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Energy Storage: A New Asset Class Buyers of Power Should Consider Investing In 

by: Seyed Madaeni

In recent years, technology improvements have given rise to a pivotal new asset class in the clean energy landscape: energy storage. 

When most people think of large-scale clean energy, they conjure images of big wind and solar power farms connected to the grid. That is changing as storage technologies evolve and scale. We are witnessing the emergence of energy storage as a novel and versatile asset class. 

Although there are different forms of energy storage (thermal, long-duration, etc.), many projects consist of large-scale lithium-ion batteries linked to the grid that can absorb excess renewable energy and direct it back into the grid when energy demand would otherwise be met by generators powered by fossil fuels, reducing carbon emissions. According to research published in 2019, some storage technologies “allow 90% CO2 reductions from the same renewable penetrations with as little as 9% renewable curtailment.” 

Like any traditional power plant, these energy storage systems are owned by private investors who generate revenue from selling and trading the electricity that’s stored in their assets in wholesale markets. If we ignore the myriad benefits storage brings to power grids and just look at it as a binary transaction between sellers and buyers of electricity, it’s fair to say that the storage developers (sellers) have been the main beneficiaries of these transactions—which is due to information asymmetry, among other reasons, such as developers typically having more information about assets and power grids than the buyers.  However, buyers of power also stand to benefit financially from this flexible, smart asset class while simultaneously reducing their carbon footprints—and more should consider investing in it.

An Opportunity to Decrease Carbon Emissions

Buyers of power are already making headway in energy storage investments. According to Reuters, the 2023 “Reuters Events Energy Transition Insights” report found that “energy storage is set to overtake solar as the leading technology for energy transition investments in the next three years.” Specifically, 43% of those who responded indicated that their organizations “planned to invest in the technology within the next three years.” 

At a time when the call to action for reducing carbon emissions has never been louder, energy storage presents a uniquely flexible solution. It stands out for its ability to absorb and dispatch energy on demand, offering clean energy buyers a powerful tool to reduce their carbon footprint. By charging these storage systems with renewable energy and deploying the energy when the grid has high carbon intensity, these smart assets can create substantial carbon benefits – allowing organizations to take tangible steps toward their decarbonization goals.

A storage asset that’s charged entirely with renewable power can significantly alleviate carbon emissions when operated strategically. Corporations with a vision to minimize their environmental impact can finance these assets, leveraging them to actively contribute to a cleaner grid. When buyers invest in renewable projects such as energy storage through power purchase agreements (which my company helps facilitate), they can dictate how the assets should be operated, requesting that the operations align with their corporate carbon reduction strategy.

The opportunity to engage in energy arbitrage, using storage to mitigate economic and energy costs while contributing to carbon reduction, presents an attractive financial and emissions-reduction proposition that buyers are beginning to embrace wholeheartedly. By timing the discharge of stored energy to coincide with peak grid emissions, these “smart assets” not only provide financial benefits but also offer a credible means to claim responsibility for tangible emission reductions.

The Keys to Navigating the Energy Storage Asset Class

In my time building software to help companies sell and optimize energy storage assets, I’ve seen firsthand the factors that buyers exploring this new asset class need to keep in mind. 

First, they should avoid investing in technology just because it looks trendy or cool. Instead, leaders must get to the heart of why they want to invest in a particular technology. 

For starters, buyers should clearly understand their organizational objectives, whether financial, environmental or both, and use those objectives to guide their research on energy storage investment opportunities. It’s vital to approach this technology with clear goals and an understanding of its role within a broader energy portfolio. Energy storage, with its potential to provide more control over costs and carbon footprints, can be a crucial component of a company’s overall strategy, particularly those aiming for high levels of hourly matched clean power.

Investing in storage doesn’t just provide a pathway for reducing carbon emissions; it’s also a pathway for potential savings on electricity and energy costs. By starting with a review of their objectives, buyers can pinpoint the investment opportunities that are most aligned with their specific strategies and build the right portfolio of assets. Moreover, buyers should be willing to embrace new technologies in this space, such as long-duration energy storage (LDES). It may not end up being the right investment in certain cases, but keeping an open mind enables leaders to explore all the possibilities—and arrive at an optimal solution. The companies that are most willing to explore new technologies stand to remain the most competitive moving forward.

Energy Storage Regulatory Considerations

As buyers consider investing in energy storage, they should be aware that while regulations in the United States have progressed, they remain behind the fast-paced evolution of this new asset class. 

As noted in Energy Storage News, the Inflation Reduction Act “brought with it investment tax credit (ITC) incentives for standalone energy storage, answering one of the industry’s biggest asks of policymakers.” That’s a move in the right direction, but I believe that further regulatory support and clarity are essential to unlock the full potential of energy storage in carbon reduction. Current regulations do not fully recognize the capacity of energy storage as a mechanism for reducing emissions.

For instance, in my view, the U.S. Department of the Treasury’s initial guidance on section 45V of the IRA (regarding green hydrogen production tax credits) lacked specificity on how energy storage might qualify for the tax credit. Last year, my company submitted commentsto the U.S. Department of the Treasury explaining how energy storage can play a role in reducing carbon emissions on a 24/7 basis. Other stakeholders in this space should make their voices heard. By pushing for regulatory frameworks that acknowledge the environmental benefits of energy storage, we can encourage investment and deployment, ensuring that assets are leveraged to their utmost potential and driving collective carbon reduction efforts.

Ultimately, Companies—and the World—Stand to Benefit From This New Asset Class

The rise of energy storage as a new asset class can help organizations forge a path toward not only reducing their carbon footprint, but also achieving significant financial benefits.  

The stakes of delaying action in this arena are high. Consider a report from the International Energy Agency, which noted that worldwide, energy-related carbon emissions increased by 0.9% in 2022. This increase, the agency explained, was “lower than feared.” It is in our collective best interest to reduce carbon emissions as much as possible, as quickly as possible, and buyers of power who have a stake in storage can contribute to that reduction—while also mitigating their electricity costs.  

In a world where organizations are rapidly expanding, securing affordable, reliable, and clean power is paramount. The intermittent nature of renewable generation underscores the necessity of integrating storage solutions to ensure a reliable and sustainable power supply. By proactively investing in energy storage alongside traditional renewables like wind and solar, organizations can navigate the challenges of a shifting energy landscape, making informed decisions that benefit not only their bottom line but also the planet.

This post was originally published as an article in Forbes Business Council