Hybrid commercialisation will unlock funding for much-needed BESS capacity

The global pace of new wind, solar and other clean energy projects coming online, together with the plunging costs of utility-scale battery technology, has created favourable circumstances for developers to pursue new commercialisation pathways for energy storage schemes.

Ongoing innovations in battery technology mean energy storage is falling in price at a time when demand for extra capacity is rising.

At the same time, institutional investors are seeking new clean energy ventures to finance: in April, the Financial Times reported that investment banks and brokerages worldwide have seen a surge in investment in clean energy companies and funds.

Surge in investor interest

More recently, at London Climate Action Week in July, then energy secretary Ed Miliband confirmed that the UK’s renewables sector had secured £100 billion in private investment during the two years since July 2024, as part of a wider global boom in clean energy.

The current surge in investor interest in clean energy is in response to rising prices for fossil fuels along with growing uncertainty over future supplies caused by the war in the Middle East.

The missing piece of the puzzle is a risk-managed funding model that investors are comfortable with, which offers them the predictable returns they need to commit long-term backing to a Battery Energy Storage System (BESS) project.

In a shifting geopolitical and policy landscape in which investors are looking for certainty, the onus is on developers to de-risk battery storage as an asset class for investment.

They need to encourage backers to invest in BESS as a specific asset class ahead of other renewables-related assets with the prospect of steady, stable returns.

To date, the business model for battery storage in the UK mainly relied on mostly merchant projects – that is, revenues being derived from direct exposure to wholesale, ancillary services and imbalance markets.

Although a merchant strategy provides great upside potential, investors are increasingly looking to reduce their risk profiles with projects being partially or even fully contracted on the rise in the UK.

By combining the merchant business model with longer-term BESS revenue contracts, a developer can materially de-risk the development of energy storage by delivering stable revenues and providing reasonable upside potential as well.

The onus is on developers to build awareness of these so-called hybrid offtake agreements and to encourage more investors to invest in battery storage as a new type of low-risk asset class.

Current credible examples

Eku Energy’s own 10-year tolling agreement with independent UK electricity provider SmartestEnergy for its 99MW/198MWh BESS project at Ocker Hill in the West Midlands region of the UK. Eku and SmartestEnergy finalised the agreement terms in early 2025 and the project will be fully operational by the end of this year.

This long-duration, fixed-price tolling agreement was the longest of its kind when it was signed. It provides a credible, scalable model for how battery storage developers can engage with institutional investors and provide regular low-risk returns.

SmartestEnergy is owned by Marubeni Corporation, one of the largest trading houses in Japan. Its involvement demonstrates the growing appetite among large-scale investors worldwide to back storage assets in recognition of these projects’ value in underpinning renewable energy supplies.

Our deal with SmartestEnergy shows that battery storage can now be a low-risk asset for investors to buy into with confidence. This innovative hybrid model is breaking new ground in financing for BESS and delivering positive returns for our offtake customers.

An integral part of phasing out fossil fuels and transitioning to renewables is having the necessary large-scale battery storage resources in place with which to manage the supply of clean power being generated.

By storing surplus clean energy and discharging it back to the grid as and when it’s needed, grid-scale batteries are the answer to the twin criticisms constantly levelled at renewables: intermittency and curtailment.

At the same time, the ongoing conflict in the Middle East has choked off global oil and gas supplies and created yet another energy crisis – the second in five years – that puts the UK’s economy at risk and threatens to trigger another multi-year cost of living problem for households.

Viewed in this way, the UK’s need to grow its grid-scale battery base is not just a cornerstone for decarbonising the country’s energy system. It’s also a priority for the country’s economic resilience and bolstering national security, in terms of achieving a greater level of energy independence with renewable power generated here at home.

These circumstances therefore present a significant opportunity for BESS developers and investors alike.

Developers get to meet the UK’s growing demand for energy storage and secure their share of the expanding market for BESS projects and grid-related services. Investors benefit from a stable financial vehicle that delivers steady, reliable, long-term returns.