Risk, returns, and revenue certainty

Key findings

The data and insights in this report are based on our survey of 550 investors, lenders, developers, and suppliers across the global energy storage sector. Here, we explore what’s driving decisions on investment in battery energy storage systems (BESS) in three markets where the trends and contrasts are especially revealing: Japan, Singapore, and Australia.

1. Policy certainty is a competitive advantage 

Regulatory stability and revenue visibility are central to investor confidence. Survey respondents from Singapore (59%) and Japan (44%) attach far more importance than global average (31%) to predictable market rules when assessing BESS opportunities.

2. Japan stands out as a relatively low-risk, low-return market

The Japanese market displays the most conservative return expectations from storage assets. Not one Japanese survey participant demands an equity internal rate of return (IRR) above 15%, while 25% are comfortable with 8-10%. In contrast, a third of Singaporean respondents require returns above 15%, and half target 8-10% IRR – indicating a much broader range of risk appetites. 

3. Market views on merchant exposure vary widely

Our findings highlight fundamentally different views on energy trading risk and revenue bankability across the three markets we analyzed. Only 22% of Japanese respondents find standalone merchant-exposed storage attractive, compared with 63% in Singapore and 53% in Australia.

4. Grid constraints are becoming a financing issue

Grid access has evolved from a development challenge into a key financing consideration, particularly in Japan. Three quarters of Japanese respondents identify grid congestion, non-firm connections and curtailment exposure as a key source of disagreement between sponsors and lenders. That’s far above the global average (29%) and the proportions in Singapore and Australia.  

5. Data centers are reshaping investment strategies

Expanding demand for power from AI and data centers is reshaping the market. Around half of Singaporean survey participants, and 22% of Japanese respondents, consider hyperscalers and large corporates to be "very important" counterparties for storage investment decisions.  

Regulatory predictability means clearer revenue frameworks. Investors in Singapore and Japan place considerable emphasis on stable market rules, making policy certainty a key factor in capital allocation. Markets with such conditions will be best placed to attract long-term storage investment. 

Stable market rules are paramount for investors assessing battery storage investment opportunities in Japan, Singapore, and Australia. In fact, they’re becoming as important as the scale of the opportunity itself.

Among the countries covered by our survey, Singapore offers the clearest example of this trend. Here, 59% of respondents identify the predictability of storage market rules as a key factor when making investment decisions. That’s almost double the global average (31% – see figure 1). 

In Singapore’s relatively small power market, storage projects derive value from ancillary services, grid support, and market participation rules. So investors place a premium on regulatory certainty and long-term policy consistency. 

Singapore’s small, more centrally planned power market also drives a stronger demand for certainty over how and where BESS assets will generate value. More Singaporean respondents (41%) prioritize a clear market need or use case than their counterparts in Japan (31%) or Australia (just 10%). The lack of preoccupation with use case in Australia may reflect the maturity of the sector here, where the value proposition for battery storage is well established.

A similar picture applies to targeted policy and revenue support mechanisms, cited by 38% in Singapore, compared to 26% in Australia and just 19% in Japan. 

Returning to regulatory stability: Japan follows a similar pattern to Singapore, with 44% of survey participants underlining the need for predictability of storage market rules.

There are two key reasons for this, as Jun Kasamatsu, Head of Japan at Green Giraffe Advisory, underlines. “First, storage assets are inherently more exposed to market design than traditional infrastructure assets,” he says. As such, their economics depend on how the wholesale arbitrage, balancing services, and capacity markets work, and how the rules evolve. For instance, a recent reduction in price cap introduced in the capacity market has dampened returns, reducing its attractiveness. 

Second, Japanese infrastructure investors place significant value on revenue visibility and downside protection – for which they’ll accept relatively modest returns. “Recent interventions, like that seen in the capacity market, have made them more cautious,” says Jun.

At the same time, Japanese respondents place more emphasis on the maturity of gentailer markets than elsewhere (44%, compared to 36% in Australia and 26% in Singapore). This may reflect the importance of large integrated utilities in Japan’s power market. For storage investors, established gentailers can provide access to trading, balancing, and offtake opportunities, underpinning more predictable revenue streams.

The focus on policy stability and revenue visibility may be linked to Japan’s and Singapore’s dependance on imports, which exposes them to fluctuations in global fuel markets. Stable market rules and regulatory frameworks can help to offset this uncertainty, by bringing greater confidence in how storage assets will generate revenues over the long term.

Regulatory predictability is less crucial for investors in Australia. Only 18% of Australian respondents see it as crucial to BESS investment decisions – far less than in Singapore or Japan. Investors seem to view Australia's regulatory framework as relatively mature and established. Instead, they place greater emphasis on gentailer market maturity (36%); data center growth trajectory (36%); grid access and connection terms (34%); and supply chain depth and delivery capability (34%).

In summary

Expectations for storage investment returns vary significantly across Japan, Singapore, and Australia. Rather than reflecting a single investment profile, each market is characterized by its own risk and return dynamics. 

Japan stands out as the low-risk, low-return market among the three. This is consistent with investors' preference for stable and predictable cash flows throughout the infrastructure space in the country. The dynamic is changing, however, as the economy emerges from a long period of low inflation.

Singapore has the widest range of return expectations, suggesting a market attracting both infrastructure-style investors seeking stable returns, and those interested in higher-growth opportunities.

Australia demonstrates the strongest consensus around acceptable returns, indicating a relatively aligned view of project economics, revenue opportunities, and market risks. This reflects a more mature market, where participants have greater confidence in how storage assets are likely to perform.

Our survey reveals a striking divergence in minimum return expectations between storage markets across the three countries (see figure 2).

Japan appears to be the most conservative. Half (50%) of Japanese respondents say they target 11-12% IRRs, while a further 25% are comfortable with just 8-10%. Surprisingly, none expect returns above 15%.  

Japan's energy (and wider infrastructure) investment market is defined by low risk tolerance. Investors prioritize revenue certainty, favoring stable, contracted cash flows over higher-risk returns from merchant-oriented markets.

This is partly a factor of the country’s macroeconomic environment, says Jun Kasamatsu.

For the past thirty years or so, Japan operated in a climate of exceptionally low interest rates. “That meant a reduced cost of capital, with domestic investors requiring moderate returns from infrastructure and other real asset classes,” he explains. 

This is changing, however. Japan is now experiencing sustained inflation, the cost of capital is rising, and return expectations are increasing accordingly.

With the widest spread of return expectations, Singapore sits at the other end of the spectrum. 50% of respondents target 8-10% IRRs, while 33% eye returns above 15%.

This points to a market capable of attracting a broad mix of investors: infrastructure-style capital and those pursuing higher return opportunities. Singapore offers a combination of regulatory stability and upside potential. A transparent regulatory environment, and confidence in market rules, appeal to infrastructure-style capital seeking predictable risk. Yet the relatively young storage market is merchant-exposed, creating opportunities for higher returns through energy trading, ancillary services, and market optimization.

Australia, meanwhile, shows the strongest consensus around a single return threshold. Some four fifths (79%) of Australian survey participants fall into the 11-12% IRR band, compared with 50% globally. Only 17% are satisfied with IRRs of 8-10%, while very few (4%) are looking for 13-15%. Given the maturity of the Australian market. investors have a clear view of development costs, revenue opportunities, and market risks, which helps to align risk tolerance and return expectations.

In summary

Our findings highlight a sharp divide between investors when it comes to merchant exposure. 

Those in Japan are more cautious than their counterparts about standalone merchant revenue models, just as they are about return expectations. Singaporean respondents appear more comfortable with merchant revenue exposure and wholesale market participation. Australian investors prefer business models that combine market upside with clear revenue visibility – through customer-backed, contracted, or regulated arrangements.

Views on merchant revenue exposure are where the three markets diverge most clearly.

Only 22% of Japanese respondents view standalone merchant batteries as attractive investments – far below the global average (68%). Their preference is for contracted revenue structures, co-located storage, and hybrid platforms (44%).

Once again, the country’s more conservative investment approach is evident here. As we saw in the previous section, Japanese investors prioritize revenue certainty and downside protection over higher-return merchant opportunities – particularly as Japan's standalone BESS market is still young. 

“Given that grid scale BESS remains a relatively new asset class in Japan, investors and lenders are understandably looking for a sufficient operating track record to assess how revenues and asset performance hold up under different market conditions,” says Jun Kasamatsu. 

This is particularly relevant for merchant BESS projects, where the financing proposition differs significantly from projects supported by long term contracted revenues.

“In our experience, lenders take a more conservative approach to merchant revenues because of the inherent difficulty of forecasting electricity and ancillary service markets over a 15- or 20-year financing horizon,” Jun explains. “That can translate into more conservative revenue assumptions, higher DSCR requirements, and ultimately lower leverage. A credible operating and optimization track record can help provide comfort, but the fundamental issue is the predictability and bankability of the underlying cash flows.”

Singapore shows a stronger appetite for merchant risk: 63% of respondents view standalone, merchant-exposed storage as attractive or highly attractive, compared with 53% in Australia.

Australian respondents favor storage models with clearer, more predictable revenue opportunities. Their preferred model being behind-the-meter storage, serving data centers and commercial and industrial customers – described by 71% as attractive or highly attractive. That's closely followed by contracted or regulated grid-connected storage (68%). 

It appears Australian investors aren't avoiding merchant exposure altogether. But they prefer projects with revenues supported by a specific customer, contracted arrangements, or regulated mechanisms.

In summary 

For storage projects, grid-related issues are no longer confined to the development phase and permitting process in the three markets. 

Increasingly, grid congestion, connection uncertainty, and curtailment risk are influencing financing negotiations, the execution stage, and transaction outcomes. Our findings suggest that in time, grid access may become as important to project bankability as access to capital.

Grid-related challenges are among the biggest constraints on battery storage deployment across Japan, Singapore, and Australia. But as our survey indicates, the nature of those challenges varies considerably between markets (see figures 3 and 4). 

In Japan, 75% of survey participants identify grid congestion, uncertain connection terms and exposure to curtailment risk as a common source of disagreement between sponsors and lenders. That’s far higher than the global average (29%), or the pattern in Singapore (36%) and Australia (just 13%). 

Like in many countries, Japan's electricity system wasn’t designed for the scale and geographical distribution of renewable generation we’re now seeing. But as Jun Kasamatsu explains, the problem is exacerbated in Japan by two factors. 

One is geography: the country is an archipelago, which poses an interconnection challenge. The other is the electricity market’s monopolistic background. While there’s no longer a single national utility, each region still has one major provider controlling its own grid. This fragmentation creates a significant bottleneck.

So grid access is not simply a development-stage issue for storage projects in Japan, where growing renewable deployment is creating congestion. It’s also a key financing and risk-allocation challenge. 

Counterintuitively, however, that may explain why no Japanese respondents point to grid uncertainty triggering re-trading or additional conditions precedent (CP). Given their prominence, local grid constraints are factored into financing negotiations, and so are less likely to crop up at the execution stage.

There’s a very different picture in Singapore, where grid-related issues are a concern throughout the project lifecycle. Grid connection uncertainty is a prominent source of sponsor-lender disagreement (36%). And it's the leading trigger for re-trading and additional CP (50%, compared with 17% globally). In a smaller, more tightly managed power system, project viability can depend heavily on obtaining the necessary connection arrangements – and doing so in a timely fashion.

Australian participants perceive greater challenges at the execution stage than during development: 40% cite grid connection uncertainty as a trigger for re-trading or additional CP. Far fewer (13%) see connection issues as a major source of sponsor-lender disagreement. Sponsors and lenders appear aligned on the existence of connection risk. But uncertainty of timing and delivery can still lead to additional protections or revised terms as projects progress toward construction.

In summary

Hyperscalers are becoming more relevant to storage investment decisions, although their influence varies significantly across the three markets and is currently strongest in Singapore.

Renewable integration, and the need for grid stability remain the primary drivers of demand for storage. But data centers and AI platforms requirements are driving opportunities for storage projects to secure long-term customers and more predictable revenue streams.

As AI deployment continues apace, hyperscalers, and AI-related electricity demand are having a mounting influence on storage investment decisions (see figure 5). But our findings suggest that investors view hyperscalers as one of several key customer groups, rather than a dominant source of demand. 

Their impact is clearest in Singapore, where the majority (54%) of survey participants describe hyperscalers as "very important" counterparties. 

Japan follows, on 22%. For many years, the assumption in Japan has been one of flat or declining electricity demand, due largely to demographics. The emergence of AI, data centers, hyperscalers, and the associated semiconductor manufacturing has reversed that – along with a drive to boost renewable generation and energy independence.  

“This is where energy storage will play a major role,” predicts Jun Kasamatsu. “Data centers, renewable generation, transmission, and energy storage are becoming increasingly interconnected investment themes.”

In Australia, by contrast, only 13% of respondent view hyperscalers as "very important" counterparties. The country's BESS market was historically driven by grid-scale applications like energy arbitrage, ancillary services, and renewable integration, not dedicated data-center demand. Australia is now inevitably seeing significant investment in data centers. Yet investors continue to view utilities, retailers, and broader wholesale market opportunities as primary revenue sources for storage assets. 

Of course, traditional demand drivers, such as renewable integration and grid stability, remain central to storage deployment. But our findings reflect how large corporate buyers are becoming increasingly important to storage investment strategies across the three countries. 

Battery storage markets in Japan, Singapore and Australia are converging around the need for power-system flexibility. But they’re diverging sharply in terms of how investors assess risk. 

Japanese investors show a marked preference for contracted revenues, a willingness to accept lower returns, and a strong sensitivity to grid constraints. For its part, the Singaporean market combines high demand for regulatory certainty with greater openness to merchant opportunities. And while Australian respondents remain open to merchant exposure, they show a clear preference for revenue structures linked to identifiable customers or contracted arrangements. 

Overall, our survey findings point to successful storage investment strategies in Japan, Singapore, and Australia that depend less on technology selection and more on understanding how local market structures shape risk, returns, and bankability.

Methodology 

The research for this report was carried out by Censuswide with a sample of 50 participants in Australia and 50 participants across East Asia (Japan and Singapore), including private equity investors; institutional investors; project owners and developers (including utilities, energy companies, and corporates); financial advisors; commercial banks; energy storage developers; and independent power producers.

As respondent numbers vary across individual survey questions, results based on smaller sample sizes should be viewed as directional indicators of market sentiment.

Censuswide is a member of the Market Research Society (MRS) and the British Polling Council (BPC), and a signatory of the Global Data Quality Pledge. It adheres to the MRS Code of Conduct and ESOMAR principles.

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