Supercharged: Challenges and opportunities in global battery storage markets Brochure / report title goes here | Section title goes here Contents Executive summary 1 Introduction 2 Market drivers 3 Challenges 9 Focal points for storage providers 14 Advances in digital technologies spur new business models 15 Conclusion 18 Endnotes 19 03 Supercharged: Challenges and opportunities in global battery storage markets Supercharged: Challenges and opportunities in global battery storage markets United Kingdom Germany Japan Italy United States South Korea India Chile Australia Executive summary This report examines how some of the nations that Advances in adjacent digital technologies, such as are more actively modernizing their electric power artificial intelligence, blockchain, and predictive analytics, grids and adding renewable energy are approaching are giving rise to aggregated solutions and innovative energy storage. Particularly focusing on battery business models that were nearly inconceivable a storage in electric power grids, we sought to uncover few years ago. Start-ups around the world are rapidly what is driving the push for energy storage and commercializing intelligent networks of “behind-the- what utilities, policymakers, and other stakeholders meter” batteries to benefit electricity customers, are doing to develop storage markets and support utilities, and grid operators. ongoing deployment. Our findings revealed a broad range of market drivers and remaining barriers, but Our analysis provides a global view of how much they also revealed a commonality: the pace of product progress has been made in the area of aggregation as deployment and market development is accelerating. well as in other forms of battery solution development and deployment. It also provides utilities, independent Battery storage is flexible, can be deployed quickly, has power producers (including renewable energy multiple applications, and can produce numerous value companies) and other stakeholders in the energy value streams—not to mention that battery prices are falling chain with insight into global trends in battery storage, faster than anticipated. However, the dynamism in the particularly what is working well, what is not, and what sector is not solely attributable to these factors. challenges still remain. 1 Supercharged: Challenges and opportunities in global battery storage markets Introduction Depending on which analysis one reads, the global These countries include Australia, Chile, Germany, Japan, market for energy storage is poised to grow rapidly, India, Italy, South Korea, the UK, and the US. Particularly but few can agree on how much. According to one focusing on battery storage, which is presently the widely publicized projection, the storage market could leading technology, our examination sought to uncover reach more than $26 billion in annual sales by 2022, a what has been driving the push for energy storage in compound annual growth rate (CAGR) of 46.5 percent.1 these nations and what utilities and policymakers have Another analysis envisages growth at a more modest, been doing to define battery storage, develop storage but still robust, pace, expanding at a compound annual markets and to support ongoing deployment. growth rate of 16 percent and reaching $7 billion annually by 2025.2 Others put it somewhere in the In presenting our findings, we begin by exploring key middle, while a few take a slightly more optimistic or market drivers for battery storage. pessimistic view. The divergence of opinions largely originates with how one defines energy storage. Some analyses calculate only “front-of-the-meter” utility-scale technologies, while others include “behind-the- meter” solutions implemented by commercial and industrial (C&I) customers. And others include electric vehicle batteries and smaller scale battery-plus-solar combinations implemented by residential consumers, which could have not only behind-the-meter applications but also front-of-the meter uses if they are controlled by aggregators or utilities. Complicating the picture even more are the many applications for energy storage, which can be useful in integrating renewables, supporting smart grids, creating more dynamic electricity markets, providing ancillary services, and bolstering both system resiliency and energy self-sufficiency. Despite the complexity of the landscape, many growth projections agree that energy storage is gaining traction around the world and could fundamentally Photo courtesy of Tesla, Inc. change market dynamics. To understand these shifting dynamics, we peered beneath the aggregate growth projections to examine how some of the more active nations in renewable development and grid modernization are now approaching energy storage. 2 Supercharged: Challenges and opportunities in global battery storage markets Market drivers Driver 1: Cost and performance improvements Energy storage in various forms has been around manufacturing economies of scale. As illustrated in for decades. This begs the question: why battery Figure 1, costs for lithium ion batteries are declining storage and why now? Perhaps the most obvious at a steep trajectory. However, in examining the nine answer is declining costs and improved performance, nations in our analysis, it became apparent that particularly relating to lithium-ion batteries, since declining costs are only part of the story. expanding electric vehicle markets are promoting igure ithiumon battery prices ell rom kh $1,200 $1,000 $1,000 $800 $800 $642 $599 $600 $540 $400 $350 $273 $209 $200 $0 2010 2011 2012 2013 2014 2015 2016 2017 Source: Bloomberg New Energy Finance, Lithium-ion Battery Price Survey Note: The survey provides an annual industry average battery (cells plus pack) price for electric vehicles and stationary storage. Stationary storage developers paid about $300/kh for battery packs in 2017— 51% more than the average automaker price of about $199. This is typically due to much lower order volumes. 3 Supercharged: Challenges and opportunities in global battery storage markets Driver 2: Grid modernization Driver 3: Global movement toward renewables Many developed countries are embarking on grid- Broad support for renewables and emissions reduction modernization programs to boost resilience in the face is also driving adoption of battery storage solutions. of severe weather events, reduce system outages linked The critical role that batteries can play in offsetting the to aging infrastructure, and improve the overall efficiency intermittency of renewables and reducing curtailment of the system. These programs often involve deploying is well known, but the strength and pervasiveness smart technologies within established electrical grids to of the desire for clean energy among all types of enable two-way communication and advanced digital electricity customers is growing. This is especially control systems, along with integrating distributed energy apparent within the corporate and public sectors. resources (i.e., renewables, fuel cells, diesel or natural gas As noted in the recent Deloitte report, Serious Business: generators, storage assets, and microgrids). Corporate procurement rivals policy in driving the growth of renewable energy, large multinational corporations In general, we found the growth of battery storage have taken a leadership role in procuring renewable goes hand-in hand with grid modernization efforts, energy around the globe. Indeed, many have publicly including the transition to smart grids. Digitizing the pledged to reach 100 percent renewable energy in the grid enables prosumer participation,3 intelligent system next two decades or sooner through programs such as configuration, predictive maintenance, and self-healing, RE100 and the Renewable Energy Buyers’ Alliance.7 This and it paves the way for the implementation of tiered bodes well for continued renewable development and, rate structures—all of which create opportunities for presumably, for continued deployment of batteries batteries to generate value by adding capacity, shifting to assist in integrating greater amounts of distributed load, and/or improving power quality. While smart energy resources. technologies have been around for some time, batteries help to unlock their full potential, and vice versa. A new technology for integrating battery systems into solar plants has the potential to Tesla, in conjunction with Neoen, recently boost their energy output. Florida Power & completed the world’s largest lithium-ion Light Company is piloting the innovative battery installation (100 MW) in South DC-coupled battery system at its Citrus Solar Australia.4 After an outage in 2016 that caused Energy Center.8 By capturing energy that 1.7 million residents to lose power, the state of exceeds inverter capacity when the sun’s rays South Australia commissioned the battery as are strongest, the battery system has the part of a larger grid-modernization effort to potential to harness millions of kilowatt-hours help address supply shortfalls, soaring prices, of surplus solar energy a year that would and concerns over system reliability and normally be lost, thus improving both the resilience.5 The giant battery installation quantity and predictability of the plant’s stores excess energy from the nearby output.9 Increased predictability, in turn, Hornsdale wind farm during off-peak times enables the utility to more efficiently dispatch and discharges it back into the grid to correct other power plants, helping customers to save