This last year of the decade proved to be a pivotal year for energy storage technology, as major developments underscored why it is so vital for energy markets. Events such as widespread power outages and transmission issues on a global scale have led to the precipitous rise in energy storage deployments. The energy industry has been working hard to usher in this paradigm shift, and now mainstream consumers –residents and businesses alike– are finally becoming acutely aware of the importance of energy storage.
Battery storage installations in the U.S. in 2018 totaled 311 MW and 777 MWh, up from next to nothing just six years prior. More significant, industry research groups predict that capacities for energy storage will rise exponentially in the next five years. In fact, global energy storage deployments are expected to grow thirteen-fold over the next six years, from a 12 GWh market in 2018 to a 158 GWh market in 2024, according to Wood Mackenzie. This is just the beginning.
Before we take a closer look at what’s next in 2020 and beyond, let’s take a quick look back at 2019 and some of the big stories driving this paradigm shift in the energy market.
Market Drivers: Blackouts, Evolving Energy Infrastructure
The widespread adoption of energy storage solutions is being driven not only by the need for more renewables, but by exponential growth in energy demand, rising energy costs, and inefficient grid systems, as we saw with the outages that hit major cities without warning.
In New York City there were critical blackouts that left more than 72,000 Con Edison customers without power for five hours due to transmission issues. In London, more than a million households and businesses were left in the dark, and commuters stranded, when the lights went out across the city. The cause: a lightning strike that caused two power generators on the National Grid to go offline.
And, as the world watched, California wildfires and subsequent PG&E preemptive blackouts (to avoid further wildfires) afflicted as many as 1.3 million people in the state and threatened to disrupt critical emergency and rescue services. These preventative power cuts have cost California’s economy upward of $2 billion, according to some estimates.
While consumers are being constrained by these unpredictable and costly power outages, on top of increasing energy costs, utilities are struggling to cope with rising energy demands, especially as more electric vehicles add further strain to already overloaded electrical grids.
Further driving the need for storage are the commitments to move to 100% clean energy by cities and communities worldwide. In the U.S., 13 states, the District of Columbia, and some U.S. territories, as well as more than 200 cities and counties, have committed to a 100% clean electricity target, according to a report from the UCLA Luskin Center for Innovation. Reaching those ambitious targets isn’t possible without widespread deployment of energy storage solutions.
Energy Storage—Foundation for 21st Century Energy Infrastructure
As cities and countries around the world face the challenges of rising energy demand and severely constrained supply, several energy storage technology companies are bringing innovative solutions to market and paving the way for a truly 21st-century energy infrastructure. There were a number of energy storage companies making news in 2019.
U.K.-based Highview Power, developer of a liquid air long duration energy storage solution, announced two projects—one in the U.S. for more than 400 MWh, and one in the UK that at 250 MWh is expected to be the largest battery storage system in Europe.
Another noteworthy transaction recognizing the overall energy shift paradigm was the merger of energy storage software players, Pason Power and Energy Toolbase. Their software offerings are making the deployment of “solar plus storage” systems more streamlined and bankable for project financiers, developers and asset owners.
We saw the traditional generator provider, Generac, move into the energy storage market in 2019, and new start-up Yotta Energy introduced panel-level storage with thermal protection to bring energy storage to buildings, enabling distributed resources on rooftops.
Respectively, companies in the battery storage sector received nearly $1.6 billion in VC funding in the first nine months of the year, according to Mercom Capital Group’s 9M2019 Energy Storage Funding and M&A Report. Notable deals in 2019 included the $1 billion in funding raised by Swedish battery developer and manufacturer Northvolt.
Several other long-duration energy storage companies raised money in 2019, including Energy Vault, which secured $110 million from SoftBank’s Vision Fund (just before SoftBank’s implosion), ESS’s $30 million raise, and Hydrostor, which brought in $37 million. This energy shift seems to have ignited a spark among investors who are looking to capitalize on the changing energy market.
2020 Energy Trends to Watch
Alongside the innovations of energy storage companies, other powerful market forces driving the evolution of the energy market will continue to benefit the storage sector in the coming decade. Simply put, the need for new energy solutions is so urgent in virtually every country that governments are subsidizing research and development to secure their energy supply and economic growth over the long term, with priority for renewables along with storage.
This trend will certainly continue and help establish energy storage as a mainstream solution for energy consumers, whether residential, commercial, or industrial. As consumers cope with a “new normal” of widespread blackouts and transmission issues, we increasingly will see C&I businesses implement storage solutions simply as a cost of doing business, knowing that it will save significant money and give them control over their energy usage in the long run.
Expect to see more companies facilitate deployment of resiliency zones throughout areas where Public Safety Power Shutoff (PSPS) events are likely. A resiliency zone is supported by a solar-plus-storage microgrid that enables business continuity during PSPS events, and can also regularly reduce customer utility bills during peak times. Resiliency zones can be deployed at schools, gas stations, churches, libraries, factories, or wherever emergency backup power is required. Continued PSPS events will drive microgrid implementation and resiliency zones for communities.
For example, NantEnergy, a provider of reliable backup power for the commercial and industrial sector, has gained a unique experience through the development, permitting, interconnection, and operation of a resiliency zone for six schools in the Santa Rita Union School District (SRUSD) in California. With microgrids at each of its campuses, the school district can provide up to seven hours of power at each school during a grid outage, and also offset the school’s energy and demand usage, resulting in substantial savings on its utility bills. These innovative multi-campus systems will enable the schools to support the local community in the event of disasters that cause prolonged outages.
Its important to note that there are substantial solar resources already deployed in California and these systems simply deactivate during PSPS events. By retrofitting existing solar systems with energy storage, we could see a rapid increase in microgrids.
Market Maturation, Future Role of Renewables and Microgrids
In April of 2019, Deloitte reported that renewable energy outpaced coal by providing 23% of U.S. power generation, compared to coal’s 20% share. In the first half of 2019, wind and solar together accounted for about 50% of total U.S. renewable electricity generation, displacing hydroelectric power’s dominance.
Companies in the energy storage space should be mindful of a caveat that could impact renewable energy growth: expiring tax incentives. Under current policy, 2020 marks the expiration of the Production Tax Credit (PTC) for new wind projects, and the beginning of the stepdown of the solar Investment Tax Credit (ITC), which is scheduled for full phase-out by 2022. Both of these federal tax incentives have been key drivers for wind and solar growth in the U.S. renewable energy market. While the expiration of these incentives signals market maturity, this presents both challenges and opportunities for energy storage companies. With the costs of renewable energy systems likely to increase, we could see a dip in development. But energy storage systems can make otherwise non-economic wind and solar systems profitable.
Those tax considerations aside, we expect to see utilities continue to incorporate more renewables with the help of long-duration energy storage solutions that will help stabilize the grid and deliver other grid services. Utilities will begin depending upon technologies that can deliver these critical services.
Over the long term, renewables will continue to grow exponentially and the combined global capex spend on wind and solar projects will range from about $165 billion to $190 billion a year between 2020 and 2035, according to Wood Mackenzie. With rapidly declining renewable energy costs and maturation of energy storage increasing competition between traditional and renewable energy resources, renewable energy consumption by residential and commercial customers will continue to increase. Record installations will also occur for microgrids as distributed systems become the new normal.
Energy storage is taking a leading role in the new energy paradigm shift, delivering cost savings, grid support, and other bottom-line benefits. It is an exciting time to be part of the energy industry that is having such a profound and positive impact on the way the world is powered.
—Wendy Prabhu is President, Communications and co-founder of Mercom Capital Group.