2024
Energy Storage Report
Key Regional Markets
United States
The US energy storage market is the world’s largest and is poised for outsized growth to support the influx of renewable energy generation. Critical systemic requirements such as network reliability, capacity planning and clean power procurement are setting the pace of change in the US energy storage market. An outsized growth in solar PV projects and the policy incentives for cleaner energy sources reinforce the business case of energy storage. For most of the grid operators, battery storage is progressively an integral part of the long-term procurement plans.
GDP (Current Prices) USD (2022) | 25,463bn |
GDP Growth Forecast (constant prices) (2023-2027) | 2% |
10yr Govt Bond Yield (12-month rolling average) | 4.04% |
Country Credit Rating (S&P) | AA+ |
Battery Storage Capacity | 61.4GWh /15.36GW |
Pumped Hydro Storage Capacity | 550GWh/22GW |
RE share of Total Electricity Capacity | 29.5% |
Battery Storage Outlook | 66GW by 2027 |
Note: Battery Storage Capacity Expressed in GWh assuming an average 4 hours of duration.
Source: IMF, Fred Economic Data, S&P Global, EIA, Department of Energy, Energy Institute, Wood Mackenzie
For pumped hydro storage: (US Department of Energy, n.d.)
Energy Mix and Case for Storage
Source: Energy Institute Statistical Review of World Energy
Progressively, there is a stronger case for retiring coal-based power generation capacity. The cost economics suggest that a new solar PV plant in the US could be cheaper than running an existing coal-based plant. The plant operators, thus, may find it challenging to schedule coal-fired power against cheaper options in the grid. In 2024, coal-fired power plant retirements are projected in the range of 6-8 generation units. In 2023, the same stood at 22. A lesser number of retirements in 2024 is only due to the delayed phaseout schedule and grid operators’ push to temporarily retain them to bridge short-term reliability demand (Argus, 2024). Displacement of coal-based power with cheaper natural gas and renewable energy capacities is already a foregone conclusion across power market regions. At the same time, such a transition also implies pressure on network operators to accommodate renewable energy against a falling share of a baseload power source, such as coal.
In varied measures, grid-scale battery storage is finding traction in the US energy markets as operators seek options in flexible energy. This includes standalone battery storage units and hybrid renewable-plus storage projects through which developers tap into the wholesale power market.
Capacity: Status and Trend
As observed in the reported nameplate operational capacity, installed battery storage capacity in the US power market grew over 15 times between 2019 and 2023 (EIA, 2024). But for the grid constraints, the operational capacities would have been even higher for the year. The power capacity ratings of the operational storage units range from 1MW to 409MW. A significant share of the incremental storage capacity is due to the co-location of batteries with renewable energy generation projects. Till the passage of the direct policy incentives for battery storage in August 2022, co-located battery storage was a preferred route due to the prevalent tax incentives. Over the year, co-location declined in relative importance. Meanwhile, standalone batteries continue to gain momentum with evolving power market norms allowing incentives for grid services.
Note: Data refers to nameplate operational capacity reported as of December of every year.
Source: US Energy Information Administration (Monthly generation reports)
The installed battery storage capacity is spread across 39 states. About 80% of the storage capacity (In energy terms) is concentrated between California, Texas, and Florida. This is due to the conducive regulatory framework that incentivises standalone battery units through wholesale power market participation for grid services. Rapid scale-up in renewable energy capacities and the resulting changes in the grid made some of the states take a leading role in adopting flexible options like battery storage. The state-wise growth of energy storage is mapped one-for-one with renewable energy generation or penetration and related bulk power market structure.
The total installed storage capacity is thus skewed towards the utility-scale segment. This will likely be this way, as grid management is the primary demand driver in the US storage market. Notably, the grid services segment is gradually poised to expand as network operators consider changing the market structure for battery storage options. The competitive cost of batteries against the competing options in conventional fuels (mostly natural gas) is another supporting factor in the emerging scenario. In contrast, the growth in residential and commercial segments depends on volumes. Residential and commercial solar units are the key avenues for the deployment of batteries (both grid-connected and off-grid).
Policy and Regulation
There are no national-level standard rules or a centralized regulatory authority for energy storage. In its 2018 order, for instance, FERC directed all the Regional Transmission Organisations (RTOs) and Independent System Operators (ISO) to ensure an updated tariff structure that recognizes the specific energy storage characteristics for market participation (Utility Dive, 2023). Since then, the progress in formulating appropriate regulations has been through the respective state authorities or the regional RTOs/ISOs. The existing system is thus a complex combination of states prescribing varied norms in the energy storage capacity addition. The energy storage requirements in many states have been a part of their renewable purchase standards. In a few others, there are explicit targets. California, for instance, mandates utilities to install storage units (Reuters, 2023). In Texas, however, the growth stems from the boom in utility-scale solar PV projects. Both states have renewable energy penetration at the core battery storage regulations.
The Californian wholesale power market CAISO’s resource adequacy rules incentivise four-hour batteries. In Texas, there are ancillary services regulations incentivising two-hour storage. In many regulatory markets, the four-hour storage duration has gained currency, enabling utilities to provide such capacities during the peak summer demand time. A few other states, such as New York, Massachusetts and Connecticut, have incentives for smaller retail and commercial battery systems to ensure a wider adoption of the storage capacity.
Distributed energy resource participation is another vital segment poised for expansion with FERC’s regulatory directions. In its order of September 2020, FERC asked all the authorities to remove barriers to the participation of distributed energy resources for electrical energy, capacity, and ancillary services in the wholesale power markets. The full implementation of this could be a long-drawn process. California and New York’s ISOs have already met this, while others sought extension or are in the roll-out process.
About 15 US states have some form of energy storage policy support in place, including procurement targets, regulatory norms on integration, technology demonstration projects, incentives, etc (Morgan Lewis, 2023). States with specific procurement targets include California, Oregon, Nevada, Illinois, Virginia, New Jersey, New York, Connecticut, Massachusetts, and Maine. Procurement targets help act as signals for investors and enable a stable visibility for project development.
A major boost for the energy storage pipeline came with the Inflation Reduction Act (IRA), which came into effect in August 2022. Aimed primarily at funding clean energy investments, the US IRA’s major support lies in its Investment Tax Credit (ITC) for standalone battery storage projects. The tax credit helps improve the cost economics of the battery projects, which earlier availed such a benefit only through co-located or generation-paired storage schemes (Energy Storage News, 2023). Further, IRA’s Energy Community Tax Credit Bonus program provides an additional 10% in tax credits for the solar and storage projects set up in locations of closed coal-fired power stations (Reuters, 2023).
Market Developments and Opportunities
Policy objectives and related regulatory steps for decarbonisation and renewable energy penetration set the base for the US energy storage market. The existing and emerging battery storage pipeline is shaped by the utility-scale solar PV market. The US grid interconnection queue is one indicator of the emerging demand. As of August 2023, out of the total tracked capacity worth 2,050GW in the queue for grid connection, there were 473GW of standalone batteries and 690GW of hybrid renewable plus battery storage projects (S&P Global, 2023). Added momentum is from IRA’s incentives for standalone battery storage projects.
The change in incentive structure due to IRA impacted the project pipeline. IRA’s tax benefits for the standalone battery projects blunted the importance of hybrid/co-located storage projects. Till the IRA’s passage, the co-located projects had an edge due to the tax advantages. By the end of Q3 2023, about half of the storage projects in development were hybrid – a stark difference against their 70% share in 2022 (Reuters, 2023). The trend of the rising share of standalone battery projects is likely to be sustained, as planned coal retirements present a significant opportunity for investors and policy authorities alike. There is, therefore, a significant capacity boost expected across the US wholesale power market areas due to IRA incentives (PV Magazine, 2023). Projections show that the potential varies due to the relative progress of solar and battery capacities in those respective regions.
Source: PV Magazine
Federal incentives are available for emerging long-duration energy storage technologies. The US Department of Energy’s $325 million funding package is aimed at storage technology projects across 17 states. Funded under the US Bipartisan Infrastructure Law, the objective is to progress the commercial viability of long-duration storage through a set of demonstration projects (Tamarindo, 2023). Some of the leading states have taken the same route. New York’s $15 million funding for four demonstration projects is one example (Utility Drive, 2023).
The regulatory measures by the ISOs and RTOs are critical in attracting capacities. For instance, ERCOT provides an energy-only market where generators are paid only after providing power to the grid daily. This is an attractive scenario for developers to tap into the battery storage demand segment (Thomson Reuters). The California Public Utilities Commission requires load-serving entities to procure an additional 11.5GW of between 2023 and 2026 from preferred sources, including energy storage (CPUC GOV, 2023). In 2023, the utility PGE procured 400MW of battery storage capacity for peak demand management. PGE’s storage procurement stemmed from the Oregon Public Utility Commission’s mandate to procure storage capacities under the overarching goals of clean energy share. Other utilities face similar mandates based on which capacities will be selected through competitive bidding (Energy Storage News, 2023).
In the last 2-3 years, the co-located storage projects emerged as a major growth driver in the US market. The fiscal incentives (investment tax credit in the US) played an important role in the spike of such projects. A subsequent re-alignment of incentives in favour of standalone battery storage took place with the Inflation Reduction Act (IRA) that came into effect in August 2022. This helped moderate the skew. About 60% of the total capacity (as of June 2023) awaiting grid interconnection, was towards either hybrid (i.e. batteries co-located with generation) or standalone battery storage projects (S&P Global, 2023).
Note: Data above is as of June 2023
Source: S&P Global
Grid management services are among the most important applications driving demand for battery-based storage. An indication to this effect is evident from the capacities in queue for interconnection requests. About 60% of the total capacity (as of June 2023) awaiting grid interconnection, was towards either hybrid (i.e. batteries co-located with generation) or standalone battery storage projects (S&P Global, 2023).
The US has New York’s grid operator (New York Independent System Operator, or ISO) evaluating the pros and cons of deploying storage assets to operate as the state’s power transmission network (NYISO, 2023). In the regulatory context, it means treating the grid-connected energy storage as a transmission asset, in addition to being a generation asset. In effect, it means the storage assets could contribute as non-wire alternative to the transmission network to enable dispatch and management of the generated energy. NYISO’s proposal has an obvious background in the ambitious renewable energy penetration targets (70% by 2030 and net zero by 2040) and a massive transmission buildout to support it.
Note: (a) Data represents a select set of applications among others reported in EIA publication. (b) Grid-scale battery systems are typically deployed for more than one application.
Source: EIA Annual Generation Reports till end of 2023
Outlook
The US Energy Information Administration, in its estimates of January 2024, projected installed battery capacity reaching 30GW by 2024, if the projects under pipeline are commissioned in time (EIA, 2024). In effect, this means a doubling of the existing capacity base. Such an outlook also means the battery storage capacity outstripping some fuel types in the power mix, such as petroleum liquids, geothermal, wood and wood waste. The outlook for the period beyond 2024 is equally bullish across all studies. Wood Mackenzie’s projections for 2023-2027 point to 66GW of energy storage capacity installation, with over 80% of them as utility-scale ones.
Notably, the planned storage capacity expansion is likely to get added support from a decline in costs. Projections by the US National Renewable Energy Laboratory show a declining trend in the cost of four-hour battery projects based on Lithium-Ion technology. By the end of 2030, the per-unit costs could potentially halve, lending competitive strength to the commercialization of grid-scale storage (Energy Storage News, 2023). At the same time, the technology dynamics of energy storage could change with ongoing efforts underway.
The provision of timely interconnection continues to be a systemic issue in the industry. This will impact the commercials for energy storage projects. As observed in the curtailment of capacities, the rising delays due to transmission constraints have already begun impacting the industry. With IRA incentives, the manifold rise in a capacity pipeline may have intensified the pressure on the interconnection queue. The investment commitments, such as the Department of Energy’s $3.5 billion funding (S&P Global, 2023) as a first tranche of spending for grid expansion, could help mitigate the challenge.