15 August 2022
5 min
Senior Responsible Investment Consultant
Responsible Investment Analyst
Our Focus on Change series explores some of the issues relating to the climate transition and the pursuit of net zero. With the growing focus on renewable energy, over the next few articles, we consider issues of energy storage, addressing the question of what happens when the wind doesn’t blow.
As we shift to electric vehicles (EVs) and renewable generation, efficient energy storage is key to meeting decarbonisation objectives and enhancing energy security. Lower cost batteries, faster charging rates, discharge over longer periods, improved safety and longer lifetimes are among the issues that still need to be addressed, but we can be certain that battery technology will continue to improve.
Experience shows us that, as new technologies are developed, we typically expect there to be around 15 years between early and mass adoption, although there’s evidence that period may be getting shorter. Whilst negative tipping points are often spoken about with regard to climate change, could we be on the cusp of a positive tipping point1 where the widespread deployment of battery storage technologies triggers a further wave of investment opportunity in the race for net zero?
Lithium (Li)-ion batteries are already ubiquitous, representing more than 90%2 of battery use globally. They are lightweight, rechargeable, efficiently store energy for long periods, are used in most personal devices (laptops, phones etc.) and are the battery of choice for EVs. Li-ion batteries are also a means of storing renewable energy for subsequent release to national grids.
Grids store energy for around four hours on average. By comparison, Li-ion batteries offer around eight3 hours of storage, making them a potentially complementary solution for better energy storage. Large-scale deployment is already progressing. For example, a partnership between Tesla and the Pacific Gas and Electric Company bore fruit in April 2022, when their new 182.5-MW energy storage system became operational4. Reliant on Li-ion batteries, the facility stores wind and solar energy that is released to the grid in times of high demand.
However, there remain teething problems with this scalability. California leads other US states with plans to install 2.4GW of energy storage by end-20235. It plays host to Moss Landing, the world’s biggest Li-ion battery storage project, which was intended to store enough solar and wind energy to power hundreds of thousands of homes. But, in September 2021, less than a year after it became operational, the project was taken offline after an overheating incident. Vistra Energy, the site’s operator, has kept it offline ever since due to safety concerns. Whilst clearly a setback, such incidents also allow the reliability of the technology to be improved.
Whether small or large scale, battery technology is fundamental to the energy transition. Scaling development and deployment offers to bring the cost point down should create a positive tipping point for economies in their energy transition. And there is both space and incentive for innovative companies to break through. For example, the UK government's £1bn Net Zero Innovation Portfolio included a competition aiming to “accelerate commercialisation of innovative longer duration energy storage projects6, trying to kick-start research that will attract private investors. Around the globe, there are exciting companies leading the way.
Developing markets may be a particular area of focus as countries seek to balance growth and net zero ambitions. One success story is Gogoro which has captured almost the entire two-wheel EV market in Taiwan with their replaceable battery and it is now expanding across Asia where such vehicles dominate in populated, polluted and congested megacities. By inventing their own ‘smart’ battery technology and investing in the infrastructure necessary to make it work for consumers, they have built the world’s leading battery swapping network and made it hard for others to gain market share7.
Whilst the market is large, global decarbonisation goals coupled with the increasing demand for energy means opportunities for investors will continue to emerge. Renewable energy infrastructure investors are already seeing battery storage projects being included in portfolios, although investments need to be structured in a way that delivers longer term income for to institutional investors. But opportunities are likely to continue to emerge in technologies that support the scaling and deployment of battery technology such as smart grids and charging points, and the onward application of the technology such as transportation.
Investment in battery storage is likely to be a part of any portfolio for most, rather than be considered as a stand-alone investment. The examples outlined above illustrate where asset owners and their managers can look for opportunities to invest for more sustainable outcomes and consider the potential risks of doing so.
If batteries represent at least part of our future, we should also consider how we meet the growing supply.
In our next article in this series of ‘Focus on change’ , we will consider the sustainability of lithium supply chains.
If you would like to explore how climate opportunities may be factored into your investment arrangements, please contact us, or your usual Hymans Robertson consultant.
2euronews.com/green/2022/02/09/we-re-facing-a-lithium-battery-crisis-what-are-the-alternatives
5https://e360.yale.edu/features/in-boost-for-renewables-grid-scale-battery-storage-is-on-the-rise
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