Energy storage report highlights three ways to increase bankability in UK’s energy storage market
E.ON and Seagrass, a climate finance company, release new research paper with policy proposals to help scale the UK’s grid electrification by addressing ‘bankability’ and encouraging private capital investment in energy storage.
E.ON and Seagrass Limited (“Seagrass”), a climate action company focussed on scaling carbon finance and a wholly-owned subsidiary of E.ON, today released a research paper exploring policy proposals that address the financing gap to support scaling energy storage solutions in the UK.
The report, titled Scaling Energy Storage, addresses a pressing challenge for the UK’s green ambitions: how to scale-up energy storage at a time when government finances are already stretched and private capital needs to be mobilised. With the UK’s new emissions reduction target of 81% by 2035, as recently announced at COP29, this challenge is even more urgent.
“Flexibility is essential for a resilient and sustainable energy future,” said José Davila, E.ON UK’s Director of Strategy and Innovation. “Everyone has a part to play as we adapt to this new energy landscape, from millions of customers at home or in business, to grid-scale storage stabilising the grid and ensuring energy reliability for our customers.
“That includes projects like our work with Amber which will help E.ON Next customers with solar PV, batteries and electric vehicles to earn money while helping the grid to stay in balance, alongside our upstream investments such as our partnership with Quinbrook to build a 230MW battery in Newport, South Wales.
“Long-term battery storage adoption, however, requires overcoming significant barriers to investment and our research aims to help solve this problem,” Davila adds.
Commercial opportunities for energy storage operators
As the cost of renewable energy continues to fall, the role of energy storage becomes even more crucial. A key issue that has plagued battery adoption in the UK are so-called “skip rates”, where battery operators’ power bids are passed over by utilities in favour of traditional fossil fuel generators. The National Energy Systems Operator (NESO) recently reported that most battery projects in the UK see a skip rate of about 30%.
Battery operators are trying to find new revenue opportunities by engaging in merchant trading— buying electricity when prices are low, storing it, and selling it back to the grid when prices rise. This model has proven profitable but faces a key challenge: securing financing.
“There is already built-in demand for grid batteries. But getting battery projects off the ground requires early-stage financing, and for that we need to create financial mechanisms that de-risk investments for banks and private capital,” said Naveed Tariq, CEO at Seagrass.
The new report proposes three market-driven solutions to unlock private sector financing for energy storage projects, without requiring additional government spending.
Three ways to unlock investment in energy storage
- Reforming market mechanisms: To address technical and operational barriers that undermine battery storage profitability, such as high "skip rates" the government could reform market rules to prioritise battery usage. This would improve the overall economics of battery projects without any subsidy, making them more competitive against fossil fuel plant for balancing requirements.
- Reducing market risks through government guarantees: To mitigate the financial risks posed by volatile energy prices, the government could introduce mechanisms such as feed-in tariffs (FiTs) or carbon contracts for difference (CCfDs), which would establish a revenue floor for battery operators, helping them ensure predictable income streams. Importantly, these guarantees would provide a safeguard for investors and lenders, while not placing undue risk on government finances.
- Leveraging carbon finance for battery revenue: This solution focuses on tapping into carbon markets, such as the UK’s Emissions Trading Scheme (ETS), to create new revenue streams for battery storage operators. By monetizing the emissions reductions associated with energy storage, battery operators could make these projects more attractive to private investment.
In additional to policy proposals, the report profiles the real-world impact of these policy tools based on data from E.ON, and uses a grid-connected battery asset in South Wales as the basis of a case study. The case study shows how different policy options will impact emissions from revenue maximisation, public spending on subsidies and bankability and knock-on effects on IRR and Investment.
Banking on decarbonisation
Applied separately or collectively, the three strategies proposed in the report could help address the core issue of battery bankability, de-risk investments in energy storage and speed up the decarbonisation of the grid.
By focusing on market reforms that can unlock private sector capital rather than solely relying on public funding, this report offers a sustainable pathway to funding the large-scale energy storage projects needed for the UK to meet its climate ambitions and ensure a more resilient and reliable energy system.
Click here to read the full report: How does carbon finance help to scale energy storage?
Notes to editors
About Seagrass
We’re a climate finance founded on a mission to help restore our planet and accelerate the transition to net zero by scaling carbon finance and investments.
We support our clients across the voluntary and compliance markets and through the entire carbon lifecycle. Our services include Carbon Sourcing, Carbon Strategy and Carbon Financing.
Here at Seagrass, we aim to deliver impact, via the carbon markets, in three main ways: helping countries achieve their NDCs with carbon market infrastructure; delivering carbon finance to establish much-needed grid infrastructure and wider global energy solutions; sourcing high-integrity carbon credits to support corporate strategies, including carbon liabilities and mitigation management.
For more information, please visit www.seagrass-climate.com
About E.ON
E.ON is focused on making new energy work, and we make sure everything we do is focused on our customers at home, in business and across entire towns and cities. As part of the E.ON Group, we are one of the foremost energy companies in the world.
We provide smart, sustainable and personalised solutions for customers and have been a driving force behind the UK’s renewable revolution for more than 30 years.
E.ON Next is committed to providing innovative energy solutions that empower customers while contributing to a sustainable future. With a focus on affordability and customer satisfaction, E.ON Next offers a range of products and services designed to meet the evolving needs of households across the UK.
We also offer a wide range of efficient and smart technologies to help customers at home and in business reduce their impact on the planet by using less energy and even generating and storing it themselves.
For more information visit: eonenergy.com
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