Building a battery-powered world

Investors may have room for optimism in the coming year and one key reason is the strides being made in battery technology, which is key to unlocking the potential of renewable energy. Batteries will be essential as we move towards a low-carbon economy, powering electric vehicles and storing energy generated by wind and solar farms.

While important changes like the opening up of investment opportunities in China’s financial sector and the possible impact of the Biden administration are all exciting developments for investors, it is batteries that are poised to change the world. Two recent events have caught the eye of investors: Tesla’s admission to the S&P 500* and the UK’s plan to ban the sale of new cars fuelled solely by petrol or diesel from 2030.

Aanand Venkatramanan, Head of ETF Investment Strategies at Legal & General Investment Management says: “Epitomised by the rise of Tesla, a company that we believe should be recognised as much for its battery innovation as its car design, these welcome steps illustrate how investors can focus on batteries principally as an element of the electric-vehicle revolution.”

Harnessing potential

That market, however, is only part of the role batteries will play in helping the world move to a less carbon-intensive economy. We believe they will also be vital in harnessing the potential of renewable energy. Fossil fuels have accounted for most of the world’s mix of power generation since the 1970s, but according to BloombergNEF, renewables are now poised to take the lead. Wind and solar technologies alone are expected to provide 48% of all our electricity by 2050.

Venkatramanan adds: “This progress is both exciting and essential, but the utility of clean energy will be limited without better and more extensive battery storage. Improved energy storage can help overcome the short-term intermittency – due to daylight hours or fluctuating weather – of renewable sources. Without an upgraded storage infrastructure, much of the electricity that could potentially be generated by renewables will be lost, and coal and gas-fired power stations will remain necessary to cover supply shortfalls.”

The possibilities presented by improving battery technology not only offer an opportunity for investors who want their money to have a positive impact on our world but could also increase the potential of our own direct investments in renewable energy.

Our clean energy investments

Legal & General invests directly in a wide range of renewables technology and infrastructure that will help to tackle climate change and could benefit from better batteries. This includes our investment in Pod Point*, a company rolling out electric vehicle charging infrastructure, which has already delivered 96,000 charging points. Estimates suggest there could be 11 million electric vehicles by 2030 and 36 million by 2040, all relying on batteries.

Battery technology could allow excess energy generated by wind and solar plants on windy or sunny days to be stored and used later. This could increase the efficiency of the many renewable energy plants that we invest in, including three offshore windfarms in the UK. These include Hornsea Project One off the coast of Yorkshire in the North Sea, which will be the world’s largest offshore windfarm with 174 turbines when it’s completed.

Encouragingly, 2021 should be an important year for storage capacity. The world’s largest new battery installation was completed near San Diego in August, and we expect that record to be broken again next year. For example, the new San Diego plant has a capacity of 250 megawatts (each megawatt can serve an estimated 750 homes). Another new project just south of San Francisco will provide 400 megawatts of storage when completed in 2021.

Maintaining this trajectory of progress, underpinned by the advances made in battery technology, will be critical in achieving the energy transition necessary to avert the climate emergency.