Unlocking the power of energy storage: Technology, finance, and industry insights
IEA’s recent Special Report on Batteries and Secure Energy Transitions stated that battery deployment will need to scale up significantly between now and the end of the decade for the world to get on track for its energy and climate goals. The IEA expects overall energy storage capacity to increase sixfold by 2030 worldwide, with batteries accounting for 90% of the increase.
By enabling greater shares of renewables in the power system and shifting electricity supply to when it’s most needed, batteries will help advance progress on the goals set at COP28. These include tripling renewable energy capacity by 2030. To triple global renewable energy capacity by 2030, 1,500 GW of energy storage, of which 1,200 GW from batteries, will be required. A shortfall in deploying enough batteries would risk stalling clean energy transitions in the power sector.
To meet these clean energy goals, DNV’s Energy Storage and Emerging Technologies Advisory team works with investors, independent power providers, grid operators, utilities, project developers, communities, and regulators to develop and finance battery energy storage systems (BESS) reliably and safely.
Market drivers
Between the policy support of the Inflation Reduction Act (IRA), technological improvements, declining costs, manufacturing growth, and innovative business models, it is hard to overstate the tailwinds supporting rapid and continued energy storage market growth in 2024 and beyond.
DNV is equipped to support this growth by leveraging its decades of experience supporting the wind and solar industries and its 40+ dedicated energy storage consultants and engineers located across the U.S. and Canada.
Introduction
For every project stakeholder it’s crucial to have independent in-depth analysis of energy storage impacts. Vendors and developers seeking to vet their product; prospective project owners needing to assess internal risk at a specific site or prove viability to outside investors; and investors and financiers looking to confirm the bankability of a product or portfolio of products.
DNV takes a technical and holistic approach to energy storage due diligence, where we can highlight and provide you with recommendations to mitigate technical risks of the product or project, providing greater financial and legal security for you as a vendor, owner, or investor.
Our technical due diligence reports provide third-party validation of claims, assessment of technical risks, and proposed or included mitigation measures for a product (hardware, software, or both), a project site, or a portfolio of projects. Within each study, we:
- Assess the OEM or project’s qualifications
- Review the design and process considerations for performance and safety
- Ensure projected revenue and costs are properly accounted for in the project proforma
- Validate claimed performance, and confirm the repeatability and reliability of these processes
- Cross-check that system guarantees and support infrastructure are appropriate to the system capabilities, and use and review their proven history.
Independent engineering and technical due diligence – Tax equity and debt financing
The IRA opened the door for standalone storage projects to receive the federal investment tax credit (ITC) which had previously only been available to energy storage projects charged by renewable energy.
Tax equity, largely provided by banks, has been a critical financing source for clean energy projects. The IRA extended and expanded the use of federal tax incentives to various renewable and carbon emission reduction technologies as well as the domestic manufacturing of advanced energy equipment. To meet the goals of the IRA, many forecasters estimate that tax equity will need to increase from a $20 billion annual market today to over $50 billion.
Tax equity represents over 80% of the roughly $20 billion annual market today, and banks are poised to increase their tax equity investments to meet this demand. While the IRA provides new tax credit monetization options through transferable tax credits and direct pay, tax equity is expected to remain critical for project developers.
In our role as independent engineers providing technical due diligence, DNV supported over two gigawatts of energy storage project transactions in 2023. Of those 30+ storage projects, nearly half were financed as standalone storage.
Transferability technical due diligence
Prior to the IRA, the vast majority of U.S. tax credit investments were structured as a joint venture mechanism where a tax equity financier invested in a project for the federal tax credits such as Production Tax Credits (PTCs) or Investment Tax Credits (ITCs).
The new tax credit “transferability” option in the IRA has created another market where tax equity providers and institutions can now structure some of their transactions to remain joint ventures for the full amount of the tax credits, divide a portion of the tax credits among a joint venture, and also sell a portion of these credits to third parties.
The IRA has also opened the door for third parties—many of which are large corporates, insurance companies, or bespoke brokerage services—to enter the game and begin to broker these tax credits alongside the more traditional players as the transferability due diligence process and documentation are much less complex than the arduous joint venture process.
Transferability is creating huge opportunities to finance the energy transition and new financing structures are emerging and will continue to emerge to support ease, accessibility, and availability of capital for clean energy projects. The transferability ITC BESS market grew faster than anticipated in 2023, with over one gigawatt hour of deals and is expected to continue growing rapidly over the next few years.
While this represents an enormous growth opportunity for the storage industry and its stakeholders, transferability deals require a different approach to understand and mitigate the risks involved for both buyers and sellers. Technical due diligence and awareness of the rapidly developing financing techniques, project structures, contemporary market data, and best practices are key to enabling and de-risking these deals.
Our storage experts are engaged with developers, tax equity investors, lenders, capital and debt providers, tax advisors, market analysts, offtakers, and more, to stay current on today’s evolving approaches for finance and investment across the full range of markets and business strategies in this rapidly evolving space. To date, DNV has already supported storage ITC transfer deals that topped USD 1 billion in tax credit sales across over 700 MW of storage projects.
Energy storage technology and product review
The growth in batteries outpaced almost all other clean energy technologies in 2023. In less than 15 years, battery costs have fallen by more than 90%, one of the fastest declines ever seen in clean energy technologies.
DNV expects lithium-ion battery products to continue to dominate the market, especially for projects receiving financing which tend to require strong track records. However, novel storage technologies are making inroads into various niche segments of the market, often with support from public funding or incentive programs for pilot projects. While lithium-ion batteries include a wide range of specific chemistries, form factors, and sizes, non-lithium-ion products encompass technologies as diverse as underground compressed air storage to flow batteries, gravity-based systems, thermal products, and more, making it challenging to compare each side-by-side or against the lithium-ion incumbents. Many novel technologies are designed for longer duration storage than lithium-ion.
To secure financing, regardless of the technology, new products tend to require independent review, testing, and field validation, and they must include performance guarantees that support the use case and lifetime proposed for a project. Alongside the technology reviews (a/k/a bankability studies) that DNV has performed on lithium-ion products that account for 95%+ of the North American market, our experts have evaluated several novel storage technologies and will continue to expand its library to a more diverse array of storage products seeking to secure financing.
Energy storage operational performance assessment and optimization
Any BESS must meet its performance and revenue expectations and operate in line with industry expectations and contractual obligations. It is essential to provide credible validation of BESS project’s capabilities for developers and investors.
As part of our broad independent engineer’s technology review services, DNV offers independent operational performance assessment for BESS assets and portfolios. This helps owners identify asset performance with respect to application specific expectations and equipment warranties. It also shows owners operating characteristics that are beneficial for asset life.
Energy storage safety
The energy storage standards, certification, and permitting world is in flux with standards and codes in development or not yet in force. New data and rules appear seemingly every day, bringing uncertainty for designers, customers, and local authorities.
As a few battery fires in 2023 demonstrated, standalone storage sited closer to homes and businesses presents a unique technical and public perception challenge. DNV’s energy storage experts can guide investors and developers through this changing landscape and help make practical decisions about risk and mitigation measures associated with energy storage systems.
DNV is involved in several initiatives across the U.S. and Canada to support permitting agencies, fire departments, storage product manufacturers, and storage project developers to improve their ability to evaluate safety risks and reduce the probability of thermal events across numerous dimensions.
Connect with us
Energy storage systems are fundamental to building a decarbonized, resilient, reliable, and affordable electric grid required today and in the coming years. As storage systems begin providing a diverse set of critical grid services, the need for technical due diligence to evaluate technology, finance and develop projects and portfolios and assurance of performance, reliability, interoperability, and security increases.
DNV experts work with investors, independent power providers, grid operators, utilities, project developers, communities, and regulators to identify, evaluate, assess, and test energy storage and distributed energy systems to ensure that they are affordable, reliable and can integrate seamlessly into today’s grid to meet electricity demand today and in the future.
Our storage experts will continue to share the insights we’ve gained on energy storage technology, finance, and project development, and we’ll be constantly listening for industry updates, market trends, key challenges that we can help solve.