EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.
Recent Searches
The world is in a period of intense energy transformation, in which renewable energy sources (RES), such as solar and wind, play an increasingly important role. However, their volatility creates challenges for power systems that must balance energy production and consumption in real time. In this context, batteries for the storage of electricity from renewable sources are emerging as a key solution to ensure stability and flexibility in electricity networks. With the growing importance of batteries and the upcoming RESTORE funding program, investors and financiers of energy storage projects must carefully prepare to build successful projects.
Balancing the intermittent production from RES
Renewable energy sources, such as solar and wind power, are the main drivers of the global clean energy transition. However, their performance is highly dependent on natural conditions, leading to inconsistency in electricity production. According to research, the share of RES in global energy production continues to grow, and by 2030 this share is expected to increase two and a half times.
In this context, batteries are a vital component to stabilize the grid and optimize the use of the generated energy. Moreover, batteries as an energy storage system are perhaps the most promising of the existing energy storage technologies due to their outstanding characteristics such as energy density, efficiency, modularity and response time. Storage batteries can be built relatively quickly with less capital and could solve many of the challenges of a highly variable energy system. According to an EY study, additional newly added battery capacities are expected to increase by between 20% and 24% each year.
The RESTORE program and funding opportunities
Bulgaria is in the process of realizing a significant investment in energy storage facilities through the RESTORE program, which is part of the Recovery and Sustainability Plan. With a budget of over BGN 1.2 billion, this initiative aims to support the development and deployment of batteries with a total capacity of at least 3,000 MWh. This will not only improve the stability of the electricity grid, but will also enable Bulgarian business to participate in one of the fastest growing segments of the energy market.
Economics of battery projects
The economic viability of battery projects is a complex issue that requires participation in various electricity markets. Batteries can provide grid services, such as frequency and voltage stabilization, as well as participate in energy arbitrage - buying energy at times of low prices and selling energy when demand and corresponding prices are high. The successful implementation of such projects requires careful planning and forecasting of returns, which is a challenge given the dynamics of the market.
The examples from different countries show that revenue from battery projects can come from different sources. For example, in markets such as the UK and the US, the main source of revenue for batteries in recent years has been from frequency regulation services, but as the number of batteries on the market has increased, this revenue has declined significantly. Going forward, the majority of revenue is expected to come from energy arbitrage and participation in capacity markets.
Key success factors for battery projects
The complexity of markets and the dynamics of technologies make the implementation of battery projects a challenge that requires expertise and good planning. According to EY research Four factors to guide investment in battery storage (https://www.ey.com/en_uk/recai/four-factors-to-guide-investment-in-battery-storage), four key characteristics of markets will determine the success of such projects:
- Potential for compounding revenues: Sites that allow batteries to participate in multiple markets, such as grid stabilization services, energy arbitrage and capacity markets, offer the best opportunities for returns.
- Energy price volatility: Markets with high energy price volatility offer better arbitrage opportunities, which can increase battery revenues.
- Smart grid infrastructure: Markets with modernized, digitized grids enable better integration and competitiveness of batteries against other technologies.
- Location of projects: Optimal location of projects can increase profit margins by positioning in areas with higher concentration of RES and grid congestion.
Battery projects offer significant opportunities to stabilize power grids and optimize the use of renewable energy sources. However, the complexity of the market and the challenges of predicting returns require in-depth knowledge and expertise. Financial institutions that will support such projects must also develop expertise in their evaluation. Management by experienced professionals is key given the constant changes in the regulatory environment and market volatility. With the growing importance of batteries and with upcoming RESTORE funding, businesses have the opportunity to capitalize on this dynamic sector. Therefore, well-thought-out strategies and solutions will play a key role in the successful implementation of energy storage projects.
Summary
How can EY help?
The EY team will help you define the right long-term strategy for entering the RES market, as well as the transition of your organization to renewable energy sources.
Our specialists will assist you in properly planning and predicting the return of RES projects.
EY teams can help minimize risk in defining your renewable energy business strategy with our new Power Price Forecasting (PPF) service.