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Daniele Spinella
Senior Manager at PwC Germany
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Battery storage is becoming a key technology for the energy transition
The European energy landscape is undergoing a profound change: the driver of this development is the ever-faster integration of renewable energy sources in order to reduce carbon emissions and achieve climate targets. Electricity storage systems play a central role in this process. Battery energy storage systems (BESS) offer sustainable and cost-effective solutions to compensate for the disadvantages of renewable energies. These systems stabilize the power grid by storing energy when demand is low and releasing it during peak times.
Developing a successful business model for battery energy storage systems requires a deep understanding of how the end-to-end process works. This knowledge enables stakeholders to make informed decisions and make the most of the opportunities presented by the rapidly developing BESS market in Europe.
In the white paper “Empowering Europe’s Energy Future: Navigating the Lifecycle of Battery Energy Storage System Deals”, experts of PwC and Strategy&, the strategy consultancy of PwC, shed light on the entire life cycle of a BESS deal in Europe – from market analysis and site selection to revenue generation and long-term optimization.
“Technological advances and falling costs for battery storage have further increased the attractiveness of BESS for both investors and energy suppliers. This makes them a key technology for the future of energy supply.”
The study at a glance
Against the backdrop of ambitious climate targets, the importance of wind turbines, solar plants &. Thanks to PV systems and wind farms, the share of renewable energies in EU countries is already around 23 percent. By 2030, this share is expected to be 42.5 percent. The higher the proportion of renewable energies in the energy mix, the more important it is to take precautions to ensure grid stability. In the modern energy landscape, battery systems in which electricity generated from renewable energies is stored play an important role in balancing out fluctuations in wind and solar energy.
But what is important for a BESS project? How is the location chosen? What is important when it comes to financing? What is the regulatory framework in Europe? How can reliable income be generated with BESS projects?
The PwC analysis “Empowering Europe’s Energy Future: Navigating the Lifecycle of Battery Energy Storage System Deals” addresses these questions. It provides a detailed overview of the various phases and challenges of a BESS project in Europe. The PwC experts analyze the complete life cycle of BESS projects and also take a close look at current technological advances and market trends. The study thus provides valuable insights and practical recommendations to help investors, developers and operators take advantage of the opportunities in this fast-growing market and realize successful projects.
The choice of location determines the success of a project
Every BESS project starts with a thorough market analysis. Particular attention should be paid to the selection of a suitable location, as this is crucial to the success of a project. Factors such as proximity to existing power grids, availability of space and local demand for energy storage play an important role.
Understanding the regulatory framework
The regulatory framework can vary greatly from country to country. This makes it all the more important to understand the specific regulatory requirements and market participation models in each country. This is the only way for investors, operators and developers to generate sustainable revenues from various sources such as the wholesale market and capacity markets. Technological advances and falling costs for lithium-ion batteries increase the attractiveness of BESS and open up additional revenue streams through multi-market optimization and long-term system services.
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How to increase the profitability of BESS projects
To generate revenue from battery energy storage systems in Europe, companies need to be strategic and take advantage of different markets and services. Capacity markets, for example, offer a stable source of income: payment is made for the provision of reserve capacity. Those who participate in these markets with BESS projects ensure the availability of the storage facilities and guarantee repayment to investors.
Operators can generate additional income if they provide system services. These include, for example, frequency control, voltage stabilization and black start capability. These services are crucial for the stability of the electricity grid and are remunerated accordingly by grid operators. However, participation in these markets requires precise knowledge of the regulatory requirements and market conditions in the respective countries.
Innovative hedging strategies generate additional income
Innovative hedging strategies - such as the conclusion of long-term tolls and floors or the use of financial derivatives - can also help to generate additional income. These strategies help to minimize price risks and secure stable income over the life of the project. By combining these different revenue streams, the profitability of BESS projects can be maximized and long-term financial stability achieved.
Overall, the strategic use of markets and services offers multiple opportunities to generate revenue and thus contributes significantly to the financial sustainability and success of BESS projects in Europe.
Further results at a glance
- Technological innovation
- Revenue stacking to increase profitability
- Financing mechanisms and risk management
Technological innovation
The industrial production of lithium-ion batteries, especially for electric vehicles, has significantly reduced costs. These batteries dominate the market because they are cost-efficient, safe and have a long service life. This makes BESS a competitive option for integrating renewable energy into the power grid.
Revenue stacking to increase profitability
Merchant optimization is a key strategy to maximize the revenue potential of BESS. This strategy uses the flexibility of BESS to operate in different market segments to diversify revenue streams and increase overall profitability. This includes dynamically adjusting the battery’s charge and discharge cycles to take advantage of price differentials and market opportunities in real time.
Financing mechanisms and risk management
BESS projects can be financed through a mix of equity and debt. Project financing, where the cash flows of the project are used to repay the debt, fits well with the revenue structure of BESS. However, it is important to assess both short and long-term market and regulatory risks that could have an impact on revenue generation. Comprehensive risk management is crucial to ensure the financial sustainability and thus the success of BESS projects.
“Thanks to economic and technological advances, the synergistic integration of battery storage systems is becoming a central part of the European energy landscape.”
Daniele Spinella,Senior Manager at PwC GermanyGeneral information
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