Battery Storage: A $16 Billion Investment Opportunity
Through ratifying the Paris Agreement, 189 countries have agreed to work together to invest in a low-carbon future, lowering greenhouse gas (GHG) emissions enough to limit global temperature increase in this century to 2 ̊ C or less. Achieving this goal will require the use of new, climate-friendly sources of energy.
Significant financial resources from the public and private sectors must be mobilized to fund these new energy developments.
IFC’s Green Banking Academy (GBAC) is an online banking knowledge initiative designed to help financial institutions and the private sector in Europe and Central Asia (ECA) learn about green banking and build green portfolios. GBAC advisory services are available to help financial institutions evaluate the economic potential and risk profile of long-term battery storage projects and other new green technologies. IFC supports the rapid commercialization of energy storage by developing banking project plans customized to suit individual country contexts, and mobilizing finance, including blended finance, for these projects.
“Energy storage is actually the true bridge to a clean-energy future.”
Bernadette Del Chiaro, Executive Director
California Solar and Storage Association
What is Long-Term Energy Storage?
Long-term energy storage uses batteries to store power when it is not needed for times when it can be used. There are several benefits to this technology:
- Wind and solar power can only be produced when it is windy or sunny. Long-term energy storage allows wind and solar power to be stored in batteries for use when it is calm or dark. This stabilizes the electrical grid, providing consumers with reliable, climate-friendly power.
- Where the power grid is unstable, long-term energy storage facilities can be charged when generators are in operating for use when generators are offline.
- Batteries can store power when production is most expensive and release it at times when power is cheaper, providing an arbitrage function.
- Power can be stored when demand is low and released when demand is high. This can reduce or delay the need to build new power generation facilities to meet increasing peak energy needs.
All of these solutions require complex computer software systems. Computer software within the facility monitors energy charge and discharge in each battery cell. Specialized software also tracks energy supply and demand to optimize facility use.
Measuring Energy Storage
Energy storage projects are measured in terms of rated power capacity, that is, how many kilowatts (kW) or megawatts (MW) can be instantly discharged. A facility’s energy capacity describes how much power the system can store at one time, in kilowatt-hours (kWh) or megawatt-hours (MWh). A fully charged facility with energy capacity of 40 MWh and power capacity of 10 MW can discharge power for four hours.
Investments in Energy Storage
As the costs have fallen, large-scale energy storage facilities are being built around the globe. The Manatee Energy Storage Center under construction in Florida will be the largest in the world, with 400 MW of power capacity and 900 MWh of energy capacity. The facility will store power produced at a nearby solar power facility. In Poland, the country’s biggest electrical utility, PGE, has developed a battery storage project near a hydropower plant. This facility, Commercial Hybrid Energy Storage (CHEST) has power capacity of 716 MW and energy capacity of 3,600 MWh. In Ukraine, DTEK Energy Holdings is planning to build a second energy storage facility next year, with a power capacity of 50 MW. Its first facility was developed with the U.S.-based company Honeywell. It opened in May 2021 with power capacity of 1MW and energy capacity of 2.25 MWh.
New developments in battery storage offer investment opportunities. In 2020, renewable sources generated more power in Europe than fossil fuels. This change in power supply increases the need for battery storage, as well as the potential profits available to energy storage developers. Frost and Sullivan, a research company, expects the global need for energy storage to increase by 23 percent by 2030. Increased demand is expected to increase market revenue from $2 billion in 2020 to $16 billion by 2030. Lenders and investors will be needed to meet this need and to invest in new technology for a lower-carbon future.
PV Magazine (Photovoltaic Markets and Technology) conducted an extensive survey of battery storage facilities in Germany. These facilities were developed under a wide range of ownership and funding models. Costs varied widely, with the least expensive lithium-ion facilities having a capacity greater than 10 MWh costing $249 per KWh, and smaller operations costing $318 per KWh.
Valuing Energy Storage Projects
Every energy storage project has unique costs and revenues. Specific project details play a role in valuation. These include capital costs, operating costs, reliability and safety ratings, and the expected number of battery charging and discharging cycles over the project life. Technology costs are changing quickly. Researchers at the Massachusetts Institute of Technology in the United States found that the cost of rechargeable lithium-ion batteries has decreased by 97 percent since 1991. The United States Energy Information Administration reports that utility-scale battery and storage costs decreased by 70 percent between 2015 and 2018. Costs are expected to continue to decrease, however, supply chain issues may lead to complications during construction.
The structure of the regional power grid is important when forecasting project revenues, especially regulations, subsidies, and ownership of system components. Revenue projections can be complicated if a proposed battery storage facility is independent from other grid components. For example, if incentives for wind and solar power production are in place, how will they be shared with an energy storage project that stabilizes the grid? If a new storage system meets electricity demand at peak usage times and delays the need to build new power generation facilities, how are the financial benefits of this delay valued and allocated? The financial benefits of a proposed storage system can be evaluated by comparing the overall costs of the current grid system with the projected costs of the grid with a battery storage facility in place.
“The climate challenge at its core is an energy challenge. The twin goals of improving energy access and addressing climate change both require our urgent attention but can’t be achieved with public resources alone. The private sector can and must be part of the solution if the scale of our results is to meet the scale of our ambitions.”
IFC Managing Director
All batteries use a medium to move ions between an “anode” and a “cathode.” Earlier battery storage facilities used nickel-based and sodium-based chemistries. Since 2011, most new installations have used lithium. Lithium-ion technology has advanced rapidly due to the use of these batteries in electric vehicles and electronics. Lithium is used in at least 90 percent of the long-term battery storage facilities in the United States. It is low cost, with high cycle efficiency, meaning that lithium-ion batteries do not lose much energy between recharge and discharge. Lithium-ion batteries have a high energy density, that is, a relatively high amount of energy can be stored per unit of weight.
The Disruption of Hydrogen Technology
Battery technology is advancing quickly. Hydrogen is a low-cost option likely to become more common in the future. This method uses electrolysis at the power source to split water molecules into hydrogen and oxygen. The hydrogen is stored in tanks until it is needed to power fuel cells. Using hydrogen avoids the need for the chemicals required for lithium-ion batteries.
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