What is it worth?
From project NPV to European system value: can BESS investment meet Draghi's challenge?
How do you measure the value of a battery? Your answer will depend on knowledge of batteries, your circumstances, which corner of the industry you’re in, the structure of incentives relevant to you, your interpretation of the regulatory framework, and perhaps the economics courses you remember.
How do you approach conflicting values? Think about the interactions you have had over the last month or so: do you try to persuade or explore?
Consider the dialogue between Socrates and Gorgias. Gorgias presents rhetoric as power through persuasion while Socrates values argument to correct false belief and says he is at least as glad to be refuted as to refute.
Of what sort am I? One of those who would be glad to be refuted if I say anything untrue, and glad to refute anyone else who might speak untruly; but just as glad, mind you, to be refuted as to refute, since I regard the former as the greater benefit, in proportion as it is a greater benefit for oneself to be delivered from the greatest evil than to deliver some one else. For I consider that a man cannot suffer any evil so great as a false opinion on the subjects of our actual argument. Gorgias 458a–b
Are we genuinely interested in finding out whether our views are justified? Have we become skilled at defending something whose basic premises we no longer think to question?
Bubbles are sustained by the confidence that uncertain value has nevertheless been measured precisely: your model produces a number, the methodology is trusted by the people you trust, the market view has become common sense.
Are we living in bubble? I don’t know. But it’s good to step out of our valuation frameworks once in a while more broadly. If you’re an investor in BESS, say, NPV, IRR, WACC are certainly useful, but it is hot at the moment and nuclear reactors are being switched off. What do you think about those developments? Is there a link to your next investment decision? Should there be?
In France, RTE estimates that thermal-discharge limits reduced effective nuclear availability by as much as 8 GW in late June and 9 GW around mid-July. National margins remain positive (RTE, p. 22). How about in a future, even hotter summer?
Cooled by the Danube, Paks reduced due to record-low water, cutting Unit 1 by 254 MW on 27 July and Unit 3 by 237 MW the next day (MVM, 27 July; MVM, 28 July).
In Romania, Nuclearelectrica put Cernavodă Unit 1 into controlled shutdown on 28 July and Unit 2 on 13 August as river levels fell (Unit 1 notice; Unit 2 notice). Krško is in operation and within its Sava temperature-rise limit on the morning of 15 August (NEK). Again, do we think this year is the worst it can be?
What role could well-placed BESS play to make the system more resilient and effective? Could strategic placement and operation lower system costs, relieve constraints or insure against shortage by enough to justify a dedicated European BESS-buildout policy?
Think back to the Draghi report and how it highlights the importance of lower energy costs and a collective European focus on grids.
Imagine you’re an EU policymaker who has taken this to heart and you’d like to find the most valuable contribution BESS could make for the EU grid. BESS are fast to build, if placed strategically they might create a net welfare benefit that justifies innovative public-private partnership towards a more robust and cost-effective European energy system. That’s your hypothesis.
Our aim in this post is to suggest a value-framework that connects two perspectives: the private and the public, the asset-focused investment view and the policy view. We put the two side by side and sketch how they might be brought into a continuous feedback loop powered by a desire for productive refutation.
“The EU should also de-risk and mobilise private investment in clean tech. Several instruments exist already but should be increased in size, better target clean technologies via dedicated windows, cover first deployments/‘first of its’ kind technologies, and leverage public-private partnerships.”
p.136, Draghi Report, Part B.
