In the last AleaSoft Energy Forecasting webinar, with the participation of Deloitte, the discussion highlighted how the reductions in battery costs and their hybridisation with renewable energies will be fundamental to increase the profitability of renewable energy projects. Analyses indicate that batteries, especially in hybrid systems, are starting to become profitable, opening the door to a five?year period marked by their prominence in the energy sector.
The 48th edition of AleaSoft Energy Forecasting’s monthly webinars was held on October 17, with the participation of speakers from Deloitte, for the fifth time in this webinar series. The analysed topics were the financing of renewable energy projects, the prospects for batteries and hybridisation, the financial and accounting implications of PPA, as well as the analysis of the evolution and prospects for European energy markets.
The role of batteries in the energy sector
One of the topics that generated the most interest in the webinar was energy storage with batteries, given its importance in reducing renewable energy curtailments and mitigating market price cannibalisation, aspects that have raised great concern in the renewable sector in recent months. Hybridisation of renewable energy with batteries, which allows excess energy to be stored at times of high production and low prices for its use during periods of higher electricity demand and higher prices, will contribute to system stability, reduce curtailments and maximise the profitability of renewable energy projects. This is essential to further boost the development of renewable energy.
Current status and prospects for batteries
Although battery manufacturing capacity is growing globally, driven by the demand for electric vehicles, their use in the energy sector is still at an early stage of competitiveness. In Spain, the National Energy and Climate Plan (NECP) sets a target of 22.5 GW of storage capacity by 2030, of which approximately 9 GW will correspond to batteries. Currently, there are around 20 GW in grid access applications for storage, of which 11.8 GW have already received authorisation, although they are not yet installed. In addition, 41 battery projects have recently been granted aid in Spain, of which 35 are grid?connected stand?alone installations. This indicates that the sector is ready to develop batteries, although it waits for higher profitability, especially in the case of stand?alone projects.
The introduction of regulatory support, such as capacity payments that already exist in the United Kingdom and are expected in Spain in early 2025, could favour an increase in the profitability of these projects. However, AleaSoft Energy Forecasting believes that most of the revenue from batteries will come from price arbitrage in the wholesale market. The first battery projects to come into operation will also generate profits through their participation in the ancillary services, although these revenues will be limited as competition grows, given that these markets are smaller in volume.
Batteries start to become profitable
During the webinar, an IRR analysis of batteries using different price spread scenarios was presented, showing how batteries start to become profitable as their costs decrease. According to Deloitte’s analysis, a hybrid system of solar photovoltaic energy and batteries with a CAPEX of €150 000/MWh would start to generate positive returns with intraday price spreads between €40/MWh and €45/MWh. In the case of stand?alone projects, the CAPEX of the 35 projects that recently received aid in Spain was considered to be around €250 000/MWh before subsidies, with an average aid of €50 000/MWh, giving a CAPEX including subsidies of around €200 000/MWh. For a project with this level of CAPEX to start generating positive returns, intraday price spreads of around €70/MWh to €80/MWh are necessary.
This study shows that a reasonably priced battery is now becoming an attractive investment, first in hybrid systems and, later, in stand?alone installations. This marks a turning point in the development of renewable energies, driven by hybridisation with batteries, so it is expected that after the five?year period of renewable energies, the next one will be the five?year period of batteries.
AleaSoft Energy Forecasting’s analysis on the prospects for energy markets in Europe, batteries and hybridisation
The AleaStorage division of AleaSoft Energy Forecasting provides services for calculating the revenues from batteries and energy storage systems, as well as their sizing, optimisation and management. Forecasts and reports are provided for both stand?alone projects and hybrid systems that combine one or more technologies, such as wind energy, solar photovoltaic energy, hydroelectric energy and cogeneration, with batteries. These services aim to efficiently size the energy storage and optimise its operation to maximise the IRR.
