Energy Storage in Focus
Infra Bank in Focus
Energy Storage in Focus
30 March 2023
By John Flint, CEO of the UK Infrastructure Bank
Electricity storage technologies have a crucial role to play in ensuring that the energy transition required to reach net zero across the UK by 2050 is affordable, secure and delivers the emissions reductions required. Today the Bank has announced plans for significant investments in the sector and there’ll be many more to come. In this blog, UK Infrastructure Bank CEO, John Flint explains why.
To start, electricity storage is a strong fit for our strategic objective to increase infrastructure investment that helps tackle climate change. This is because it can:
- store renewable generation when supply exceeds grid capacity or demand – reducing curtailment payments to energy generators which cost £215 million last year and are ultimately picked up by the consumer
- help to stabilise the frequency of the grid, preventing damage to cables and disrupted supply to homes and businesses.
Given the Government’s ambition for a decarbonised power sector by 2035, which will see the share of renewables in our generation mix increase significantly, storage is ever more important. Indeed, National Grid forecasts that up to 29 GW of storage could be needed by 2030 and up to 51 GW by 2050 – a huge increase on the roughly 5 GW currently on the system. Encouragingly, there are already 12 GW of battery storage projects in the pipeline which have been consented or are awaiting consent before 2035.
However, market capacity – in terms of depth and breadth of investors – is an emerging challenge which could mean that we fall short of the level of deployment needed. Although the pool of private investors comfortable with the standalone lithium-ion batteries is expanding, it has not reached full financial market maturity. The few commercial banks providing debt finance to the sector have capacity limits. Meanwhile, institutional investors need to gain comfort with the market and short-term contracted revenues of these projects.
Private finance available is going to be stretched as the number and size of projects is rapidly accelerating:
- 2 GW of battery storage has been deployed in the UK since 2017, but that is likely to double in 2023 then expand by around 2 GW per year to 2028
- many of the projects coming forward are now well above 100 MW, when in previous years most were around 50 MW.
The electricity storage sector is much broader than just lithium-ion batteries. A wider range of technologies need to be brought forward and financed. In particular, longer duration storage, which is better suited to balancing the system in response to volatility in supply and demand over multiple days or weeks. Investors’ need for revenue certainty is even greater on such projects. That is true for a mature technology like pumped hydro, due to the huge scale and long construction periods of such projects. It’s also the case for the first-of-a-kind deployment of more nascent technologies, like liquid and compressed air storage. A market of investors in longer duration technologies is developing but slowly, given the risks.
So, where does the Bank come in? Today, following an expressions of interest process which has helped us to develop our knowledge of the sector, we’re announcing a partnership with two equity fund managers. The Bank is proposing to commit up to £75m and £125m to Gresham House and Equitix new storage funds, respectively, subject to match finance from other sources.
Partnership with these leading managers in electricity storage and the wider clean energy sector intends to help crowd-in significant private sector capital. It allows the Bank to be additional in different ways compared to if we were only investing directly on a project-by-project basis, including supporting new business models for lithium-ion batteries. Across the two funds, our investment aims to:
- support co-location projects which bring together the more recognised business model of renewables with that of batteries, thereby helping to crowd in more risk averse institutional investors
- maximise the use of limited grid connections, one of the biggest barriers to storage deployment (with some developers waiting over 10 years for connections), by exploring opportunities across the network where there is underutilised spare capacity such as at large commercial sites
- encourage development of new business models to increase adoption of storage across different users, including installation of batteries at the household level
- deliver nascent and longer duration storage technologies as viable projects come forward.
Looking beyond the funds, which enable us to invest now while we continue to build internal capability, the Bank expects to directly invest in a range of storage projects in the coming years, including providing additionality by:
- continuing to fill financing gaps where commercial lenders are at their capacity or risk appetite limits on lithium-ion projects, as the rate of deployment accelerates and scale of projects increases
- supporting development of markets for longer duration storage, including taking greater risk than private investors – if necessary – to ensure first-of-a-kind projects reach financial close.
Through its investments, the Bank hopes to stimulate a broader pool of capital in the sector across a wider range of technologies in the coming years, helping to reduce the curtailment of renewables and, in turn, the dependency on fossil fuel generation in the electricity mix. And that’s good news for all of us, environmentally and financially.
If you have a project in the storage sector which could benefit from investment by the Bank, then please get in touch via the enquiries page.