Smart investors know it pays to look beneath the surface. On the face of it, the global renewables sector is on a high, buoyed by a record US$1.8t investment in clean energy in which saw the biggest ever absolute increase in new capacity — 507GW, two-thirds of it solar.2
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But dig a little deeper, and the picture isn’t quite so rosy. Last year’s surge puts investment on track to increase global renewables capacity by two and a half times by , which, while encouraging, still falls short of the COP28 target to triple renewables capacity by that date.3 And challenges loom on the horizon that may slow progress just as acceleration is needed.
Years of underinvestment in infrastructure means network gridlock has now reached acute proportions in many markets, depriving developers of a timely route to market and eroding the value of investments. Grid upgrades and expansion are urgently needed. In Europe alone, annual investment in distribution grids must double to €67b (about US$73b) by , according to the EY-Eurelectric Grids for Speed study.4 Projects locked in grid queues are tying up money that would otherwise be cycling through the system, exacerbating an already tight capital market where investors face much higher costs. Rates of grid curtailment are increasing, from 2% in to 8% in in the US, UK, Germany and Ireland, as the share of renewables in the system doubled.5
Battery energy storage systems (BESS) can be part of the solution to network challenges and, as we explore in this edition of RECAI, offer lucrative revenue opportunities for sophisticated investors — if they target the right regions and consider four factors.
Read in RECAI 63:
Investor interest is also on the rise. But this isn’t an easy market to master. BESS investments are a long-term commitment; projects typically run for 20 years or more with battery upgrades. They are also highly localized and carry more risk than some other clean energy investments. Success requires understanding the dynamic interaction of regional variations, electricity market design, technology and financing — as well as an acceptance of volatility.
To help cut through the complexity, EY teams have identified and ranked the attractiveness of the world’s top global battery investment markets for the first time. (This assesses factors including installed capacity and pipeline, as well as government support, such as tenders, subsidies, policy and deployment targets.)
In many markets, ancillary markets, particularly frequency response services, have typically made up much of BESS revenue. But market saturation is seeing prices drop and the stack shifting toward energy arbitrage and capacity markets. For example, in the UK, ancillary services made up 84% of BESS revenues in but, so far in , are only contributing 20%.16 Across Europe, it is a similar picture.
In the future, optimization and the right bidding strategy will be critical to ensure maximum returns on storage assets. Value opportunities will become more localized as renewables proliferate and volatility increases. Negative or zero-price events, already on the rise, will become more frequent, strengthening the role of storage.
Continuing to capture value in a fast-changing market requires agility. This demands both a flexible mindset and the artificial intelligence (AI) and digital tools that enable fast, insight-driven shifts.
“Understanding and leveraging AI and digital tools for optimized storage trading strategies can help companies de-risk investments, navigate regulatory changes quickly, and better monetize opportunities presented by new market structures and market volatility,” explains EY Global Energy & Resources AI Lead Ana Domingues.
Mastering data and monitoring technology evolution can guide smart decisions as technology evolves. For example, the move toward longer duration batteries and emerging competitiveness of alternative storage systems, such as hydrogen and vehicle-to-grid technology, could erode the future business case.
BESS projects are capital-intensive, requiring financing and active management throughout their life. This means investors should ensure finance and offtake strategies with buyers are linked. For example, they should consider whether the goal is long-term contracted revenues or if they are willing to take merchant risk for a potentially higher return. Investors also need to accept a level of volatility and a longer-term view over various cycles.
The complexity of BESS projects means success will depend on investors having differentiated capabilities across the value chain, as well as strong management teams with local market capabilities. Relationships with landowners can smooth the development process, as can understanding local planning regimes and regulation, as well as offtake markets.
The ability to reduce capex is vital to scaling up BESS investment. Costs of grid-scale BESS are expected to fall by around 20% to 30% across key markets by , but reductions may be offset by volatile commodity prices and supply chain bottlenecks. For example, slow lead times in building transformers can delay the connection of new BESS projects to the grid.
China Mainland’s dominance of the battery supply chain amid growing resource nationalism and protectionism in many markets could impact the viability of future projects. Battery recycling could help mitigate some risks, and more companies including Iberdrola, Glencore, and FCC Ámbito, are collaborating on lithium-ion battery circularity solutions.
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Ambitious decarbonization targets are driving a clean energy push in many markets, marked by record-breaking participation in offshore wind and solar tenders, as well as innovative projects in carbon capture and hydrogen.
While the top of our rankings remains relatively unchanged, Canada (9) and Japan (10) enter the top 10, with investors attracted by more opportunities in offshore wind. Spain (12) has dropped four places as investors feel the impact of continued low prices, while Italy (13) and Greece (16) have climbed up the ranks.
In a year when about half the world will be voting in elections, Argentina’s rise of three places (to 26) under a government determined to build a more sustainable, clean energy system is a reminder of how quickly government policy can impact investment.
A secondary lithium battery performs similarly to other primary batteries and their various chemistries in that it powers other devices (this is called discharging), but then can be charged so you can use it again. If you are looking for a full breakdown of the differences between SLA (sealed lead acid) and Lithium batteries, you can read about it here. This blog will delve deeper into lithium cells, their configurations, what they mean in practical applications, and how the construction of a lithium battery better aligns it to perform for specific applications.
When you take off the top of a lithium battery pack, you’ll first notice the individual cells and a circuit board of some kind. There are three types of cells that are used in lithium batteries: cylindrical, prismatic, and pouch cells. For the purpose of this blog, all cells are lithium iron phosphate (LiFePO4) and 3.2 volts (V).
A cylindrical cell looks most like what you think of with a traditional household battery – like a AA battery – and that is exactly where this form factor drew it’s inspiration for shape when they first came to market in the mid-s. Cylindrical lithium cells come in different widths and lengths, varying amp-hours and as energy or power cells. These types of cells can be used for large and small battery packs of varying capacities and voltages. However, cylindrical cells are most ideal for applications like smaller Ah batteries, power tools, drones, children’s toys, and medical equipment where space is limited and weight is a factor in overall performance.
If you think about the size of the compartments where batteries go, you’ll find most of them to be square in shape. This is where the prismatic form factor comes from. A prismatic cell is what you will find inside your laptop – it offers a larger capacity in a small foot print, and is rectangular in shape. Also available in power and energy cells, these types of cells can be used in batteries designed to meet sealed lead acid battery dimensions. While dimensionally larger than a cylindrical cell, prismatic cells pack more amp-hours per cell by having more lithium by volume, allowing for larger battery pack configurations and single-cell options. For this reason they are commonly used to build larger battery packs and are a top-choice for batteries used in energy storage devices.
The non-power sport lithium products Power Sonic provide feature either a prismatic or cylindrical cell. However, our Hyper Sport Pro line of power sport batteries feature a pouch cell. A pouch cell is just what is sounds like, an aluminum foil pouch which houses a lithium iron phosphate polymer chemistry, with two terminal tabs coming out of one end. This cell form factor allows for the most lithium by volume and is designed to be directly placed into it’s application without a cell case. With the use of lithium polymer (powder), pouch cells can pack more power density in than other types of cells due to their construction and size.
In addition to the lithium cell form factor, you will also need to decide if you need a lithium power cell or a lithium energy cell. A power cell is, you guessed it, designed to deliver high power. Likewise, an energy cell is designed to deliver high energy. But what exactly does that mean and how are lithium power cells and energy cells different?
First, we should note that all types of cells cycle – it just varies to how deeply and how quickly (See battery C ratings). Power cells are design to deliver high current loads over a short period of time at intermittent intervals, making them ideal for use in high rate and starter applications or power tools which generate high loads/torques. Energy cells are designed to deliver sustained, continuous current over a long period of time, making them ideal for use in motive cyclic applications like scooters, e-bikes, etc.. All lithium cells are good for cyclic applications – even power cells – but as noted above, the length of the cycle varies. For example, in a power tool the user expects the tool to run for a total of an hour or so before charging, but a scooter user would not be happy if their scooter died after one hour of use.
When building a lithium battery, once you have selected the type of cell you’ll be using, you will need to decide the amp-hours and voltage needed for your application. When building a pack, you’ll also need to decide the amperage required for your application.
For example, if you are using a 25 amp-hour (AH) 3.2 V prismatic cell to build a 125 AH 12.8 V battery, you will need a battery pack built in a 4S5P configuration. This means the cells need to be arranged in 4 master packs of 5 cells in parallel (5P), and the 4 master packs are placed in series (4S) for a total of 20 cells. The parallel connection is to increase the amp-hour capacity, and the series connection is to increase the voltage. Learn how to connect batteries in series or parallel.
The reason for different form factors of lithium cells is two-fold. One reason is because you need different sizes, shapes, and flexibility levels depending on the battery you are building. The other reason is that you may need flexibility in the capacity and voltage of your battery, and may find that building a 24 amp hour battery with many cylindrical cells better fits your need than building a battery with a fewer prismatic cells (and vice-versa).
Additionally, as noted above, the type of application needs to be considered. For example, while you could use lithium energy cells to build a starter battery, it would be wiser to use power cells as they will provide more power in this application than an energy cell would. Just like with a lead acid battery, a lithium battery won’t last as long if you don’t use if for the intended application – cyclic, starter, or high rate.
In the PSL-FP line of lithium cells, you will see that we offer both power and energy cells. This is to allow customization of your battery pack to fit your higher capacity, high rate, or deep cycle application needs. We also offer prismatic and cylindrical cells, to allow for further customization of your pack.
As you can see, there are many things to take into consideration when building a lithium battery. From the application it is intended for, to physical size restrictions, down to the voltage and amp hour requirements, understanding the lithium configuration options before you build a battery pack will help you build a better battery. If you have any questions on this topic, please feel free to contact us.
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