The outlook for energy storage and the key investment opportunities

Insights — December 2023

Part 1: Why energy storage is so important and the ways in which it will help to overcome the challenges facing energy markets today

This is the first article in a three-part research series on energy storage which will cover:

  • Part 1: Why energy storage is so important and the ways in which it will help to overcome the challenges facing energy markets today
  • Part 2: The key investment opportunities in energy storage
  • Part 3: The wild cards in what we anticipate will be a period of significant disruption in energy markets

Why is energy storage important?

Energy storage is the key technology which must be developed and scaled-up in order to solve the challenges facing energy markets today. It is the key to reducing electricity prices (and electricity price volatility) sustainably in the longer term. If the world needs to increase electricity generation by roughly 2.5 times over the next 25 years for the energy transition to be possible, the world needs roughly 250 times as much energy storage as today.

Energy storage is critically important in the evolution of energy markets (and to the energy transition) as it will:

  • Solve the challenges related to the ‘intermittent’ nature of solar and wind power (such as maintaining stable and reliable power grid and integrating fragmented sources of generation);
  • Reduce the waste/diseconomies associated with solar (and to a lesser extent wind) which results in near zero (or even negative) electricity prices at points in time;
  • Reduce the need for expensive gas-fired electricity generation during peak periods;
  • Diminish the utility of conventional flexible baseload generation (i.e. gas fired);
  • Displace inflexible generation (such as coal and even nuclear); and
  • Increase the resilience of economies (via increased energy self-sufficiency) which are dependent on imported conventional energy.

Why doesn’t the world have enough energy storage?

It has never been critical for humans to store electricity on the basis that wood, coal, and oil (and to an extent natural gas) could be stockpiled for use at a later time to generate the basic human energy necessities (heat, light, motion and industrial processes).

The evolution of how energy has been generated, moved, stored and consumed for more than 100 years has created enormous demand (and necessity) for the ability to store electricity. Energy storage is the solution for the sun not shining at night and for windless days. Once it achieves a cost reduction threshold (which we forecast is as close as 1-2 years away), it will result in electric vehicles being cheaper to purchase than the internal combustion engine equivalent (they are already cheaper to operate).

Which technologies will provide the solutions?

While to date there have been limited commercially available solutions (especially in stationary storage), a number of technologies are evolving rapidly. The cost and performance of these solutions will improve rapidly over the next 1 to 2 years.

Our research has identified specific solutions for different segments of the energy storage market. Our key observations are:

  • Short duration storage (for daytime peak demand and overnight periods – competing with peaking power plants) is likely to be dominated by lithium-ion batteries at both larger and smaller scale. The lower power density, lower energy density lithium-ion chemistries are likely to be the winners in stationary energy storage. Our research indicates that lithium-ion batteries (and variants such as sodium-ion batteries) will be manufactured in ever greater scale, at ever greater quality and at an ever-smaller unit cost; and
  • Long duration storage (for periods of weeks or months of below average renewable generation – e.g. winter) is likely to be dominated by hydrogen, flow batteries and small-scale pumped hydroelectric. While each of these technologies face challenges to adoption, our research indicates that there are no insurmountable obstacles to mass adoption in the longer term.

T8 Energy Vision has unique exposures to various energy storage technologies and the associated supply chains on the basis that we believe they represent an extraordinary investment opportunity at this stage of evolution.

In the next part (to be published next week), we will explore a number of the listed equity opportunities in more detail.