By Jonathan Parr, Head of Energy at Triple Point Energy Efficiency Infrastructure Company
The UK energy sector is going green faster than just about anywhere in the world. Hundreds of millions invested in renewable energy infrastructure has transformed the system. But, to really unlock the potential of renewables, new technologies such as Battery Energy Storage Systems (BESS) are coming on stream, presenting an exciting growth area for investment.
For investors eager to tap into this growth and balance attractive returns with environmental concerns, renewable energy investment trusts offer a way in. In the current high-inflation environment, these investment trusts have an average yield of 5.55% and have posted a total return of 6.38% over the past year, with this rising to 46.14% over the past three years.
TEEC is an investment trust which invests in a diversified portfolio of energy efficiency assets in the UK, which shall include technologies such as BESS.
The case for green energy
A key step towards the UK meeting its net zero commitments is the decarbonisation of the energy system. Overall, the Government’s aim is to achieve net zero by 2050. But it has set an accelerated timescale for the energy sector of 2035.
The UK is a world-leader in off-shore wind. Add in onshore wind and enough power can be generated by wind alone to supply 18 million homes a year, removing more than 30 million tonnes of CO2 emissions. But, when the wind doesn’t blow, like last summer, it introduces volatility and instability to the system forcing the use of alternative fuel sources and ultimately driving up the cost of energy.
It is necessary therefore to seek to balance this volatility by storing the electricity generated from renewables during times of surplus for use at some point in the future.
Greater storage needed
Last year, the world’s largest battery storage facility was turned on in Australia. Built by Tesla, it has a capacity of 300 MW and, according to Tesla, can supply one million homes for half an hour. Yet, while Tesla grabbed global headlines for its ‘Megapack’ installation, BESS have quietly been installed around the UK too. Indeed, BESS are needed across the UK electricity grid to improve efficiency and balance the system. At the end of 2021, there was around 1.3 GW of BESS capacity installed around the country. This is expected to double by 2027 and again by 2035.
That presents a fantastic opportunity for investors looking for sustainable investments. In the current market, BESS projects typically return around in excess of 9%. TEEC has exclusivity over a near-term £108m pipeline to invest in grid-scale battery energy storage systems.
Efficiency is the net zero lever
The UK electricity system would benefit from greater efficiency and reduced curtailment. Last year, constraints in the network arising from a supply/demand imbalance meant that 3.6TWh of electricity generated by wind last year was curtailed. That’s enough to power 1 million homes for an entire year. BESS projects could have reduced this curtailment.
For the government to meet its target of decarbonising the energy system, investment in BESS will be crucial. It is the key to unlocking the true power of renewables, improving the efficiency of the UK electricity system, and reducing the volatile nature of power sourced from wind or solar.
To date, the development and deployment of batteries has not kept pace with renewable infrastructure, but, BESS now presents a large opportunity for investment in the transition to clean energy.
Concentrated action and favourable policy will unlock an enormous pipeline for BESS projects, increase the investment case for these assets and make them increasingly attractive for investors looking for stable, long-term returns in our clean energy future.