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White paper
Renewable energy may be clean and cheap, but also intermittent. Now, as energy storage has become an economical and sustainable energy source, the reliance on coal, gas or nuclear could be significantly decreased.
We are in the early innings of the energy storage investment cycle, but the industry will not stay in this phase for long. Energy storage already exhibits attractive economic returns and infrastructure-like characteristics. We believe that energy storage will follow the path of the wind and solar industry, and rapidly become mainstream infrastructure investments as the sector continues to mature.
1. Cost
Energy storage costs have fallen almost 80% in the past decade, according to the National Renewable Energy Laboratory (NREL), helped by significant technological improvements, massive R&D spending, and growing economies-of-scale that came with the popularization of electric vehicles.
2. Regulatory support
The government has provided significant regulatory support. In the US for example, regulations storage projects have loosed up and this has opened up significant revenue opportunities. In addition, states such as California, Massachusetts and New York have also set more aggressive energy storage targets.
3. Extreme weather
Recent extreme weather events have highlighted the fragility of the electricity network and the volatility of the power markets. Grid resiliency has now become a hot topic.
Energy storage is an economic way of enhancing the reliability of our grid without costly investments in new transmission lines. For example, during extreme weather events, a local grid can draw power from a nearby energy storage project.
Although energy storage is a relatively new asset class, it is already displaying attractive investment characteristics for different types of investors. It provides an essential service, has high barriers-to-entry and upfront costs, high margins and long asset life.
This is important because once markets and investors become more comfortable with this asset class, valuations will rise as the assets are deemed more de-risked. This is what we have seen across wind and solar projects in the last 10-20 years. Energy storage will likely mature even faster, given the precedence set over other renewables.
The business case for energy storage is clear. Economics, regulation and climate are all pointing towards an acceleration in adoption.
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Meet the members of the team responsible for ÃÛ¶¹ÊÓƵ Asset Management’s strategic direction.
