Is investing in energy storage power stations profitable

Where a profitable application of energy storage requires saving of costs or deferral of investments, direct mechanisms, such as subsidies and rebates, will be effective. For applications dependent on price arbitrage, the existence and access to variable market prices are essential.

Although academic analysis finds that business models for energy storage are largely unprofitable, annual deployment of storage capacity is globally on the rise (IEA, 2020). One reason may be generous subsidy support and non-financial drivers like a first-mover advantage (Wood Mackenzie, 2019).

While energy storage is already being deployed to support grids across major power markets, new McKinsey analysis suggests investors often underestimate the value of energy storage in their business cases.

Investment in energy storage can enable them to meet the contracted amount of electricity more accurately and avoid penalties charged for deviations. Revenue streams are decisive to distinguish business models when one application applies to the same market role multiple times.

In application (8), the owner of a storage facility would seize the opportunity to exploit differences in power prices by selling electricity when prices are high and buying energy when prices are low.

Business Models for Energy Storage Rows display market roles, columns reflect types of revenue streams, and boxes specify the business model around an application. Each of the three parameters is useful to systematically differentiate investment opportunities for energy storage in terms of applicable business models.