Storage Makes Renewable Energy Riskier

Investments in renewable energy will become inherently riskier for institutional investors without an appropriate increase in energy storage, says EDHECInfra. It argues that, as intermittent green energy sources, such as wind and solar, become central to power systems, they increase the volatility of power prices and, therefore, the risks faced by investors in the sector. Its latest report finds that “a rapid switch to intermittent renewable generation that is not accompanied by a commensurate rise in energy storage, has non-negligible consequences for investors.” It has highlighted a raft of challenges brought about by the growing share of intermittent renewable energy in the generation mix including rising development and construction costs; higher volume volatility; increased market price volatility as rising exposure to intermittent wind sources adds to the variance of power prices, particularly at peak times; and cannibalization in the form of the average price captured by renewable installations becoming lower than the average wholesale price over the year. It concludes that because greater renewable energy production leads to more volatile energy systems, the option value of gas must increase. “Hence a key beneficiary of the transition to a higher share of renewable energy generation, until enough low carbon storage capacity is available, is gas power, a readily dispatchable source of power,” it says. “Gas may, in fact, be the best hedge against more volatile green power.”