As more renewable energy comes online, there’s a growing need to balance intermittent supply hitting the energy networks.

Utility-scale battery storage has become the most cost-effective way to manage often unpredictable energy flows from solar and wind farms, ensuring power is available when required while reducing consumer energy pricing.

BESS’ potential is drawing in institutions looking to invest capital at scale, such as Generali’s Sosteneo Energy Transition Fund. Last year, it bought two BESS assets sold by renewables developer Pacific Green in the UK. Meanwhile, energy storage forms a key part of investment strategy at many pension funds such as Renewable Power Capital, created by Canada’s CPP Investments, which oversees the Canada Pension Plan. Private equity houses are also active; KKR invested $750m last year in UK battery storage developer Zenobē.

“More investors are showing increased appetite for utility scale BESS; they appreciate the fact that it’s a growth market, and a long-term revenue play with potential for double-digit rates of return,” says Max Stirling, Director, Energy & Infrastructure Advisory, EMEA, at JLL. “Investment in BESS aligns with institutions’ growing focus on environmental, social and corporate governance criteria.”

The focus is on locations where penetration of renewables is higher and there’s a surplus of renewable energy, creating a need for storage.

“One of the biggest factors in Europe is the current prevalence of negative pricing caused by the rapid buildout of solar and wind projects,” explains Marcus Peech, Senior Director, Energy and Infrastructure Advisory at JLL. “It’s this fast trajectory that’s created pressure on the grid networks and rising consumer energy bills.”

In Germany, for example, grid upgrades are expected to cost a quarter of a trillion euros by 2045, according to the country’s four grid operators.

Meanwhile, technological advances are improving the efficiency and safety of today’s battery systems, which is crucial to achieving scalable development. Innovations from the likes of major Chinese electric vehicle battery maker, CATL, are bringing higher energy density products with gravimetric energy density of as much as 205-watt hours per kg to market.

“More storage capacity in a smaller footprint will mean a lower land requirement, which can increase the capacity of project and also open up new areas that previously were deemed to be land constrained, enhancing the potential growth for battery storage,” says Stirling.

To unlock the potential of utility scale BESS, investors face challenges both from punitive network charges in some countries to export power onto the grid, as well as the network cost of importing energy.

“Such scenarios, where there’s effectively been a double charge, have created barriers to entry into new jurisdictions, with storage being treated both as a generator and final demand,” says Stirling. “However, when such barriers are removed, as we’ve seen in Germany, then the market then enjoys rapid growth."

While U.S. regulator FERC (Federal Energy Regulatory Commission) has recently made new rulings on transition planning rules for renewable energy, a smoother planning permission process is needed, says Balasubramanian. “The U.S. has lacked a long-term plan for energy,” he says. “Hopefully we’re now on the right road to remove hurdles for developers.”

While countries take steps to encourage investment in clean energy infrastructure, opportunities still vary at a state or regional level.

“There are deep variances across markets. Knowing where energy bottlenecks exist, such as in Germany, is crucial,” says Stirling. “There’s now a clear need for storage as part of the renewable energy transition. And it’s increasingly becoming a very attractive investment opportunity.”