Photovoltaic (PV) solar technology is the energy industry success story of the decade, overcoming all other forms of power generation to dominate new installations worldwide. In 2023, for example, three quarters of all new renewable energy capacity on Earth was in the form of PV.
And China, which leads the way in PV manufacturing, commissioned as much solar capacity in 2023 as the entire world did in 2022. PV is cheaper, more reliable and more scalable than just about any other form of energy today. And yet investors may have found something else they like even more, according to research.
In November 2023, a survey by Reuters’ events division found that storage was set to become the focus for energy transition investment in the next three years, thanks to a growing proportion of renewables on the grid and the rise of electric vehicles.
“Batteries are spearheading growth in energy storage but a wider range of technology types will be deployed commercially in the coming years,” Reuters said.
The survey covered 580 energy industry professionals from a range of segments, including 58% in oil and gas, 36% in renewables and 31% in utilities (the percentages add up to more than 100 because some companies fall into more than one category). Almost a fifth of the companies covered had revenues north of $5 billion a year.
The respondents said energy storage would likely become a priority technology for investment between 2024 and 2026, overtaking solar PV. More than two fifths of those surveyed said their organizations planned to invest in storage within the next three years, compared to 33% planning to put money into solar.
The survey asked respondents for their first, second and third investment priorities over the next three years, with storage coming out on top across the board. The technology was selected as the first investment option by 14% of respondents, compared to 11% for PV.
It also came top as a second investment priority, cited by 12% of respondents compared to 10% for solar, and as a third, mentioned by 16% versus 12% for PV.
The extent of proposed investment in storage far outstrips spending intention in other energy transition assets, with 28% of survey respondents planning operational improvements in the next three years and 26% putting money into hydrogen production.
Interestingly for a survey where almost three fifths of respondents were oil and gas professionals, only 15% of those questioned said their companies were planning hydrocarbon extraction investments—the same level as those investing in nuclear fission and fusion.
Oil and gas extraction was seen as the first investment priority by only 9% of the sample, likely indicating the extent to which the energy transition is focusing attention on low-carbon assets. Respondents also saw energy storage as delivering a better return on investment than solar PV from 2025 onwards.
The research could be viewed as a relatively reliable source of investment sentiment given that most of the respondents were in leadership or senior and middle management roles. Notably, 75% of those surveyed said their organizations’ energy transition strategies would be complete by 2030.
The energy transition was seen as a long-term business strategy for 69% of those surveyed, and 59% said it was an opportunity for growth.
“Energy storage looks set to become more popular with smaller organizations—those with revenues of less than $250 million—over the coming years, coinciding with an expected continuation of cost declines over the same timeframe,” said the Reuters Events report.
“Energy companies that may otherwise have overlooked energy storage citing high costs may be in a position to revisit that conclusion by the middle of the decade.”
In a sense it is no wonder that storage is climbing up the energy transition investment agenda. One of the benefits of solar power is that the sun rises every day, so PV asset owners are theoretically guaranteed production daily. But the extent of production can vary widely depending on the season and the weather.
Production is measured in terms of a technology’s capacity factor, which is the percentage of actual output compared to a theoretical maximum of 100%. For solar PV, a 100% capacity factor is impossible because it would imply the panel was producing electricity at full pelt 24 hours a day, including through the night.
In practice, US solar plants in December, when the days are shortest and cloudiest, have an average capacity factor of 12.3%. In June, the capacity factor rises to 33.2%. Even so, US PV’s annual average capacity factor of 24.2% is obviously a lot lower than the 50% of the time that the sun is above the horizon.
The reduction occurs because low-light conditions in mornings and evenings or due to clouds and shading can prevent a PV panel from delivering its maximum output even during the day.
All this is to say that while PV produces energy on a regular basis, the amount of production is highly variable—so it needs to be used to the fullest extent whenever possible. Today, this does not happen.
Instead, excess solar production—which is becoming increasingly common as the amount of PV installed goes up—is simply refused or ‘curtailed’. In August 2023, 19 PV industry bodies in Europe, including pan-European SolarPower Europe, wrote to the European Union Energy Commissioner Kadri Simson to call out this problem.
“It’s not curtailment. It’s waste,” said their letter. “Due to increased level [sic] of solar curtailment, we risk continuing to waste solar energy in … summer months…. In addition, unaddressed volatility of energy prices, and too frequent negative prices, endanger investments in new solar PV assets.”
One of three action points called for by the associations was to massively promote flexible resources. “We need more storage capacities on the grid,” they said.
Storage makes sense not only from a decarbonization perspective but also from an investment point of view. As renewables flood the grid, there is less and less value in building further PV plants—but increasing value in storing excess solar production for use when the sun is not shining, and the wind is not blowing.
This is clearly what the respondents to the Reuters Events survey were thinking—and is the rationale that could drive record levels of energy storage investment in years to come.
Publish date: 12 July, 2024