The green rationale
If we are to save our planet, we all know that we must accelerate the energy transition from fossil fuels to renewables. Wind and solar energy sources are great and increasingly cost competitive, but they come with a big problem: intermittency, hence they cannot be relied upon. Enter batteries: electricity can be stored when it is produced and used later on. Energy storage fills the gap between when the sun shines in the day and when we need electricity in the evening – be it today, to live in our homes, or tomorrow, to charge electric cars.
The technical rationale
Even without intermittent renewables, energy storage helps by matching demand with power generation over different timespans. For example, storage can smooth out the inevitable surges in consumption, delivering cost savings to operators by reducing the need for grid upgrades or for peak time electricity generation. Energy storage is not a new idea at all: for years, pumped hydro storage systems have helped utilities to address these issues. However, with intermittent sources of electricity that cannot be switched on when required, with changing consumption patterns and more pressure put on distribution networks, there is a growing, critical need for flexibility within the electricity network – hence for storage.
The financial rationale
It is easy to see how smoothing out demand or storing electrical energy generated by solar panels or wind farms can create value for both suppliers and end users. However, this works only if batteries are fit for purpose, technically and in terms of costs.
Here, there is massive good news: since 2010, the cost of battery packs has more than halved, to less than GBP 250/kWh, and experts forecast that it will halve again by 2025 – hence using batteries to store energy makes increasing financial sense.
It comes therefore as no surprise that we see a very strong growth in energy storage investments and projects. Today, the installed storage capacity remains tiny, a small percentage of the overall electricity systems’ capacity. This is therefore a market with massive growth ahead.
The sweet spot for a Green Angel Syndicate investment – Green, financially rewarding and booming: energy storage is exactly in the sweet spot of what investors with Green Angel Syndicate should be getting excited about. However, with the myriad large companies and start-ups vying to seize this energy storage opportunity, choosing the right project is not easy. In particular, should we invest in grid-level projects or in ‘behind the meter’ energy storage? And within the latter, should we focus on the commercial and industrial markets, or on the residential one?
Energy storage for grid operators and electricity suppliers is a well-established market, especially in the US, and we expect it to continue growing as bigger and cheaper batteries become available. However, creating value in this space may be difficult, given the need for project-based custom engineering combined with the high level of price competition. In addition, in the market for wind and solar farms, the viability of a storage business case depends on the difference between peak and off-peak power prices, which may not be sufficient.
Behind the meter, we see many companies developing products and services for commercial or industrial sites with large energy consumption. These range from hardware businesses to fully integrated solutions, to innovative software companies making use of big data and artificial intelligence to optimise the charge and discharge cycles of batteries, depending on usage patterns, the weather, the peak vs. off-peak prices, etc. These are complex systems which are likely to be focused on specific ‘verticals’ e.g. micro-grid operators in developing countries, factories, warehouse operators, office building managers or telecom tower companies – each with its specific circumstances and economics. Further interesting opportunities will arise in these fields.
Green, financially rewarding and booming: energy storage is exactly in the sweet spot of what investors with Green Angel Syndicate should be getting excited about.
So far, the home storage market has developed more slowly, as residential customers need some time to adopt change and the economics of installing a battery at home have not been as compelling. However, this is a market ripe for growth and many sources see home storage becoming a larger market than grid-level and commercial storage over the coming years, with three drivers:
As such, a residential electricity storage company can now build a business model relying on several value streams including, on one side, the energy bill savings for the homeowners and, on the other side, the services to the electricity suppliers, whilst benefiting from the loyalty aspect of any residential utility business.
A win for the end-user, a win for the electricity supplier, a win for the storage provider and a win for the environment – hence a very attractive long term sweet spot of the green energy revolution. This is the vision of Powervault, which is Green Angel Syndicate’s first investment in energy storage, and is currently open for a further funding round, should anyone wish to join now. Enquiries can be made to Green Angel Syndicate or Powervault direct.