06 Nov 2024

How can carbon finance help to scale energy storage?

Grid-scale batteries are very important for decarbonising our energy networks, and as well as investing ourselves we’re developing real solutions to attract new investment sources across the country.

Bringing greater flexibility to the forefront of our energy systems is critical to making sure the benefits of a fair and just energy transition are felt by all. Utility-scale energy storage can balance supply and demand on the grid at scale and ensure a steady, reliable and affordable flow of clean energy to customers.

It's vital to ensure that the financial incentives for this growing source of energy flexibility don't spur higher emissions - for example if the system isn’t optimised to charge those batteries when the grid’s carbon intensity is lowest, and instead allow for dirtier energy sources to come online instead.

Together with our partner Seagrass, a climate finance subsidiary of E.ON, we’re exploring policy recommendations, backed by a financial model, to bolster the use of carbon finance and help scale energy storage capital and usage. The research project helps to inspire and reward investment in new energy technology for the UK in a way that makes the best of renewable sources and emissions impact, while at the same time making energy more affordable and less reliant on public funding.

The research is relevant to our business in the UK when you take into account our recent announcement that we are investing with Quinbrook partners to create the Uskmouth (pictured) battery plant in South Wales.

What?

Carbon financing is an innovative funding tool that places a financial value on carbon emissions and allows companies wishing to offset their own emissions to buy carbon credits earned from sustainable climate projects.

Carbon financing increases the financial viability of projects, creating an additional revenue stream and enabling the effective transfer of technologies and know-how. It provides a means of leveraging new investment in projects that reduce or remove greenhouse gas emissions.

Why?

As the demand for and supply of renewable energy increases, long-duration energy storage will be needed to help balance the grid with an increasing number of more intermittent renewable energy sources – such as (simply speaking) solar power when the sun isn’t shining, or wind turbines when there’s no wind.

That means we can make best use of the renewable energy being generated when it is plentiful, and it also means we are better equipped to cope with growing demand for clean electricity as we switch away from fossil fuels, for example switching from combustion engines to electric vehicles, and the decarbonisation of industry.

Aside from capacity, one of the main limitations in the system is bankability of these assets, so our analysis focuses on policy and financial levers that ensure projects are more bankable by government de-risking. We’re exploring recommendations that focus on feed-in tariffs or contracts for difference, backed by a real-world project and financial model.

How?

By aligning financial incentives with climate goals, we can ensure energy storage projects get crucial funding and not only stabilise the grid but also maximise emissions reductions. Doing that means attracting the right partners willing to invest in the technology that helps manage the grid, makes the best use of home-grown renewable energy sources, and of course keeps all this energy as affordable as possible.

Our research with Seagrass aims to provide policy recommendations that supports a comprehensive roadmap for leveraging carbon finance to accelerate the adoption of energy storage technologies. This initiative will not only support E.ON’s decarbonisation objectives but also serve as a model for global efforts to combat climate change.

The final research will culminate in a whitepaper that will be presented at COP29 in Baku later this month.

Seagrass is a climate finance company, enabling buyers to source carbon credits to deliver capital to high-impact climate projects by supporting clients across the voluntary and compliance markets, with holistic solutions that cover the entire carbon lifecycle – Carbon Sourcing, Carbon Financing and Carbon Advisory.