How is the energy system evolving, and where does storage fit within that transformation?

How is the energy system evolving, and where does storage fit within that transformation?

The transition to a low-carbon economy is reshaping the energy system from one built around controllable fossil-fuel generation to one increasingly powered by variable renewable electricity. Renewables reached a record 33.8% of global power generation in 2025, overtaking coal for the first time, and are projected to rise to 43% by 2030. This growth is supported by a step change in deployment, with around 4,600 GW of new capacity expected between 2025 and 2030, double the additions seen over 2019 to 2024. Crucially, this accelerating renewable deployment is driving a corresponding need for energy storage: the faster renewables grow, the more essential storage becomes to integrate that variable generation into a reliable electricity system. This transformation is being driven by the broader trend of electrification, the development and increasing adoption of technologies such as electric vehicles, heat pumps and electrolysis as well the need to power AI and data center growth.

As renewables make up a larger share of electricity supply, however, the production, transportation, trade, and consumption of energy has shifted. Unlike conventional power stations, wind and solar generation depends on weather conditions rather than demand. The challenge shifts from producing enough energy over a year to ensuring electricity is available at the right place and time. As a result, electricity grids must become “bigger, stronger and smarter” to support rising demand and renewable integration.

Energy storage sits at the centre of this transformation. It helps manage the variability of wind and solar, absorbing surplus power when renewable generation is high and releasing it when demand increases or supply dips. It is a tool providing the flexibility to balance supply and demand across power, heat, hydrogen and other energy vectors, supporting network resilience, and deferring costly grid reinforcement projects. Beyond its role in renewable integration, storage delivers standalone value to the energy system: it strengthens grid stability by providing rapid frequency response and voltage support, enhances energy security by reducing dependence on imported fuels and peaking plants, creates new revenue streams through arbitrage and ancillary services markets, and enables network operators to defer or avoid expensive transmission and distribution upgrades. In doing so, storage supports the wider sustainability transition by enabling higher levels of renewable generation, improving energy security and reducing reliance on fossil-fuel peaking generation.

In practical terms, energy storage is evolving from being a supporting technology into a core infrastructure asset, particularly where it is co-located with renewables or used to provide capacity, trading and grid services. This evolution reflects storage’s ability to not only meet demand but to also stack multiple value streams—from wholesale market arbitrage and capacity payments to frequency regulation and black start services—making it commercially viable even in systems with lower renewable penetration.

What are co-located and hybrid energy projects and why are they becoming more prominent?

Co-located and hybrid projects are a practical response to the transition to a low carbon economy, enabling higher levels of renewable generation while making more efficient use of constrained grid infrastructure and supporting a more resilient energy system.

A co‑located energy project is where two or more energy assets (typically generation + storage) are built on the same site and share a grid connection point. A hybrid energy project also combines multiple technologies at a single point of interconnection, but usually implies a higher level of integration, where the assets are operated in a coordinated or co‑controlled way to optimize performance and market participation.

As renewable generation increases and electricity demand grows through electrification, balancing supply and demand becomes more complex, increasing the need for flexible assets such as battery energy storage. As grid capacity becomes increasingly constrained and renewable generation expands, co-located and hybrid projects allow developers to make better use of existing infrastructure, optimise energy flows between technologies, reduce curtailment, participate in multiple electricity markets and improve the commercial viability of projects. By making more efficient use of land, grid infrastructure and renewable generation, co-located projects also reduce curtailment and support a more resource-efficient energy system.

The data from our Capital Unlocks Capacity report shows strong investor appetite for both co-located and hybrid models. Among 309 respondents, 71.2% rate co-located projects as either “attractive” or “highly attractive”, while hybrid models show very similar results, with 69.9% positive ratings. Only a very small minority (2%) consider these configurations unattractive, and this pattern is consistent across all surveyed markets.

How is rising demand, particularly from data centers and AI, changing the design of energy systems?

Data centers are becoming one of the fastest-growing and most geographically concentrated sources of electricity demand, requiring energy systems to deliver significantly more capacity, reliability and flexibility than in the past. Rapid AI-driven expansion is turning access to power into a critical constraint, with global data center electricity demand projected to nearly double to around 945 TWh by 2030, according to the IEA.  At the same time, the rapid growth of AI is creating new sustainability challenges around electricity consumption, water use and emissions, increasing demand for low-carbon and resilient power supplies.

As a result, energy systems are increasingly designed around larger, more continuous electricity loads, with greater emphasis on flexible generation, battery storage and resilient grid infrastructure. Storage plays a dual role in this context: it supports renewable integration while also providing the rapid-response flexibility and backup capacity that high-reliability loads such as data centres require, regardless of the generation source. In some jurisdictions, there is increasing pressure to ensure growing digital infrastructure is powered by low-carbon electricity while maintaining affordable and reliable energy systems.

This is accelerating investment in both grid-scale and behind-the-meter energy solutions. Co-located renewable generation, battery storage and flexible demand management help improve reliability, reduce exposure to network constraints and wholesale price volatility, and enable large electricity users to secure more resilient and cost-effective power supplies. Importantly, behind-the-meter storage can provide resilience and cost management benefits whether or not it is paired with on-site renewables, offering backup during grid outages and enabling demand charge management.

The survey results from our Capital Unlocks Capacity report reinforce this trend: just over 70% of respondents view behind-the-meter storage for specific loads, including data centers and C&I customers, as attractive or highly attractive. This includes 38.51% rating it “attractive” and 31.72% “highly attractive”.

What new legal and commercial challenges arise as projects combine generation, storage and demand?

A hybrid project may act as a generator, storage operator, consumer, supplier and flexibility provider at different times. This creates questions around licensing, grid charges, balancing responsibility, taxes and whether the asset is treated as generation, consumption or both. As projects become more integrated, regulatory and contractual frameworks must accommodate assets that no longer fit traditional categories, while ensuring credible sustainability claims, effective market participation and appropriate risk allocation.

For co-located storage, the key issue is whether the battery charges only from renewable generation or also from the grid. If it charges from the grid, the project needs clear rules to ensure Guarantees of Origin or renewable claims are issued only for net renewable output and are not double counted. This is especially important for corporate PPAs, where buyers care not only about price hedging but also additionality, carbon accounting and credible renewable procurement claims.  Businesses also face increasing scrutiny over the credibility of renewable electricity claims, carbon accounting and sustainability reporting, making robust contractual structures and governance increasingly important.

Hybrid assets need both import and export capacity, while large new loads, storage and renewables are already contributing to grid queues and congestion. The IEA says lack of grid capacity is now a critical bottleneck for connecting new supply, demand and storage, with more than 2,500 GW of renewable, large-load and storage projects stalled in grid queues worldwide. This raises commercial questions around who gets grid access, whether flexible connection agreements are bankable, and how curtailment or connection delays are compensated.

The data from our Capital Unlocks Capacity report shows that, rather than introducing entirely new legal structures, the shift toward combining generation, storage and demand is reinforcing the importance of clearly defined, bankable risk allocation and revenue frameworks. Investment decisions are now driven by whether risks are identifiable, priceable and repeatable across projects, with capital flowing to jurisdictions where regulatory, contractual and delivery risks are transparent and well understood.

What does this shift towards integrated energy systems mean for businesses and consumers across the wider energy and natural resources landscape?

The move towards integrated energy systems means businesses and consumers are becoming more active participants in the energy market, rather than passive users of power. For businesses, this creates opportunities to manage energy costs, reduce exposure to price volatility, use on-site generation and storage, and participate in flexibility markets through demand response, virtual power plants or behind-the-meter batteries. Storage, in particular, offers businesses value beyond renewable integration: it provides backup power during outages, enables peak-shaving to reduce demand charges, and creates opportunities to generate revenue by providing grid services. More broadly, integrated energy systems support businesses' wider sustainability strategies by helping reduce emissions, improve resilience to climate and energy market disruption, strengthen energy security and demonstrate credible progress towards transition objectives.

Battery storage can reduce system stress, manage supply-demand spikes and provide services such as voltage and frequency regulation. For consumers, the shift could support more resilient and affordable energy, but it also depends on investment in grids, regulation and digital infrastructure.

Clean technologies such as solar, batteries, EVs and heat pumps can improve energy security by reducing exposure to fossil-fuel price shocks. Across energy and natural resources, the result is a more interconnected market where generation, storage, demand, digital infrastructure and regulation increasingly need to be planned together, shifting the focus from optimising individual energy assets to optimising interconnected energy systems.

Ultimately, the shift towards integrated energy systems reflects a broader sustainability transition, where energy, digital infrastructure, resilience, sophisticated revenue stacking and commercial strategy are becoming increasingly interconnected.