Critical ESG considerations for the multi-billion-dollar battery storage market
inspiratia speaks with Jordi Francesch, Head of Asset Management – Chief Risk Officer at Glennmont Partners, to understand ESG considerations relevant to the battery storage market as firms try to leverage the asset to augment their portfolio.
The synergy between battery storage and renewables becomes ever more apparent as the market relies on near-real-time responses to meet broader energy demands. Investment funds leverage battery storage to bolster their assets' value as the storage market matures and embraces novel business models. Not only does battery storage help surmount the intermittency of renewable energy, but it also allows for grid balancing services and energy arbitrage. In short, it gives investors easier entry into the subsidy-free renewables market.
Co-locating battery storage and renewables has become a growth strategy
With a record number of growing PPAs, and the growth of subsidy-free renewables, co-locating battery assets with renewable assets is quickly becoming an industry standard. It gives investors and developers more flexibility and confidence, fuelling growth. For instance, inspiratia's Spotlight on Italian Renewables conference in December 2021, highlighted this sentiment. The panellists paid careful attention to energy storage, especially the need for solid regulation underpinning the technology's business case, given that it increases value extraction within the renewables market, not just in Italy but across various regions.
Another trend the panellists pointed out was the increased prominence of ESG investment and the subsequent need for financing products that integrate social responsibility and impact into portfolios.
Even as the battery storage market has shown bullish momentum over the past couple of years, recent geopolitical tensions in 2022 have raised concerns about the supply of critical metals relevant to the industry. It has also increased scrutiny of broader ESG compliance requirements in the industry.
With these trends in mind, inspiratia spoke with Glennmont Partner's Head of Asset Management and Chief Risk Officer, Jordi Francesch, to gain industry insights on the interplay between battery storage deployment and ESG principles, given that BNZ, an Independent Power Producer (IPP) initiated by Glennmont, aims to deploy more than 1GW across Southern Europe.
Supply Chain transparency is critical to meeting ESG compliance
The sustainability priority areas raised by Francesch include supply chain, community engagement, and labour force participation.
Regarding the issue of the supply chain, the current geopolitical crises resulting from Russia's invasion of Ukraine highlighted market vulnerabilities when the price of nickel soared more than 250% in one day, prompting investors and developers to speculate on a tight squeeze in project deployment for the rest of the year. While these fears have tempered, and the price of nickel has fallen to previous levels due to the actions of the London Metal Exchange, awareness of these supply chain vulnerabilities still persists. Investors and developers are observing the Russia-Ukraine situation; they are further scrutinising labour conditions at nickel and cobalt mines abroad and how this affects their business activities.
Francesch commented on the complexities of ensuring an ethically robust supply chain of materials for the battery industry. "Due diligence of the supply chain is very complicated… so we changed the approach to a self-certification schema. So, we go to our EPC counterparts and ask what analysis they have done to the best of their knowledge, to ensure specific ESG requirements have been fulfilled".
The approach is more straightforward in ironing out the abovementioned complexities, but it has the unintended consequence of relocating the issue of supply chain transparency instead of fully achieving it. Francesch further stated that two of the main 'weak spots' observed within the battery critical metal supply chain, which require significant attention, are health and safety and dealing with the pollution from extraction and processing. His firm addresses these challenges by collecting as much data within all possible aspects of the supply chain. Notwithstanding, fragmented legislation across disparate regions presents challenges. For instance, the type and method of gathering supply chain data can vary from country to country.
Community engagement has a key role to play in storage proliferation
In further discussions with Francesch, he noted that renewable energy proliferation overlaps with ESG strategies. For instance, pure profit alone does not drive renewable energy projects, and motivating factors can include environmental protection, tackling energy poverty, and community empowerment/engagement. Hence, community engagement activities form part of Glennmont's strategy - implementing solar panels into public and municipal buildings, engaging local facilities and charities, and contributing to agrivoltaics, which seeks maximum synergy between photovoltaic energy and agriculture by installing solar panels on farmland.
Why is this strategy so important?
"We are pushing these projects more and more in rural areas; the pushback we see is more vigorous every time," Francesch commented
"The Not-In-My-Backyard attitude is prevalent across European markets, and people are now more organised through social media. Pushback is very harmful to the cause, and critics do not offer solutions; it is up to developers like Glennmont to provide solutions like those listed above. People care about climate change, but shorter-term issues seem to have more attention."
Maintaining project support is crucial; developers need to continue engaging with the local community even after deployment. BNZ is looking to implement a 'Community Manager' model for its Iberian assets to further place a human face on the projects. In addition to community engagement, community development and transparency is also crucial. For instance, it is vital to outline the number of local jobs created by the projects, not just presenting data on the overall number of jobs created, which can include 'imported' jobs. Presenting such data will improve the quality of project-related information, can even help combat greenwashing and reduce the aforementioned pushback.
The future looks very optimistic
The battery storage market's current activities and business models are critical to its growth. The current challenge other than capacity development, is building credibility around the battery storage asset class and addressing general political debate around renewables and ESG. Once the industry surmounts these political and messaging challenges, more traditional market barriers such as planning permits and regulation do not present many additional risks.
Glennmont is focussing on strategic issues within the market. The lack of supply chain information prevents perfect knowledge of battery compound markets but pressing suppliers for more data helps Glennmont fulfil its responsibilities within the market. Additionally, the battery storage market is less developed than the classical renewables (wind and solar) market but will soon face similar challenges as the storage market matures.
Glennmont and BNZ look to enter markets where regulations are favourable regarding planning permits. With the drums of energy independence beating louder across Europe because of the recent geopolitical tensions, faster permitting and better regulations will become top priorities. Market entry timing is also paramount. Timing is crucial at a relatively early stage of market penetration in battery storage because "if you arrive too late, the upside will be very marginal" according to Jordi Francesch. One of the issues participants should also not ignore is that of supply chain – "there are not enough battery production facilities, so you have a lead time that is very significant".
On commenting on how an industrial-scale battery storage strategy can fit within the BNZ and, ultimately, Glennmont's portfolio, Francesch stated that it would be an integrated feature and not a standalone one, using battery storage to "optimise and maximise" the value of the portfolio, maximising PPA values, and leveraging all commercial channels.
These comments corroborate what inspiratia has learned from its conferences about the value battery storage brings to the renewables market. However, it also highlights areas, such as ESG, where participants must pay attention to give even more value to the local communities where these projects deploy.
