By hybridizing renewable energy sources with batteries, excess energy generated during periods of high production and low prices can be stored for use during times of increased demand and higher prices. This approach not only enhances system stability but also reduces curtailments and maximizes the profitability of renewable energy projects, which is crucial for the ongoing development of renewables, AleaSoft reports.
Current status and prospects for batteries
While global battery manufacturing capacity is expanding—largely driven by the electric vehicle market—their application in the energy sector remains in the early stages of competitiveness. In Spain, the National Energy and Climate Plan (NECP) aims for 22.5 GW of storage capacity by 2030, with approximately 9 GW expected to come from batteries. Currently, around 20 GW of grid access applications for storage are in progress, with 11.8 GW already authorized but not yet installed. Additionally, 41 battery projects have recently received funding in Spain, of which 35 are standalone grid-connected installations. This indicates that the sector is poised for battery development, although it awaits more favorable profitability conditions, especially for standalone projects.
The introduction of regulatory support, such as capacity payments—which are currently in place in the United Kingdom and anticipated in Spain by early 2025—could enhance the profitability of these projects. However, analysts at AleaSoft Energy Forecasting suggest that the majority of revenue for battery systems will likely stem from price arbitrage in the wholesale market. The first operational battery projects are expected to generate income through participation in ancillary services, although these revenues may be limited as competition increases in these smaller markets.
Batteries becoming profitable
During the webinar, an analysis of Internal Rate of Return (IRR) for batteries under various price spread scenarios was presented, demonstrating how profitability is achievable as battery costs decline. According to Deloitte’s findings, a hybrid system combining solar photovoltaic energy and batteries, with a CAPEX of €150,000/MWh, could begin to yield positive returns with intraday price spreads of €40 to €45/MWh. Conversely, the CAPEX for standalone projects that recently received funding in Spain is estimated at around €250,000/MWh before subsidies, with an average aid of €50,000/MWh. This brings the effective CAPEX, after subsidies, to approximately €200,000/MWh. For projects with this level of CAPEX to achieve positive returns, intraday price spreads of €70 to €80/MWh are necessary.
This analysis highlights that reasonably priced batteries are becoming increasingly attractive as investments, particularly in hybrid systems, with standalone installations expected to follow. This marks a pivotal moment in renewable energy development, driven by battery hybridization, suggesting that after a five-year period focused on renewable energies, the next phase will center on battery integration, AleaSoft reports.
