Grid Scale, Hydropower, Solar, Storage

Energy Storage Market Outlook 2017: State of Play

Issue 1 and Volume 20.

Without doubt, energy storage has a great role to play in facilitating the integration of renewable energy; and with the rising tide of renewables, the complementary deployment of energy storage is a trend set to continue into 2017 and beyond.

However, experts say that hastening deployment calls for fundamental changes to how markets treat energy storage.

To quote the European Commission VP in charge of the Energy Union, Maroš ŠefČoviČ: “The role and importance of storage have been underestimated for too long.”

Alex Eller, research analyst at Navigant Research said: “We’re only seeing the very beginnings of what the energy storage market is going to look like. Important issues surrounding how energy storage participates in electricity markets [haven’t] even begun to take shape in most places.”

With “sufficient technologies and capabilities already here [and] only going to get cheaper and better,” Eller said that core challenges revolve around uncertainty over storage’s position within future electricity markets.

Matt Roberts, executive director of the Energy Storage Association (ESA) takes a similar position.

“Storage technologies [have been] demonstrated to be safe, reliable, and cost-effective; and utilities can see clear advantages of energy storage,” he said, adding “now it’s about application of solutions. On that issue, we’re close to an inflection point — with everything required for major shift in energy systems through introduction of energy storage.”

Capacity Expansion in 2017

According to ESA, in terms of megawatt-hours, the U.S. market grew 284 percent in 2016 alone and deployment of energy storage systems through 2017 looks set for exponential growth again.

Navigant reports that 520 MW of new energy storage capacity was deployed globally in 2014 and 2015; bringing non-hydro energy storage to some 2,276 MW by year’s end.

“In 2017 we expect the global market to grow 47 percent from the already record breaking year in 2016 in terms of new storage capacity deployed,” said Eller.

Through 2020, Eller pointed out that Navigant forecasts over 29.4 GW of new storage capacity to be deployed worldwide across all sectors, and a compound annual growth rate of 60 percent.

Technology Expansion in 2017

For the near future, the dominant form of energy storage, pumped hydropower, is sure to remain the principal method of storing energy, occupying a global market share of over 95 percent. Aside from pumped hydro, a plethora of energy storage technologies exist with a growing number of new solutions being tried, tested and installed on a commercial basis. An even larger number reside anywhere between blueprint designs and various levels of research and development.

Going forward, battery storage — of the lithium-ion variety — is expected to retain its majority market share, according to Roberts.

“Global trends are feeding into that…partly because major applications of today lend themselves to batteries. Equally, lithium-ion dominates on account of cost; but it has reached that cost because of demand driving production.”

This favorable increasing-demand/decreasing-cost trend is not expected to slow down through 2017. Bloomberg New Energy Finance expects battery technology to fall to $120 per kWh by 2030 compared with more than $300 now and $1,000 in 2010.

Image: The AES Advancion Netherlands Energy Storage Array. Credit: AES.

While pricing is key to success, other technologies should not be counted out just yet.

“As markets and consumer needs evolve, so too will the solutions,” Roberts said.

Nevertheless, Navigant foresees battery systems retaining a majority market position through 2017 largely owing to it fulfilling most needs of the fastest growing sector — utilities.

“Looking to the coming year, we expect the majority of new storage capacity [worldwide] is going to be in utility scale,” Eller said, adding that utilities could account for some 76 percent of the energy storage market in 2017.

According to Navigant, more than 80 percent of 520 MW of global storage deployments through 2014 and 2015 were made in the utility sector; while some 9,000 MW of new utility-owned storage capacity is to be deployed by 2020.

One immediate driver for utility deployment of storage is growth in intermittent wind and solar power; and the consequent need for flexible systems to ensure grid stability. Energy storage is a highly valuable solution for providing various ancillary services.

“The frequency response and regulation market is going to continue as one of the best near-term opportunities for storage,” said Eller, whose firm expects global installed energy storage for grid and ancillary services to grow from 1.1 GW in 2016 to 21.6 GW in 2025.

The second largest market through 2017 is expected to be the C&I sector with a share of 21 percent and Eller predicts by 2020 that “figure could rise to 37 percent.”

Philip Hiersemenzel of Younicos agrees.

“The untapped potential is in C&I storage and microgrid solutions,” Hiersemenzel said. “With declining battery prices, customers who are faced with rising energy prices and rising demand charges are in a position to profit from ever-cheaper renewable energy costs.”

Hiersemenzel also highlighted co-located solar + storage solutions as a lucrative market going forward “to smooth out supply of power,” he said, adding that “storage enables users to take full advantage of PV generation.”

The potential of microgrid solutions — ever more widely demonstrated as technologically feasible — also brings opportunities for energy storage developers.

Demonstrating the state of the art, Younicos’ Graciosa microgrid installation, featuring a 4-MW battery system, combined with a 4.5 MW in wind and 1 MW in solar PV capacity, located in the mid-Atlantic, is set for commissioning in spring 2017.

Although currently occupying a far smaller market share, residential energy storage (RES) remains an important segment. RES is expected to grow from approximately 95 MW in 2016 to 3,773 MW in 2025; particular growth is slated for one of the world’s leading storage markets, Germany.

Understanding the Value of Storage

As electricity markets advance towards high penetration renewable energy systems, stakeholders believe progress will foster novel drivers for energy storage.

Roberts said: “While declining costs have absolutely been a driver for the industry, the big thing to be unlocked for the industry to evolve to the next level is value for the services delivered.”

He added that “2017 will emerge as the ‘year of value’ for energy storage. Currently there’s not a value ascribed to many of the services provided through energy storage — this represents a significant challenge.”

Roberts contends that traditional models for electricity systems — based around hourly intervals and delineating only between generation versus demand — fail to properly acknowledge, and reward, energy storage contributions to grids, such as speed and accuracy in delivery of ancillary services. Further, reliability and resiliency — core attributes of energy storage — aren’t reflected by revenue streams writ large.

“It’s hard to convince investors of business plans when crucial factors like market regulations and available revenue streams are likely to change and evolve,” said Eller.

Successful Markets Provide Optimism

Some isolated progressive market models and flagship projects have established effective contexts in which to reward the operating parameters of energy storage. These models serve to demonstrate feasibility and provide blueprints to a growing number of international stakeholders keenly aware of the advantages of storage for their own networks.

In the U.S., PJM region’s competitive market for frequency regulation is prime example, according to Eller.

“Though it remained technology agnostic, the PJM market was structured in a way that incentivized beneficial attributes of energy storage,” Eller said. “Success of the PJM market has inspired the UK National Grid to adopt similar compensation structures. We can expect that model to be further replicated in other areas.”

In the UK, the National Grid held its first auction for frequency regulation storage capacity in 2016 — indicative of healthy competition, the 200 MW auction attracted over 1.2 GW in bids.

According to Younicos’ Hiersemenzel, the C&I sector also needs reform.

“If [transmission system operators] are smart, they will allow smaller players and C&I customers to provide ancillary services,” he said, adding “this will be valuable for the grid and provide an additional revenue stream for the storage owner.”

Studying the Issue

In the U.S. a landmark Massachusetts energy storage report, ‘State of Charge’, outlines strategies to expand storage alongside a cost/benefit analysis of procuring 1.7 GW of energy storage. The report claims that capacity, though costing between $970 million and $1.35 billion, may yield $2.3 billion in system benefits to ratepayers, along with $1.1 billion in market revenue to the resource owners.

In the EU, Victoria Gerus, policy officer at the European Association for Storage of Energy pointed to the introduction of the ‘Clean Energy for all Europeans’ package.

“[At the end of November 2016] the European Commission issued new market design legislative measures,” Gerus said. “[The draft included] a definition of energy storage; 2017 will thus be an important year for advocacy, as the European Union’s institutions negotiate and work to arrive at a common position on the legislation.”

Creating market conditions conducive to energy storage being financially viable is complex to be sure.

Roberts warns: “Paradigm shifting is not easy. It requires a cultural shift. PJM is one of the most successful markets in the world for energy storage — but it’s taken a lot of time and refinement to get there.”

Still, Rome wasn’t built in a day. Working to expedite the expansion of energy storage is a challenge of global significance, but one that carries successes and lessons learned that would be put to excellent use in being shared across borders.