By Johannes Maywald, Senior Product Lead—Origin
Investment in renewable energy sources (RES) and battery storage is booming, but decisions today hinge on an uncertain future. While governments set ambitious decarbonisation targets, real-world challenges such as grid constraints, permitting delays, and supply chain issues may slow deployment.
A common concern among investors is whether slower RES deployment will reduce the value of battery investments, which rely on market volatility. The answer is not straightforward, but after running the numbers, here is what you need to know.
How Does Slow RES Deployment Affect Batteries?
We modelled an alternative scenario where the deployment of additional RES in Great Britain slows down by 50% relative to Aurora Central to analyse the impact on battery margins, considering various effects at play:
- Reduced Volatility
As reliance on weather-based renewables grows, forecasting errors increase, raising the need for rapid-response technologies like batteries. However, slower RES deployment reduces generation volatility and uncertainty, limiting the need for batteries to manage unexpected imbalances and reducing their margins. - Avoided Grid Congestion
Renewables are often concentrated in specific regions, creating grid bottlenecks. Batteries can support system balancing by redispatching energy, depending on their location relative to grid bottlenecks. On the flipside, slower RES deployment alleviates stress on the grid, reducing the occurrence of congestion and the need for batteries to help with redispatch. - Higher Power Prices
Less renewable capacity requires more expensive generators to dispatch more often, increasing power prices on average. This can improve battery margins as they can discharge at higher prices. This effect is captured by increased margins from wholesale markets, which helps offset the downside of lower weather-based volatility in the medium- to long-term.
Impact on the Battery Bottom Line
A battery can dispatch and trade across different energy markets and services, optimising for the most attractive opportunities and allowing battery energy storage system (BESS) operators to mitigate changes in the market. This leads to complex second-order considerations that require detailed quantitative modelling to capture the different nuances on power markets and battery margins.
Using our market modelling platform, Origin, integrated with our battery valuation software, Chronos, we ran the numbers for an example asset:
- Slower deployment of renewables until 2030 could reduce battery margins by 5%.
- In the mid-term, margins could decrease by 7% driven by lower weather-based volatility and reduced locational and energy balancing needs.
- Lower RES deployment will increase power prices which partially limit the downside to 2% in the long term.
How these different effects stack up will depend on many market and asset-level factors that are considered in detail with our integrated software suite.
Renewables deployment is just one of the many key uncertainties that investors face today, and our software and team of experts can provide comprehensive answers!
Learn more about Origin and Chronos or get in touch with the team to discuss how our software can supercharge your investment strategy.
