Neil Birrell
Chief Investment Officer
For information purposes only. The views and opinions expressed here are those of the author at the time of writing and can change; they may not represent the views of Premier Miton and should not be taken as statements of fact, nor should they be relied upon for making investment decisions.
The road to energy transition
A trend that will dominate over the next decade is the transition to clean energy as many countries commit to reach net zero by 2050. In support of this goal, there have been significant investments in large-scale renewable energy projects, including solar, wind and battery storage.
Currently, the proportion of electricity generation coming from renewable sources accounts for roughly 40% of the UK’s power supply, this has risen significantly from just 2% at the end of 1991.
As countries shift from coal and gas-fired power stations towards a greater mix of renewable energy, we will continue to see this proportion increase.
Energy storage is a key enabler
However, by its nature, renewable energy powered by wind and solar is volatile as the wind isn’t always blowing and the sun isn’t always shining. Therefore, to respond to the intermittency of renewable energy and address the supply-demand imbalances in the electricity grid, energy storage solutions are required to be deployed. The effectiveness of an energy storage system is determined by how quickly it can react to changes in demand, the rate of energy lost in the storage process, its overall energy storage capacity, and how quickly it can be recharged.
One of the most cost-effective solutions is battery storage, which effectively stores the energy when there is an abundant supply which can be released and used when required. There are various ways batteries can generate revenue, such as managing short-term imbalances in supply and demand, which is known as frequency response, to ensure that electricity frequency remains at 50 hertz (+/- 1%). Another source of revenue is trading power prices in the wholesale market or balancing mechanism by buying electricity when its cheap and selling it when it’s expensive.
The age of electrification
In an age of electrification, rechargeable batteries are used in many of our daily appliances from smartphones to laptops. The one thing they have in common is that they are made of lithium-ion. This is also the most common type of battery used in energy storage systems, controlling more than 90% of the global grid battery storage market.
The battery storage system works by an intelligent battery software, which uses algorithms to coordinate energy production and computerised control systems to decide when to keep the energy to provide reserves or release it to the grid. Energy is released during times of peak demand, keeping costs down and electricity flowing.
Lithium-ion batteries are currently the most economically viable energy storage solution but there are also a number of other technologies currently being developed and we will likely see the growth of these over the next decade. The UK government estimates technologies like battery storage systems could save the UK energy system up to £40 billion by 2050, ultimately reducing energy bills.
Within the fund
Our world is rapidly changing and technological advances are critical in the fight against climate change, with the efficient storage of electricity playing a crucial part in that process. Inevitably, these have to be funded and therefore investment opportunities present themselves. The fund seeks to make investments aligned with sustainable growth themes, that we believe will help the fund meet its financial objectives. Energy transition and battery storage provide such opportunities.
Within the fund, we hold several different investment companies that invest in a diversified portfolio of battery storage systems. This includes Gresham House Energy Storage Fund, Gore Street Energy Storage Fund and Harmony Energy Income Trust. Furthermore, many renewable energy investment companies are also diversifying into the battery storage space. For example, JLEN Environmental Assets has four investments in battery storage systems including a co-investment in a battery energy storage plant in Wiltshire with Foresight Solar Fund.
