Grid needs upgrade to support battery storage growth

Batteries account for nearly 100% of the global storage market.

Battery storage is expected to be a game changer in the energy market, but this needs to be supported by grid enhancements and supply chain improvements, according to Herbert Smith Freehills (HSF).

Citing the International Energy Agency (IEA), the law firm said total battery energy storage capacity in the power sector doubled in 2023 to reach over 85 gigawatts, with grid-connected storage responsible for most of the growth. There were also over 200 grid-scale battery storage projects that started operation in the first quarter of 2024, according to consultants Rho Motion.

With this development, batteries currently account for 98% of the world's energy storage market, HSF said.

"The industry has grown up," said Silke Goldberg, a partner in HSF’s power practice and Global Head of ESG, noting that there are individual batteries of up to 300 megawatts and some portfolios even add up to a gigawatt.

“Batteries are great because they can turn intermittent generation into something much more baseload-like. We've also seen more investment in batteries and grids across every European jurisdiction,” he added.

Currently, financing battery storage projects solely based on revenue from capacity markets and ancillary services can be challenging. Still, there are certain arrangements that can be implemented to address this problem.

“The increasingly popular co-location model (which places batteries alongside a renewable power generator) means storage projects are bolstered by the more stable revenues of a clean energy project backed by enhanced state support, such as contract for difference regimes,” HSF said.

“Moreover, cash sweep mechanisms, a derisking tool where a proportion of free cash is used to repay debt, can also help secure lenders. Also helpful is scrutiny of the creditworthiness of off takers or energy aggregators, a form of consortium arrangement where customers group together to buy power on better terms,” it added.

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