Until recently, the adoption of battery storage solutions in the US had lagged behind expectations. However, falling costs and advanced technology suggest that battery storage systems are poised to play a bigger role in the US energy sector. Investors are very interested in this potential. From 2024, S & P Global Ratings expects a total annual investment in North American battery storage of more than 3 billion US dollars.
The turning point has arrived
With global installed capacity increasing by 25 percent per year, battery storage has grown robustly over the past five years. In the US, however, development has been slow. At the end of 2020, the USA had around 25 gigawatts of capacity in energy storage – 23 GW of which is pumped storage. This is minimal compared to the renewable energies already in the grid.
In the past five years, the US has installed just over 1 GW of battery storage, with the Pennsylvania-Jersey-Maryland Interconnection and California Independent System Operator region experiencing the greatest growth.
Pre-pandemic project delays and uncertainties over trade tensions with China have been responsible for declining forecasts, and in the near future we expect some uncertainty about the impact of the pandemic on economic action. Even so, S&P expects annual deployments to accelerate from 2022 as battery storage approaches a tipping point in the US.
A nine fold increase in battery storage along the way
S&P Global Platts Analytics, a subsidiary of S&P Global Ratings, anticipates that advanced battery storage will lead to a nearly nine-fold growth in the U.S. storage market in 2020-2023.
The growth is being driven in part by government goals and increasing mandates. Seven countries are aiming for a total of 11 GW of battery use by 2036.
The growth is being driven in part by government goals and increasing mandates. In fact, seven states – led by California and New York – are targeting a total of 11 GW of battery usage by 2036. In addition, the rapid increase in battery projects in the connection queue provides isolated indications of a possible growth spurt on the horizon, the continuously falling cost curve and the potential for Stack receiptsThis is one way to target multiple revenue streams on a battery for a positive return on investment.
Economical alternative to gas-fired systems
In addition to the financial impetus, the development of technologies – especially the growth of storage solutions for economical four-hour applications with peak shift – plays an important role in increased provisioning. Indeed, batteries are well on their way to becoming an economically viable alternative when used to provide peak capacity.
In certain markets, including California and Hawaii, battery costs have decreased enough to compete with peak gas-powered generation. In addition, a four-hour battery storage system requires less maintenance at network level: without moving parts and without fuel, long-term operating costs are more stable and predictable.
In addition, battery banks are scalable so that more units can be added without significantly increasing costs. Our estimates show that a utility-scale battery solution would cost between $ 1,250 and $ 1,300 per kW, comparable to the cost of building a gas-fired peaker facility in California. Utilities are increasingly realizing the value of storage in integrated resource planning, particularly in the vertically integrated markets, suggesting that providing peak capacity will be an important use for batteries.
A game changer for solar energy
Given the ability of battery storage to solve problems related to the interruption of solar power generation, we believe that large-scale solar and storage deployments in the same location are imminent.
The main problem with solar power generation is that it is interruptible. When the grid is adding more solar panels to generate electricity at the same time, daytime reliability problems are so effectively mitigated that the remaining reliability problems extend into the evening hours. This of course reduces the marginal effectiveness of adding further solar systems – unless battery storage systems can store energy and feed it into the grid when required.
In Texas’ Electric Reliability Council (ERCOT), for example, most battery projects are in countries where large-scale photovoltaic (PV) solar generation projects are expected. Indeed, shared storage projects are increasing as the cost of capital continues to decrease. Most projects that are located together with solar PV systems have a battery capacity between 50 and 150 percent of the PV capacity. This is an indication that developers are trying to contract with utility companies to provide peak capacity.
Not only does adding storage have the potential to offer a solid electricity product, it also offers significant upfront benefits if you qualify for Investment Tax Credits (ITCs). Storage effectively doubles the capital cost of a solar project. 26 percent of these can immediately bring ITC benefits and use the modified depreciation of the accelerated cost recovery system.
Together with falling capital costs for installed PV solar systems as well as lower operating and maintenance requirements, the falling storage costs are likely to lead to a significant use of Solar Plus storage systems in the coming years.
The disturbance has arrived
Increasing use of battery storage systems will inevitably have an impact on the entire energy sector. Companies like NextEra Energy and AES Corp. could benefit from significant growth if, thanks to the existing infrastructure, they add storage capacities to existing development sites for renewable energies.
While storage presents opportunities for many businesses, it naturally also poses a threat to those who focus on conventional generation. As the cost of renewable energies continues to fall, they put a heavy strain on both peak and secondary electricity prices. While gas-powered plants should be able to coexist with renewable energies in some regions for the foreseeable future, companies that rely on coal-fired power plants will face the risk of significant asset decommissioning.
Market participants have long recognized the falling cost curve of battery storage. However, we believe the more compelling reason for adopting the technology is its complementary role in improving the economics of solar power generation. With an annual investment of more than $ 3 billion in the coming years, this technology will disrupt conventional generation in the North American energy sector.