Battery revenues have increased so far in 2024, from a winter low. We estimate that battery revenues must increase further to ensure an investable rate of return on the upfront Capex investment required - equivalent to around £550k/MW for a two-hour system.
But what level do revenues need to reach in the long-term for a positive business case, and how do investors manage the risks associated with these projects?
This article was updated in Q4 2024 with the latest revenues from version 3.2 of the forecast and Capex data from our industry survey. For more details on the GB BESS Outlook, head to our executive summary here.
Two-hour batteries see average IRRs of 10.7%, but this depends on the region
The Unlevered Internal Rate of Return (IRR) is often used to assess the viability of an investment in a project. It helps to determine whether the long-term revenues from a project are sufficient to justify the initial capex investment and associated risks. A hurdle rate of 10 to 12% - the IRR required for a project to be investable - is typically used.
Across all runs in Modo’s run library, IRR ranges from -10% to 15% when using our base case Capex assumption. This depends on factors including a battery project’s location and duration, as well as the macro revenue scenario.