The CFO’s guide to Battery Energy Storage Systems
As energy moves from merely an OPEX to a significant risk to margins, cash flow and operations, leaders are seeking ways to protect their organisation. And battery energy storage systems (BESS) are emerging as a compelling solution. This guide explains what BESS is, the benefits it can provide, available financing options and key considerations for CFOs.
Key takeaways
- Energy is now an operational risk – and battery energy storage systems are becoming an increasingly compelling mitigation tool
- BESS can turn a cost centre into a value generating asset
- Six considerations for CFOs exploring BESS
If energy is one of your business’s largest overheads, you’re not alone. It often represents up to 30% of total overheads for businesses. In today’s environment, it’s becoming increasingly challenging to manage.
Australia’s wholesale electricity market is the most volatile in the world. Energy demand is surging, driven by data centres, new technology and industrial growth. Extreme weather events are more frequent, amplifying the risk of power outages. This creates the perfect storm – one that puts immense pressure on the cash flow and profitability of businesses across the country.
Today, forward-thinking CFOs and procurement managers are proactively managing their energy risks to minimise uncertainty and cost hikes.
And to take control, many are exploring how pairing solar generation with battery energy storage systems (BESS) can provide cash flow benefits and maximise energy savings and resilience. Three elements are making BESS increasingly compelling:
- Volatility of energy prices
- BESS’s increasing affordability
- Growing government support for clean energy.
Importantly, BESS can transform energy from an OPEX drain into a potential revenue stream.
What is BESS and why should CFOs pay attention?
A battery energy storage system (BESS) stores the energy solar panels capture and releases it when energy is more expensive or needed.
Australia has become the third largest utility battery market in the world – propelling BESS into a maturing, credible asset class. And using it to set up your organisation’s own energy infrastructure can bring compelling financial value.
The benefits of BESS include:
- Resilient energy supply that avoids downtime and relevant financial losses
- Lower, more stable energy costs
- Additional revenue generation, allowing organisations to sell energy back to grid
- Supporting ESG initiatives, credentials and net zero goals.
Quality BESS technology automates smart controls that maximise financial outcomes. For example, it can lower energy consumption from the grid during peak periods. At off-peak times, it can soak up excess energy for later use and participate in lucrative energy trading and grid services.
What are the costs of investing in BESS?
The decision to lease or buy BESS comes down to your financial strategy.
If you have strong balance sheets, working to long time horizons, and have active asset management capability, buying might be the smart option for you.
But if you are focused on cash preservation, after OPEX predictability, and have limited internal energy management capability, leasing could be the right choice.
Explore the benefits and downsides of buying and leasing across 10 financial factors below.
Low.
Harder to exit or upgrade. Re-sale efforts.
Higher.
Lease end provides natural exit or upgrade point
Six questions for CFOs considering BESS
1. Have we done a detailed analysis of our energy risks, usage and tariffs?
Mapping out your organisation’s energy risks is the first step to developing a strategic plan for how improving usage and equipment and reduce costs.
2. What are our use cases for BESS?
Once you understand your energy risks, usage and costs, consider exploring how BESS can help you improve your operations and bottom line. Some use cases include:
- Providing back-up power during outages
- Storing cheap energy (excess solar or off-peak grid energy) for later use
- Improving power quality
- Removing grid supply constraints
- Reducing peak demand charges
- Revenue stacking
3. How does BESS fit within our financial strategy?
Answering this question will help you determine what investment path you go down on – buying or leasing. Use the table above to help you with the decision.
4. How does BESS support our sustainability commitments?
BESS can advance your ESG goals by integrating renewable energy into your operations, reducing your carbon emissions, and improving your organisation’s energy resilience. Evaluating its role in your sustainability commitments can help you decide whether it’s right for you.
5. What is the projected internal rate of return and payback period? And what assumptions are we building these on?
Understanding the investment required and return expected is important. And being clear about the assumptions you’re building these on is critical.
Building a business case built on optimistic price forecasts, low discount rates, and minimal degradation assumptions can produce a compelling – yet unrealistic – return rate. Equally, an overly conservative case might undersell returns and lead you to walk away from a genuinely value-creating asset.
6. What are the costs and implications of the status quo?
As with any new investment, the biggest question to ask is “Can we justify it?” But with a volatile energy market, increasing demands and grid failures, not acting may end up costing you more. Rather than treating your current state as simply a baseline, consider the future implications of continued grid reliance – and compare potential outcomes.
When does BESS makes financial sense?
Here are a couple of scenarios where BESS could be the right option.
Scenario 1 - Food manufacturer looking to cut costs
A large food manufacturer in New South Wales runs energy-intensive refrigeration, processing lines, and packaging equipment across a single site. It wants to reduce energy costs as its electricity bill is substantial, because multiple production lines start simultaneously, often during peak consumption times.
Installing BESS will reduce consumption spikes and demand charges by using solar energy during busy periods, charging from the grid cheaply overnight and sending energy back to the grid during expensive daytime periods, adding an additional income stream.
Scenario 2: A hospital where outages can be catastrophic
A private hospital group operates across three campuses in South Australia, running theatres, ICUs, pathology labs, and data systems around the clock. Grid outages are operationally and reputationally devastating, and their existing diesel backup is slow, expensive, and doesn’t support the group’s sustainability commitments.
Running back-up on a BESS can be a game-changer for the group. BESS reacts in milliseconds, with potentially life-saving implications. It also reduces emissions and can create revenue by selling stored energy back to the grid at peak times, when it’s not needed for backup.
Scenario 3: Data centre that relies on energy resilience
A large data centre in Victoria runs mission-critical cloud infrastructure for enterprise and government clients with strict uptime service level agreements (SLAs) in place. Outages are not an option. Even a second downtime can cause an SLA breach, unforeseen costs for clients and significant reputational damage.
BESS provides instant, sustained backup, while generating demand charge savings and revenue during normal operations – providing the resilience clients demand and additional revenue generation opportunities in one system.
Turning instability into value
Australia’s energy market is volatile, and the associated risks are significant. The CFOs staying one step ahead are assessing the impact of energy supply and cost stability on their cash flow and margins and looking for proactive ways to manage risks.
Because in an environment defined by price volatility, grid instability and rising demand, the cost of inaction may exceed the cost of investment.
BESS is becoming a credible asset that helps cut costs, ensure stability and convert energy from an overhead into a revenue generator.
The question is: do you want to wait for stability to return? Or would you rather build it into your infrastructure?
We offer tailored finance solutions for BESS that creates long-term savings and energy security for your business. Chat to us today to learn more.