Landowners should consider whether there are any opportunities from the growth in battery storage for renewable energy generation.
As we move towards decarbonizing electricity grids and look to place an increased reliance on renewable energy, the ability to store the electricity produced is ever more critical. Those pursuing such a policy will be well-used to dealing with the concerns around how to manage volatility in energy production - renewable energy, whilst competitive with fossil-fuel, needs support to manage intermittency (no wind/sun means no electricity generation).
EY highlights a number of long-standing storage technologies (for example, pumped hydro) and emerging technologies such as stacked concrete blocks (see here) and compressed air (and here - though the first use of this was in 1978, so not so emerging!).
The main focus, however, has been on lithium batteries. There have been significant cost reductions, which is driving the increased use of battery technology. The article highlights a fall in costs of 85% between 2010 and 2018, with a further forecast drop of 50% by 2030. This has driven global growth in capacity - there is expected to be 1,095GW of battery storage capacity by 2040. Whilst Covid-19 and any related recession will affect this growth, Wood Mackenzie research suggests that 2020 is still on course to be a record year for energy storage growth. Development of this volume of storage will be challenging, requiring the right market conditions and "the various functions that each individual battery can perform to be incentivized, valued and monetized properly." Batteries can be used for regulating the frequency and voltage of power grids, to replace gas or diesel peaking plant (the plant which provides short-run capacity at times of high demand), to defer expensive transmission and distribution upgrades where the grid is constrained and bulk-energy services (beneficial for both arbitrage and the longer-term shifting of supply from high supply to high demand periods). Existing projects may be able to be diversified to accommodate one or more of these functions.
Nevertheless, whilst the value of some of the above functions is already understood, that is not the case for all of them. As EY suggests "It’s a bit like the smartphone. Manufacturers knew that people would pay to make calls on them, but they had no idea of the actual value they could generate once an entire ecosystem of apps and new business models had emerged."
In seeking to understand value, what might this mean for the many landowners who now have turbines dotting their hills or solar panels in the fields? In the first instance, it would be prudent to consider the terms of leases that have been granted to see whether the tenant can install battery storage on the site and, if so, whether there are any restrictions relating to additional use of the premises. Where rents are payable by reference to gross income, care should also be taken to ensure that additional revenue from battery storage is also captured. Developers and project operators ought to be undertaking similar reviews and both landlord and tenant may consider a technical evaluation of what might be possible at the site to be a useful exercise. As value becomes better understood and renewable energy and storage even more widely available, all parties will be keen to ensure that value is properly captured and shared accordingly.
While there are a number of long-standing storage technologies, such as pumped hydro, and some emerging technologies, such as compressed air or stacked concrete blocks, the majority of investment to date has been directed toward large-scale lithium-ion batteries, such as those found in electric vehicles, mobile phones and laptops.