition and why greater reliance on renewable energy sources means a greater role for batteries – demand expected to double as a result, indicating sustained future returns in these markets
• But the countereffect of significant battery production in flooding the market and lowering potential investment returns (though this is still a few years away)
• Why it can make sense to “co-locate” – positioning batteries where renewable sources of energy are captured
• The widening of battery storage owners, from a starting point of the large energy producers to a more diverse range including investment managers
• What investors can expect in the future: potentially similar to the trend seen in wind farm markets, with immediate high returns, which may then trend down to a lower but less volatile return profile
• The next year: high energy prices to continue (batteries well placed to capture these), but not at the same levels as the past winter (coal generators to be decommissioned this year – which had previously been setting the highest prices)

What's one thing to take away

It’s complicated! And very hard to define what a “normal year” looks like – so past experience is absolutely not a good indicator of future returns.

The most underappreciated thing?

Level of possible cannibalisation in this market – there’s a lot of interest in building batteries (not just for this purpose) – which is a real risk to returns.

Recommendations:

• The infinite monkey cage  - whether a strawberry is alive or dead
• The making of the atomic bomb – Richard Rhodes

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Each LCP investment uncut podcast is for information and marketing purposes only and does not constitute any form of investment or financial advice or a financial promotion (under the Financial Services and Markets Act 2000). All views expressed by the podcast hosts and guests are purely their own opinions and do not represent those of LCP, its clients or affiliates. Our podcast listeners should always seek independent financial or legal advice before making any financial or investment decisions. Please refer to the Legal Notices section on the LCP website for further information.​