Today, of all days, may be a good day to consider the mundane question of the investability of UK BESS systems. Not that opinions aren’t divided, but who is right and who is wrong on this is likely to cause only a very slight ripple in history. Still, some lessons may be learned.

The UK has been at the forefront of the battery roll-out. Contracts for balancing and reserve capacity are available and, because of the dual and ever-increasing dependence on natural gas and renewable generation, UK power prices are enticingly volatile and arbitrage-allowing.

Accordingly, private capital has entered the asset class in droves. EQT, KKR, CIP Railpen and DIF have opted for BESS platforms. Others, such as Octopus and NextEnergy, have gone for mostly co-location with renewable generation.

Where to next? Now that power price peaks have been smoothed, the field is getting crowded and the TSO struggles to fully utilise the batteries, could the window of opportunity be closing?

“As of today, at spot power prices and on the current regulatory regime, I don’t think it’s attractive to deliver new battery storage in the UK – so you have to believe that either or both of these factors will change,” says Goldman Sach’s global head of infrastructure, Tavis Cannell.

And, after taking positions in UK batteries in two previous funds, Qualitas Energy found the dynamics had changed and pivoted. “We had gone out to talk about the UK market in batteries being something we wanted to lean into. Then our energy management team reported seeing a huge cannibalisation because of the volumes in the market. And we changed our plan,” says Qualitas partner Kate Townsend.

Listed funds focused on UK batteries aren’t doing so well either.

Sosteneo Infrastructure Partners’ Umberto Tamburrino this summer acknowledged the problem with large volumes cannibalising the profits, but insisted that the long-term case for batteries was strong: “The critical sequence is not generation first, because generation cannot be hosted by the network in the current shape… If you don’t put that storage first, it will be impossible to have another 10GW, 20GW, 30GW of extra intermittent capacity [as in the case of the UK].”

Avoiding merchant exposure would go a long way to providing a steady business case, but good contracts don’t thrive on ever more competition both from other BESS and new solutions such as liquid air storage.

Already some new entrants to the market, such as NatPower and Adaptogen Capital, have more of a PE background. It should perhaps not be a surprise if infrastructure funds of mid-2020’s vintages take a pass on UK BESS.

ICYMI

• The Swedish government culled no fewer than 13 offshore wind projects on Monday, nominally 27.5GW worth of capacity, because of fears that the wind turbines could delay the detection of incoming missiles. Four of the cancelled projects – totalling 11GW – were led by OX2, which as of early October is 100 percent owned by EQT. The same Swedish government approved a 400MW OX2 project earlier this year, and has also approved two other projects. One has already been cancelled by Vattenfall and the other one could face the chop too.
• Staying on offshore wind, CIP decided to take a punt on a floating offshore wind platform with a minority investment in Stiesdal offshore. This investment was via a mandate for supply chain investments in Fund V, though the deal didn’t include a promise that CIP would be using the float design as and when the first floating project is launched. Fellow green-field GP Octopus invested in a floater in May through its offshore wind fund. Could an offshore float design be the new must-have?
• Finally a note that, according to Pip Squire of Ark Data Centres, the first two 20MW micro nuclear reactors based on known maritime reactor designs are to be deployed in the US in just three years. To power a data centre, obviously.