Key takeaways
- Worldwide megatrends, including the ongoing global energy transition, the rise of AI & digital assets, and the need for stable and affordable power prices, provide positive growth signals for the battery storage sector.
- Battery energy storage systems can be structured in a variety of ways to meet investors’ risk-return expectations, including through taking a proactive approach selling into the energy market in an aim to earn higher investment returns.
- Careful consideration and the implementation of safeguards are critical to manage risks and build a more stable path to long-term infrastructure-style returns.
Download our paper for more insights on the Battery Energy Storage System opportunity.
An acute need for energy storage, able to balance supply and demand, is needed to maintain grid reliability as energy markets restructure under the energy transition. Battery storage systems provide one of these crucial bridges.
The explosive growth of renewable energy globally has driven an acute need for energy storage that can balance energy supply and demand and assist in maintaining grid reliability. While the renewable energy sector has made enormous strides in the last decade, becoming the quickest-to-deploy form of energy with the lowest levelised cost of energy (LCOE) across all commercially available technologies, battery energy storage systems (BESS) provide a crucial bridge for variability in their generation profiles and stand in as dispatchable capacity during a contingency event. BESS can be built as standalone assets or co-located with generation sources such as solar or wind, with co-location potentially influencing operational performance and investment return metrics for the generation component. Though the exact nature of BESS revenue streams will vary based on market, at a high level, options for standalone BESS include the following:
- Shifting energy from periods of excess supply (charging during this period) to periods of short supply (discharging), helping to balance the market while generating profits from the energy price spread for asset owners;
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Providing ancillary services to the electrical grid, including frequency reserve services that are procured by Transmission System Operators (TSOs) and deployed in the event of grid destabilisation;
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Participating in the capacity market, where the BESS is remunerated by the TSO for committing capacity on a forward basis to ensure sufficient capacity availability.
These options, depending on specific market rules, are not necessarily mutually exclusive, which allows asset owners to optimise their revenue strategies by participating across options to achieve their desired risk-return. IFM’s experience in this sector has shown that taking a comprehensively considered approach to structuring battery investments, including what risks to take and how to implement appropriate safeguards, can support the pursuit of risk-adjusted returns from BESS.
IFM Investors’ experience in BESS
Nala Renewables
Swift Current Energy
For more, read Batteries in the energy transition.
Meet the authors
Neil Doherty
Neil joined IFM in 2008 and is on the Executive Team for our low carbon infrastructure assets. Neil is on the Board of Directors of Nala Renewables and Swift Current Energy driving key energy transition initiatives, whilst continuing to be responsible for the origination and execution of new transactions.
Viktor Ly
Victor is responsible for the origination, analysis, execution and ongoing management of infrastructure investments. He has been involved with the development and growth of Nala Renewables and Swift Current Energy since the inception of both platforms within our global infrastructure portfolios.
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