A crucial aspect of the green energy revolution is the need to store sufficient amounts of renewable energy to maintain grid reliability. Large-scale battery storage is an important part of that. Critically, when coupled with other forms of renewables – such as hydropower, wind, and solar – this will offer the ability to store a cost-competitive supply of green energy to draw on in time of shortages.
So, what is the future market potential for this technology? And for investors, will putting their capital to work in this space deliver returns?
A booming sector
The battery storage market has been growing globally in recent years. This momentum is expected to continue as more governments across the world commit to transitioning to cleaner energy solutions.
“We are adding about 300GW of wind and solar capacity each year globally,” comments Sean McLoughlin, EMEA head of industrials research at HSBC. “The energy storage market last year was about 4-8GW – a single digit. That storage capacity covers 1-2 percent of new wind and solar, non-dispatchable capacity that is brought online every year.
“This is absolutely tiny. Now, that ideally should be rising to a third. We should ideally, on the run rate we have currently in today’s markets, be close to a 100GW energy storage market, instead of 5-10GW. There is clearly a growth opportunity.”
With renewable energy targets set to increase, especially now in Europe as a result of the Ukraine-Russia conflict, the battery storage market is set for a spike in the coming years. Data published by the International Energy Association (IEA) showcases the potential global growth of the market with total installed capacity in a net-zero scenario predicted to grow significantly over the next three years to 2025, and from 148GW in 2025 to 585GW in 2030.
Countries across the globe have signalled the need to bolster innovation and research in battery storage to support decarbonisation targets and promote energy security. Take the UK as an example. The government released its energy security strategy in early April, which highlighted the urgent need to increase renewable energy production.
Within this strategy, several targets for renewable energy have been outlined, including 24GW of nuclear energy by 2050, 50GW of wind power by 2030 and increased solar energy generation. The battery storage market will be crucial to achieving the UK’s targets and to diminishing the country’s reliance on fossil fuels and gas.
“The announcement that the UK will produce more of its own energy comes as no surprise,” says Alan Greenshields, European director of the sustainable energy storage firm ESS. “However, if the UK is to accelerate affordable, clean and secure energy made in Britain, we need to increase our capacity to secure energy storage that can redistribute excess renewable generation when required.
“The bottom line is we need energy storage – and an awful lot of it, with recent research finding that the UK must produce 45GW of energy storage to reach net zero for the power sector by 2035. This amounts to eight times the current level of long-duration energy storage in the UK.
“In order to achieve the goals set out in the government’s energy security strategy and prepare for the future, the UK needs to increase long-duration energy storage solutions to support solar and wind energy sources, and transition the grid away from fossil fuels,” adds Greenshields.
With the market for battery storage growing steadily in the UK and elsewhere, there is clearly an investment opportunity to be grasped. However, what of the current costs associated with developing battery storage sites? Have prices come down enough to warrant large-scale investment?
“Energy storage based on lithium-ion batteries is a beneficiary of the massive research and development push from the automotive industry,” says McLoughlin. “You see these amazing cost reductions in batteries. Yes, battery prices are [rising] because all of the raw material prices have been going up. But if you look at a multi-year chart, we went down an order of magnitude from where we were only five or six years ago. And so that has been the enabler of competitiveness in battery-based energy storage.”
With the market set to become increasingly competitive, this will spur on further research and development in the sector and help produce technologies and battery storage that can not only hold larger amounts of green energy, but also be cheaper to develop. And for those considering committing capital into the sector in the years to come, if costs are projected to come down over time, then returns from investing in battery storage could increase.
New trend on the block
However, the future of energy storage is set to expand beyond just batteries. The potential new trend in the market is hybrids. According to Antonio Seijas, analyst for the battery team at Rystad Energy, this could be a huge market. “The rise of hybrids will likely drive most of storage deployments where policy enables it,” he says.
With policies in place to support the future growth of the battery storage industry, and infrastructure investors’ willingness to fund the energy transition, this is a sector in pole position to experience further innovation and expansion.