Energy storage in emerging markets: Lessons learned from mature markets

The 2020s are expected to mark the decade in which stationary battery energy storage will become an intrinsic part of generation, transmission, distribution, mini-grid and off-grid technology. Costs are decreasing rapidly and the technology is maturing. In emerging markets, energy storage systems offer an opportunity to displace diesel fired power generation with often abundant renewable resources, and to provide reliable electricity supply in markets where centralised grids are not well developed. In this context, we consider what learnings from more mature power markets may be transferrable to ensure the more successful integration of storage systems in an emerging market context.

Experience in more mature power markets has highlighted the need for considered inclusion of energy storage within energy and fiscal regulatory frameworks. The nature of storage, in both charging and discharging electricity, may mean that a storage facility is treated both as a consumer and a generator of electricity within the traditional framework of existing energy regulations. Recognition of the characteristics of an energy storage facility is required in regulatory frameworks, to exempt storage from certain obligations or adjust these to accommodate its unique characteristics. However, in doing so, the definition of energy storage becomes important. Regulators in emerging markets may wish to consider future proofing their regulatory frameworks to enable the opportunity to use abundant solar and other renewable resources in the production of other new energy carriers (such as ‘spilling’ renewable electricity from a solar PV plant to make green hydrogen).

Another issue considered in mature power markets has been who should own energy storage assets. Should these be part of the grid network owner’s regulated asset base, or owned independently on an independent power producer (IPP) basis? There is no right answer. Instead, consideration must be given to the function which the energy storage system will perform in the market and to the optimal revenue model for the storage system. Alongside the issue of ownership, is that of control. Usage is directly related to the life-cycle costs of the storage system, particularly for battery storage systems. In emerging markets, it is generally appropriate that the risk of how the storage asset is used over time is allocated to the grid system operator because their influence on the storage system (directly or indirectly) is greater.

The choice of ownership model is also intrinsically linked to the revenue support for storage assets. If a storage asset sits within a network owner’s asset base, it will be incentivised through the network owner’s regulated revenues. Under an IPP model, the tariff structure will require consideration and will affect the usage of the storage system. Ownership and revenue models also have a significant influence on the methods of financing storage systems.

Mobilising investment into energy storage businesses and projects will necessarily require the industry to address environmental, social and governance (ESG) issues such as safety, environmental and climate change impacts, supply chains and end of life strategies. ESG factors have long been an area of focus for development finance institutions (who are traditionally the main lenders in emerging markets), but are increasingly rising up the board agenda in every sector. In emerging markets, particularly, given vulnerability to ESG issues, the replacement of thermal baseload and grid reinforcement with battery storage cannot therefore be viewed in isolation of the battery lifecycle – from extraction of mineral raw materials through to battery demobilisation.

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