Inside the renewables co-location wave reshaping investment

James Lineker (0:03)

Storage is often called the missing piece of Europe's energy transition. The remarkable advances of solar and wind technology have left battery energy storage systems, or BESS, with work to do to catch up. But that work is being done, and batteries are moving from a niche asset to a core pillar of modern energy infrastructure. Figures from Energy Advisory DNV predict that grid-connected energy storage capacity will double from 2024 to 2030, and increase 8-fold by 2040 And while pumped hydro made up 93% of storage capacity in 2024, it's expected to make up only half by 2030, and 10% by 2060, with batteries emphatically taking the lead. And one more stat for you. Only 2% of solar today is co-located with storage, but that should rise to around 50% by the mid 2030s. I'm James Lineker, an editor at PEI Group. In this special episode, sponsored by Taaleri Energia, I'm joined by Ville Rimali, Investment Director for Energy Storage at Taaleri Energia, and by Henri Taskinen, co-founder and CEO at energy technology company, Capalo AI. We'll explore what makes battery storage systems attractive, where to find the best opportunities, and what it takes to be successful in the space.

Okay, so the obvious starting place is why invest in batteries?

Tackling that first is Taaleri Energia's Ville Rimali.

Ville Rimali (1:36)

From our perspective, we had in the funds wind and solar earlier, and now we decided to add the batteries there as well. There's a couple of reasons. Generally, the storage provides higher risk access to it returns than the wind and solar currently. But even more importantly, it balance and stabilize the returns on the fund level, because wind and solar, they are price level driven investments, and the batteries are price volatility driven investments. And usually the volatility and the price level are not going hand in hand.

So that stabilizes our returns on the fund level, when the batteries are there as well. But basically what we do, we invest the storage where it converts the volatility in the cash flow.

James Lineker (2:28)

Batteries are volatility driven investments. Whereas wind and solar earn less for more volatile the market is, batteries can earn more.

This makes them an attractive hedge, argues Capalo AI's Henri Taskinen.

Henri Taskinen (2:40)

The more volatile the electricity market is, wind and solar investments earn less on average.

And then when the more volatile the market is, batteries earn more on average. So batteries earn from that volatility. So you can also hedge your portfolio and diversify it. If you have a lot of renewable assets in the portfolio, then you add batteries there. They are also hedged against each other in this way.

James Lineker (3:04)

While batteries allow you to hedge and diversify your portfolio, they also provide a few different routes to revenue.

Revenue can come from ancillary services, where grid operators pay for battery operators to stabilize the grid when power supply and demand move out of sync. And revenue can also come from arbitrage opportunities. So which is more attractive?

Henri Taskinen (3:23)

So this is, I think, a great question. And it depends much on the market's maturity, so the country's electricity systems maturity in terms of batteries that we are discussing. So let's say in Finland where we began and where Taaleri also has a large scale battery investment. In the beginning, let's say three years ago, for example, most of the earnings, most of the net revenue came from the ancillary services, from these capacity markets where you give to the grid operator a promise, so to speak, or insurance, that the battery can charge or discharge on these moments if the grid needs it. And then you already get remuneration, you get revenue from this availability, that you keep the battery available and then you charge or discharge when it's needed. You may have an additional payment for the discharging, but still the main driver was these availability payments, these capacity payments.

But now when the market is evolving, more and more batteries are coming, of course, to provide the supply for the ancillary services or these availability payments. But then also more renewables are coming online. The market is shifting towards arbitrage and energy trading more and more.

James Lineker (4:32)

In Finland, for example, where both Taaleri and Capalo AI are based, most of the revenue now comes from that energy arbitrage. Buy low in the day market and sell high to the evening peak, for example.

This is the case in many of the more mature markets. While in a market such as Poland, which is still in a more transitional stage, ancillary services and capacity payments remain very attractive and account for more of a revenue stack.