2024
Energy Storage Report
Key Regional Markets
Germany
GDP (Current Prices) USD (2022) | 4,086bn |
GDP Growth Forecast (constant prices) (2023-2027) | 1% |
10yr Govt Bond Yield (12-month rolling average) | 2.43% |
Country Credit Rating (S&P) | AAA |
Battery Storage Capacity | 11.2GWh /7.6GW |
Pumped Hydro Storage Capacity | 31.5GWh |
RE share of Total Electricity Capacity | 58.6% |
Battery Storage Outlook | 8.8GWh by 2031 |
Source: IMF, Fred Economic Data, S&P Global, Fraunhofer ISE, JRC Publications Repository, Forschungsstelle fur Energiewirstschaft, Energy Institute, Wood Mackenzie
For pumped hydro storage: (European Commission, 2013)
Energy Mix and Case for Storage
Capacity: Status and Trend
The German grid-scale storage capacity has been limited primarily to its hydropower generation – as of the end of 2022, the pumped hydropower storage stood at about 5.3GW (IRENA, 2023). This storage segment, while ideal to meet long-duration energy storage demand, has stagnated over the last decade due to uneconomical costs in project development. Against such a backdrop, stationary storage systems, such as battery units, are assuming a gradually rising importance in the German energy system.
In 2022, the utility-scale battery storage sub-segment added 0.47GWh, an over 900% year-on-year growth (PV Magazine, 2023). In 2023, installed battery capacity doubled, increasing from 4.4GW in 2022 to 7.6GW in 2023, while storage capacity rose from 6.5GWh to 11.2GWh (Fraunhofer ISE, 2024). The spike reflected the low base and nascent growth stage. Comparatively, the residential and commercial/industrial sub-segments have had annual growth rates of 52% and 24%, respectively, during the same period. Almost 80% of the total installed energy storage capacity base, worth 7GWh, is from the residential sub-segment. Germany is among the top European countries in residential battery storage market.
So far, growth has been through the volumes in the residential storage market segment. The volumes are much more prominent in the residential market than others due to the broad reach of solar-powered residential systems in both grid-connected and off-grid mediums. Capacities are also gaining traction through hybrid storage projects (storage paired with generation projects). This includes not only wind-storage or solar-storage combinations but also hydro-storage ones. However, there is a much more significant and untapped role for utility-scale storage systems in the grid ancillary services comprising secondary reserve requirements.
Policy and Regulation
Germany’s legal amendment of June 2022, defining energy storage as a distinct asset, was the most critical regulatory development for the industry (Energy Storage News, 2022). The framework was thus established for potential standalone storage assets to be integrated as one of the energy market participants. Added support for the storage assets is available from the regulations, exempting grid fees for those units commissioned within 2029 (BVES, 2023). The immediate impact of the exemption from grid connection charges is for the commercial viability of the projects in the pipeline.
Taking the longer-term perspective, the regulatory authorities also provide for experimenting with new technologies and solutions to support energy transition. A notable development in this context is the regulatory sandbox JenErgieReal launched in November 2022 (IEA, 2023). With €20.5 million in funding support, the regulatory sandbox could potentially aid the development of technologies in large-scale storage systems and test significant innovations such as virtual power plant linkages between generators, consumers, and storage systems. As an outcome of the sandbox, technology demonstration projects could help set up the avenue for energy storage project development. Besides, the German regulators published an energy storage strategy at the end of 2023 to bring changes to existing logjams, slowing down the rapid expansion of energy storage (BMWK, 2023). This is expected to improve the regulatory environment for energy storage significantly.
Commercialisation of projects is critical to expanding the market. The biannual innovation tenders have been instrumental in developing the pipeline. Established under the country’s Renewable Energy Law (‘Erneuerbare Energien Gesetz’, referred to as “EEG” henceforth), the tenders are aimed as technology-neutral market mechanisms to introduce and test incentives for grid services and integration of renewable energy generation. The projects involve hybrid renewable projects combined with storage. Remuneration for the installations awarded is for 20 years (10 years for biomass-based projects) (European Commission, 2022). EEG funding was increased for 2023, as evident in the maximum value of 9.18 cents/kWh (against the usual 7.35 cents/kWh) announced by the regulator (Energate, 2023).
While grid-scale storage is prioritised, Germany’s behind-the-meter energy storage segment leads the way. Policy support for residential rooftop solar PV installations helped drive the battery storage. Beyond federal policy support, state governments have incentivised battery storage systems in household rooftop installations (Interact Analysis, 2023). The state of Bavaria, for instance, provides loan subsidies jointly with KfW for renewable energy projects and energy storage. At Berlin, the SolarPlus scheme provides subsidy support for plug-in solar modules and storage systems. Such provincial subsidies, alongside state support, drove residential PV plus storage system installation. The reports by the Federal Solar Industry Association indicate that the number of BESS installed almost doubled in 2023, reaching about 1.2 million (PV Magazine, 2024).
Market Developments and Opportunities
In 2023, the energy storage market doubled, with half a million new solar batteries installed. About 150% growth was observed in the residential and commercial storage segment (Renewables Now, 2024). The German energy storage market expanded by 30% in 2022, with sales of €12.1 billion compared to €9.2 billion in 2021. The residential storage sector held about 59% of the industry revenue, with thermal storage leading the way. New residential solar PV installations determine the uptake. About three-quarters of residential solar installations, ranging from 5kW to 15kW, have storage attached (BVES, 2023).
The utility-scale energy storage segment held about 23% of the sector’s revenue in 2022, primarily led by pumped hydro storage (BVES, 2023). The commercial and industrial consumers segment registered a rise in storage installations as energy supply security became an issue after the Ukraine-Russia armed conflict (BVES, 2023). Standalone battery storage projects constitute a vital sub-segment catering to the grid-scale storage requirements. In July 2023, NorEco Stor announced a €250 million investment plan for a 600MWh battery storage facility in Förderstedt in eastern Germany (GTAI DE, 2023) (Renewables Now, 2023). So far, the most significant battery project approval came through in November, with Kyon Energy’s 275MWh unit planned in Lower Saxony (Smart Energy International, 2023). With planned commissioning in 2025, the standalone battery project is aimed at peak demand management and could potentially help add to the flexibility in grid capacity. For the same objectives, pumped hydropower storage projects continue to attract investors’ interest despite the time and cost overruns. In May 2023, the German energy company EnBW announced the launch of its €280 million, 54-57MW pumped hydropower project based on conversion of an existing conventional hydropower plant. The project is planned for commissioning by 2027 (EnBW, 2023).
Hybrid renewable projects constitute another vital avenue for grid-scale battery storage. In October 2023, the German Federal Network Agency awarded 408MW (Renewables Now, 2023) of solar PV capacity integrated with storage as part of an innovation auction tender for storage-linked hybrid renewable projects. There were 32 investment bids which qualified to receive the funding in June 2023; a similar auction yielded just one winning bid (Norway’s Statkraft AS) for a 47MW solar power project integrated with 16MW storage (Renewables Now, 2023).
Many of the utility-scale storage projects are planned around the existing infrastructure of the power projects with grid connection and related infrastructure. In such projects, developers are repurposing the coal-based power generation facilities for the battery storage plants. The German utility RWE’s €140 million, 235MWh battery storage project is one notable example. It is planned at RWE’s 200MW power plant in Neurath and Hamm (RWE, 2023). Foreign companies are also taking a keen interest in the German storage market. In November 2023, Swiss asset manager Reichmuth Infrastructure announced co-developing a 100MW/200MWh BESS with Zug-based developer MW storage in Arzberg, Germany. The project already has construction permits and is expected to become operational in early 2025 (Energy Storage News, 2023). Another notable development is French-based oil and gas major TotalEnergies acquiring Germany’s top BESS developer, Kyon Energy, with a €90 million deal value (Energy Storage News, 2024).
In June 2023, German coal miner LEAG signed an agreement with technology firm ESS Tech to develop a €200 million, 500MWh iron redox flow battery at the site of a 2.5MW coal-based power plant (Energy Storage News, 2023). The project could be scaled further, with 7GGW-14GW worth of renewable energy and 3GWh storage. (Balkan Green Energy News, 2023). More such investment could join the fray as coal-based power plant operators join the process of capacity phase-out.
Outlook
The German residential behind-the-meter sub-segment has a leadership position relative to European countries and is essential in the country’s storage market outlook. In a relative context, the grid-connected storage is gradually catching up. Wood Mackenzie’s projections indicate 8.8GWh (Wood Mackenzie, 2022) of aggregated grid-scale storage capacity by 2031. With behind-the-meter storage capacity, it could be among the top European storage markets. A rise in the grid prices, market transaction opportunities in grid ancillary services, and favourable regulatory measures (such as the auctions) could help add a fillip to the grid-scale energy storage.
The need for grid-scale storage could be far higher than the projections. The energy transition, effected by rising renewable energy penetration and policy goals of phasing out nuclear power generation, imposes significant constraints in grid management. The German government, for instance, is unsure about its commitment to phase out coal-based power generation by 2030 without feasible options (Clean Energy Wire, 2023). Coal-based power fills the gap arising from nuclear phase-out and rationed gas supply. The recent approvals for some of the significant grid-scale battery storage projects thus highlight the policy’s focus on flexible power generation sources in the grid’s power mix.
The rise in renewable energy penetration and the push to undertake economy-wide decarbonisation already impose significant demands on the grid infrastructure. The four German grid operators will spend about €250 billion by 2045 to expand and develop the infrastructure (Montel, 2023). Battery-based storage systems will likely be integral to the capacity development roadmap.