Valuation in the energy storage sector - an investor perspective

Sammanfattning: This study will examine a strategy for evaluating energy storage projects by integrating valuation metrics from finance and the energy sector. Uncertainty is one of the key barriers to investment in the energy sector (Shimbar & Ebrahimi, 2017, p. 349) and therefore financial modeling that allows comprehensive valuation of energy investment is necessary (Berrada, 2022, p. 407). The purpose of the study is to propose a strategy for evaluating energy storage projects that applies to investors and decision makers.  LCOS is a necessary component of energy storage project valuation, as it considers both the financial and technical performance of energy storage systems (ESS). Existing research in the field has contradictory opinions regarding the usefulness of LCOS and traditional financial valuation models for investment decisions in the energy storage sector. Few studies have combined modeling from the financial and energy sector. The authors have identified a need to introduce an investor perspective to business research in the energy storage sector. The authors conduct an explorative mixed-method study with an underlying non-positivist philosophical position. The case study design includes creation of five hypothetical energy storage projects to simulate an investment scenario. The authors utilize a point-base system to integrate valuation models from the energy and financial sectors, which include NPV, IRR, payback period, LCOS and technological maturity. Experts in the field provide input for which metrics are emphasized by practitioners. The projects are ranked based on stand-alone metrics, an integrated model and expert opinion. The results indicate that integrating numerous valuation metrics is necessary for analyzing and comparing energy storage investments. The financial viability of projects change based on individual metrics and integrated financial models. Furthermore, the results indicate that LCOS should be reinforced by financial indicators when making investment decisions. The expert input shows that investors emphasize valuation metrics differently, which indicates that the economic attractiveness of energy storage projects varies among investors. IRR is used by practitioners as a primary indicator for profitability. Future research should investigate a method for including sustainability indicators in the valuation process. Furthermore, as data accessibility is an issue in the field of study, future studies should collaborate with practitioners to generate more secondary data sources. Lastly, the impact of discount rates, risk premiums and investor preferences should be researched to better understand investment in the sector.