|A U.K. battery storage array managed by Shell-owned startup Limejump.
Developers and grid operators in Europe are increasingly looking to battery storage to protect against, and ultimately profit from, the volatility created by an electricity system with a growing amount of intermittent renewable power. But installations are still relatively few. The U.K. — already Europe's largest market for grid-scale batteries, with 700 MW of projects in operation — has a further 10,500 MW in its planning system and analysts estimate it could reach 30,000 MW in total capacity by 2050. Elsewhere, aside from Germany — which has a booming domestic storage market and more than 300 MW of grid-scale capacity, according to industry body BVES — the rest of Europe is lagging behind, but could catch up if regulatory tools to incentivize storage deployment emerge.
S&P Global Market Intelligence asked four European battery storage developers and asset owners for their views on where the sector is heading in 2020 and beyond.
This is part of a series of European power outlooks compiled by S&P Global Market Intelligence. Click here for onshore wind, here for solar, and here for a legislative and regulatory outlook for Europe's five biggest markets.
Marco van Daele, chief investment officer at Swiss infrastructure fund manager SUSI Partners AG
Marco van Daele
We see three major trends in the sector: the continued decline in battery prices, increased convergence of renewables and storage, as well as grid decentralization amid the rise of behind-the-meter energy solutions.
Battery prices have come down significantly and we expect the decline to continue in 2020. This is due to increasing supply — underpinned, among other things, by the growing adoption of electric vehicles. With new capacity being available, and new business models emerging, storage investments are becoming more and more attractive. We also expect investment volumes to be higher than in previous years.
Furthermore, we anticipate that co-location of wind/solar parks and storage systems will accelerate, both in front of and behind the meter. This allows for unused power to be stored at the source of generation, making it available when it is really needed, bypassing intermittency and enhancing grid stability.
Decentralization is a key aspect here: households and [commercial and industrial] customers will increasingly generate and store clean energy for their own use, as well as feeding back into the grid as needed [virtual power plant] structures or in the form of ancillary services.
Nigel Aitchison, partner and head of infrastructure at U.K. investment manager Foresight Group LLP
We expect to see more M&A activity across the sector, not just at the project level … but both horizontally and vertically as players work out how they might profit from the increased volatility in the future energy system due to the proliferation of renewables. With the growing trend towards algorithmic trading platforms incorporating machine learning, some players appear intent on identifying the likely winner to increase their chance of monetizing the potentials of battery trading, while others could well be assessing models that introduce more stability in the revenue stacks.
A combination of factors, including the reinstatement of the U.K. capacity market, lowering of the minimum threshold by National Grid for participation in the balancing mechanism and proposed amendments to the U.K. planning system exempting battery projects larger than 50 MW from the national planning regime, have increased the attractiveness of the U.K. storage sector. This is expected to result in an increase in project development activity and increasing demand for those sites where grid connection capacity is available and where the network is under increasing pressure.
With the continued growth in the take-up of [electric vehicles] and declining battery costs, we would expect lithium-ion to continue to dominate and protect its market share in the near-term for shorter duration balancing. Although lithium-ion has become the dominant technology for frequency regulation, the economics of it are more questionable for longer duration balancing where other technologies, including redox flow, compressed air or hydrogen may increasingly have a role to play.
Matt Allen, CEO of Pivot Power Ltd., the battery storage developer recently acquired by Electricité de France SA
The strengthening of the relationship between renewables and energy storage will bring momentum to the European battery storage industry in 2020.
We predict that 2020 will be the year that the trading environment for batteries and storage gets cemented. With the Tesla Inc. gigafactory due to start construction in the first months of the year we anticipate that the EU will start considering the landscape they want across the continent for the growth of the sector. If a "Europe first" approach is taken whereby intercontinental trade is encouraged, with heavy tariffs on Chinese and U.S. batteries, it could stimulate growth locally but have an adverse effect on net-zero efforts given how many batteries will need to be manufactured to meet [that] need.
At the same time, interconnector forecasting is a dark art at the moment, and we don't know how this will work post-Brexit. We hope to see more clarity on this.
We also predict that the EV battery storage sector will take another step towards maturity in 2020 as findings from early [vehicle-to-grid] trials become known across the continent and more towns, cities and regions develop their road to zero plans.
Alex O'Cinneide, CEO and founder of Gore Street Capital Ltd., the investment adviser of Gore Street Energy Storage Fund PLC
We think there will be a stronger push on climate legislation across the U.K., and the EU similarly will also create a clearer drive in energy policy to ramp up renewable generation. Together this will generate a resulting need for more flexibility from the grid and open up the balancing services market.
Combined with the continuing electrification of the transport sector ... this should signal further cost reductions for batteries which will positively support the trend for energy storage projects. The backdrop of more beneficial policies and increasing investor pressure for green investment and ESG impact investing in general should help to form a favorable environment for the continued growth of energy storage.
Overall, we are entering a period of major transformation for the energy storage market that is expected to see considerable growth over the next few years. This is largely due to the continuing reduction in cost for lithium-ion technology and the increasing demand to meet important international targets for the growth in renewable energy production at a time when traditional energy sources for balancing the grid such as coal are being phased out.