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EY examines ‘complex’ battery storage market in Renewable Energy Country Attractiveness Index

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New rankings by Ernst & Young (EY) of the most attractive markets for renewable energy investment by country include battery storage, with the US, China and UK as frontrunners.

The global professional services firm’s Renewable Energy Country Attractiveness Index (RECAI), published every six months, ranks the top 40 countries and provides analyses of clean energy industry trends.

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Among the key takeaways of the latest, 63rd edition, published this week is that US$1.8 trillion was invested in clean energy worldwide in 2023, including a 507GW increase in installed capacity.

This was the biggest ever growth recorded in one year, and about two-thirds of that new capacity was solar PV.

However, the firm said this still falls well short of the investment required to triple renewable energy capacity by 2030 in line with COP28 targets, while underinvestment in infrastructure such as transmission networks means many grids around the world are not equipped to cope with integrating quickly rising shares of variable renewable energy (VRE).

Noting also that curtailment of renewables—preventing generation resources from injecting power into the grid due to congestion or overproduction—is on the rise, EY analysts identified the crucial role that battery energy storage system (BESS) technology can play in alleviating the strain on networks and enabling increased adoption of renewables.

The top three markets for renewable energy investment attractiveness were the same as for BESS investment attractiveness, except that Germany was in third place behind the US and China in renewables, instead of the UK.

‘Complex, localised markets’

Although BESS assets will play a key role in enabling the twin growth of renewables and electrification, through smoothing power supply, helping manage peak demand and deferring the cost of expanding and upgrading the grid, the BESS market is “complex, highly regionalized and fast-changing,” EY leader for global renewables Arnaud de Giovanni said.

There are four main factors that investors should consider, according to EY, which are: building a resilient business case for BESS, maintaining technology competitiveness, establishing the optimal business model or financing structure, and mitigation of supply chain risks.

The full report makes comparisons of various energy storage technologies by power requirements and discharge duration, finding electrochemical BESS—including lead acid, lithium-ion, sodium sulfur and flow batteries—to be the most promising of existing technologies.

This was due to its higher energy density, efficiency, modularity and fast response times, versus mechanical storage technologies like flywheels, pumped hydro energy storage (PHES) and compressed air, as well as chemical storage in the form of power-to-gas (P2G) hydrogen.

EY also examined the different range of services BESS can provide, from power smoothing and peak energy shifting to applications for the grid such as frequency response, voltage regulation and black start, as well as transmission and distribution (T&D) congestion relief and energy arbitrage (or trading).

The full report can be found here.

EY’s Top 10 rankings:

1. US

Drivers include the 30% investment tax credit (ITC) extended to standalone BESS through the Inflation Reduction Act (IRA). Research firm Wood Mackenzie said this week that the country’s annual BESS installations are expected to exceed the 10GW for the first time ever this year.

2. China (mainland)

Government subsidies and a 100GW by 2030 deployment target support the Chinese market.

3. UK

“Sophisticated energy market design” enables BESS asset owners and investors to earn revenues from market-based opportunities.

4. Australia

Diverse revenue streams available through daily spot markets for grid services and federal and state government commitments to support BESS, including through Capacity Investment Scheme tenders.  

5. Germany

Grid fee exemptions and construction subsidies help create favourable market conditions, while there are day-ahead and intraday markets open to battery storage.

6. Italy

Italy’s grid operator, Terna, will tender for 12GW-15GW and 71GWh of energy storage by 2030, with fixed-price, long-term contracts available, while the government is expected to tender also for utility-scale BESS and soon issue a regulated BESS investment framework.

7. South Korea

South Korea’s government has a stated ambition to become a leading BESS market, while battery storage is set to become mandatory for public buildings and government tax breaks for BESS investment will be introduced.  

8. India

India’s government is supporting the deployment of an initial 4GWh of BESS through Viability Gap Funding (VGP) and has agreed to secure 5GW of BESS commitments by the end of this year through its membership in the Global Alliance for People and Planet.

9. France

Tax credits for BESS investment are driving an acceleration of BESS deployment, while the French energy regulator is soon to reopen an auction for demand response power that was previously postponed.

10. Japan

BESS assets in Japan can stack multiple revenue streams from opportunities including rolling weekly and day-ahead energy markets, while a first low-carbon capacity market auction was held recently, with winners receiving subsidies equivalent to fixed project costs over a 20-year term.  

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