Risk-adjusted preferences of utility companies and institutional investors for battery storage and green hydrogen investment

Achieving climate-neutrality requires considerable investment in energy storage systems (ESS) to integrate variable renewable energy sources into the grid. However, investments into ESS are often unprofitable, in particular for grid-scale battery storage and green hydrogen technologies, prompting many actors to call for policy intervention. This study investigates investor-specific risk-return preferences for ESS investment and derives policy recommendations. Insights are drawn from 1,605 experimental investment-related decisions obtained from 42 high-level institutional investors and utility representatives. Results reveal that both investor groups view revenue stacking as key to making ESS investment viable. While the expected return on investment is the most important project characteristic, risk-return preferences for other features diverge between groups. Institutional investors appear more open to exploring new technological ventures (20% of utility respondents would not consider making investments into solar photovoltaic-hydrogen), whereas utilities seem to prefer greenfield projects (23% of surveyed institutional investors rejected such projects). Interestingly, both groups show strong aversion towards energy market price risk. Institutional investors require a premium of 6.87 percentage points and utilities 5.54 percentage points for moving from a position of fully hedged against market price risk to a scenario where only 20% of revenue is fixed, underlining the need for policy support.

Automated summary

Achieving climate-neutrality requires significant investment in energy storage systems (ESS). However, such investments are often unprofitable and require policy intervention. This study explores investor preferences for ESS investment and finds that revenue stacking is crucial for its viability. Institutional investors are more open to new technological ventures, while utilities prefer greenfield projects. Both groups are averse to energy market price risk, emphasizing the need for policy support.