12 August 2021
A combined fall in the cost of utility-scale batteries and electricity from renewable energy sources is likely to expand the role of battery-based energy storage systems (ESS) in the transition to decarbonised world.
Governments globally are increasing their nations’ commitments to cutting carbon emissions in line with the goals set out in the Paris Agreement, and many are putting renewable energy at the center of their strategy to meet those rapidly approaching commitments.
Lower-emissions electricity generation from sources such as solar and wind power are the main building blocks of the future energy mix considered necessary to bring down countries’ carbon footprints. As their share of generation grows, there is a growing opportunity and need for battery storage to help balance demand and supply fluctuations, and better integrate large volumes of variable renewable energy.
Reliable storage methods are necessary for times of low renewable energy generation and to increase the flexibility of the grid, making them a critical component to the long-term viability of a renewables-based future. The potential of battery storage is also increasing every year as the sector has seen tremendous cost declines.
“Energy Storage Systems have always been a critical component of a transition to a decarbonised economy,” says Anna Park, Co-Head of Asia Energy Research at Macquarie Capital, “and as their costs fall, battery storage systems are emerging as an economical solution to effectively integrate a high share of solar and wind renewables in power systems across the world.”
The price of lithium-ion batteries has fallen by about 80 per cent over the past 7 years.1 With that comes the potential for them to play a broader role in energy markets – moving from niche uses such as grid balancing to large-scale replacement of conventional power generators for greater reliability, providing power-quality services, and supporting renewables integration.
“It is a game-changing technology and, when paired with renewable energy, is poised to replace an ever larger share of conventional power generation,” says Park.
Renewable power generation costs paired with batteries are already competitive on cost with conventional oil and gas-based power generation, particularly in the US.
Mean LCOE*, US$/MWh
Levelized Cost of Energy Comparison - Historically Utility-Scale Generation
“With countries diversifying their energy sources, battery storage will enable high shares of renewable energy integration into the grid and can help transform the whole energy sector. Utility-scale batteries, for example, can enable a greater feed-in of renewable energy into the grid by storing excess generation during times of energy over-production for later use.”
Battery-based storage solutions can either be built on a standalone basis to charge from the power grid, or as a co-located system that charges directly from an onsite solar photovoltaic (PV) or wind power generator. The latter, small-scale systems deployed at remote locations such as to power telecommunications towers off-grid don’t need the same performance characteristics as commercial grid systems, and so electric vehicle (EV) batteries can be reused. As growth in this usage picks up, so too will demand for recycled batteries.
Anna Park, Co-Head of Asia Energy Research, Macquarie Capital
Further fueling growth in the ESS market could be favourable government policy. The battery storage market is led by the US and China, and with the leadership in both countries committed to increasing the share of electricity coming from ‘clean’ sources, energy storage capacity between them will need to increase sevenfold by 2030 from 55GW in 2020.
In China alone, which is the world’s biggest power market and the largest investment destination for renewables, wind and solar capacity is expected to increase eightfold by 2040.2 Whilst the US’ new goal of cutting emissions by half by 2030 could more than quadruple ESS capacity by then from 23GW in 2020.3 Add into the mix that the cost of wind, solar and energy storage have fallen dramatically in the past decade – by 77 per cent, 35 per cent, and 85 per cent respectively4 - and it opens up the potential for considerable new demand for batteries.
China's ESS market: cumulative installations
Meeting this demand presents an opportunity for battery manufacturers, whose future fortunes have recently been made less certain by automakers’ plans to internalise the development of those for their vehicles.
Though until they do so, with the growing production of battery-powered vehicles globally, short term battery demand will increase, followed later down the line by the availability and need to dispose of second-hand equipment.
We see a potential for the ESS battery market to be as big as the EV battery market over time
Battery repurposing for new ESS-based usage in markets where there is demand for their usage for stationary energy-storage applications could limit the environmental impact of this increasing number.
“In the short term, the impact in the current scale-up in the production of EVs will be to limit the availability of batteries for other uses. But as automakers move to internalise their own production and second-hand availability increases now that the first electric vehicles are approaching replacement age, supply will improve just in time to meet the demand from ESS, which could rise to account for around a quarter of that from EVs by next year – up from just 5 per cent in 2017,” adds Park.
We forecast battery demand will exceed 1TWh in 2025
Second life applications also offer the potential to expand the role of stationary energy storage to new use cases, such as remote irrigation systems, when new systems remain prohibitively expensive but a lower cost refurbished one can meet the desired performance requirements.
“The power landscape will look very different in ten years’ time as new ways unfold to foster cleaner, cheaper, and more reliable energy and bring renewables further to the forefront of the power sector. Energy storage systems will play a crucial role in the future of renewable energy,” Park concludes.