Energy Storage Market Outlook - Lessons Learned at CLEANPOWER 2022

With wind and solar power as the fastest-growing sources of energy in the world (1), battery storage is becoming critical to solve intermittency dilemmas and provide stability to the grid.  Yes Energy is proud to support market participants as we all navigate the changing dynamics of the grid and transition towards a clean energy future.  Our team recently attended CLEANPOWER 2022 in San Antonio.  It was a great event, and we look forward to attending next year and continuing to support the clean energy community going into the future.  In this blog, we’ll discuss the key learnings from one of our favorite sessions at CLEANPOWER - Headwinds & Tailwinds of Energy Storage Market Growth. 

While wind and solar power may be the energy sources growing most rapidly worldwide, large quantities of energy storage are coming online at an unprecedented rate.  In 2021, the U.S. installed almost 3x as much energy storage as in 2021, the year with the previous record for energy storage installation.  This year, the number of installations in the U.S. is expected to double.  Clearly, the energy storage industry has had some luck. However, the market has also run into some barriers.  Here are the top tailwinds and headwinds the experts on the CLEANPOWER panel outlined for energy storage going into the future. 

Tailwinds

Potential to scale rapidly 

When asked if energy storage deployments would reach the annual scale seen with wind and solar power, Michael Arndt, Recurrent Energy, answered that he believes storage will scale faster than wind and storage in the long run.  He predicts that we could see 10 GW of storage installed a year.  

Peaking capacity retirement & high cost of coal and gas

Adding onto the scalability of energy storage, Sara Graziano, SER Capital Partners noted that about 150 GW of fossil-fueled peaking capacity is currently challenged to perform economically or is nearing retirement.  She thinks that storage is likely capable of competing for a significant portion of that 150 GW, especially with a forward-thinking view and considering new types of technologies that could be on the way. 

Jeff Bishop, Key Capture  Energy, also noted that batteries are being pulled into the market by increasing costs of coal and gas.  Commodity prices of fossil fuels are going up, and he doesn’t think that is likely to get any better.  The way the markets are designed, as these fuels go up, we will automatically shift into lower-cost options, which pulls storage into the markets. 

Storage variety 

Bishop also noted that part of the ability for energy storage to scale is supported by the variety of storage technologies that are or will be available in the near term.  At the moment, when we think of storage, it is primarily standalone or colocated with storage that we think about.  Bishop explained that the potential goes well beyond that.  The variety of applications includes placing batteries onto peak shaving, joint venturing with thermal companies to place batteries where fossil fuel plants are being retired, not to mention storage plus applications outside of solar plus storage. Some of the colocation options include onshore and offshore wind, thermal plants, and electric vehicle technologies. 

Increasing volatility & renewable growth

Michael Arndt, Recurrent Energy, noted that as long as fossil fuels continue to retire and that gap fills with renewable energy, there will be a strong application for storage.  Graziano also believes that we will see increasing volatility as we continue to see higher wind and solar penetrations.  Volatility is great for energy storage, presenting energy arbitrage opportunities for energy storage assets.  Graziano noted that there is particularly a use case for storage as we see more extreme weather events on days when renewable output isn’t available.    

Headwinds 

Supply chain challenges & long interconnection queue

Moving into the dynamics that are less favorable for energy storage, first up is supply chain challenges.  The caveat to Arndt’s prediction that storage will scale faster than wind and storage is that that will only occur once supply chain issues are resolved.  Alongside supply chain challenges, commodity prices for key storage materials including lithium and nickel have skyrocketed recently.  In the short-term there is a lot of pain on the way for energy storage development costs.  Additionally, interconnection queues are so backed up that if you have to get through a full queue, you’re looking at five years until you are up and running.  It’s possible that might be accelerated by repurposing existing generation sites for storage, but interconnection queues will likely still be a challenge. 

Siting Decisions

Another challenge storage developers face is deciding where to site.  While there are some investment tax credit benefits to colocating with renewables, Arndt thinks that siting projects where there is the most volatility is the way to go.  He believes there will be value in location of standalone storage. 

Market differences

The last significant challenge the panel identified is differences in how markets classify storage assets and how they can participate in the markets.  Since storage is such a new technology, different ISOs are approaching storage assets in different ways. For instance, CAISO and ERCOT already have arbitrage opportunities while others do not.  Additionally, different storage types will have different roles to play in the markets.  FERC is even considering approving storage as a transmission asset at the moment.   Ultimately, the rate of change will be different in different ISOs and regions, and the storage industry will have to navigate variability in the markets and make decisions on where to site and how to operate based on regional regulations, classifications, and market structures. 

Navigating the Headwinds and Tailwinds with Data

While storage faces some challenges in the near-term, it seems that the industry probably has more tailwinds than headwinds as we move into the future.  Yes Energy is the leading energy data solutions provider, and we’re here to help you navigate both the headwinds and tailwinds as energy storage markets grow.  If you’re interested in a free consultation with one of our market experts, click here! For insights like this delivered straight to your inbox, subscribe to our blog! 

Resources:

1. https://apnews.com/article/wildfires-storms-science-business-health-7a0fb8c998c1d56759989dda62292379