Fact:
Energy storage had its best year for new deployments in 2022 across all market segments:
Following a 1,789% increase in deployments during the last five years, the forecast for energy storage in the U.S. throughout the next five years shows nothing but continuing growth.
A report from the American Clean Power Association (ACP) and Wood Mackenzie projects that between 2023 and 2027 the nation may add as much as 75 GW (75,000 MW) of energy storage to meet all-time high demand.
As 2023 sets another higher mark for domestic energy storage adoption, the U.S. growth rate is forecasted at a compound annual growth rate (CAGR) of more than 30% through 2027. This will result in growth across all three major segments:
- Grid-scale
- Residential
- Community, Commercial, and Industrial (CCI)
If they don’t already, energy storage systems (ESS) will soon have an impact on each of our daily lives in some way. So, before we explore the driving factors behind energy storage, let’s define it.
What is Energy Storage?
Electricity in its original form cannot be stored on any scale. Therefore, an energy storage system is used to capture and convert electricity into another form so that it can be stored for future use. This can be done utilizing a variety of technologies such as batteries, flywheels, compressed air, pumped hydro storage, and others.
With stored energy, an ESS helps stabilize a microgrid — a group of interconnected energy resources that serves as a single entity — by balancing energy supply and demand for increased efficiency.
Electricity storage provides a variety of further advantages:
- Reliability: An ESS provides backup power during disruptions, increasing the reliability of systems.
- Economic benefits: Energy storage can eliminate power outages which cost the U.S. economy $150 billion annually according to the Department of Energy. An ESS also saves consumers money, as low-cost energy can be saved and used during peak periods when electricity rates are higher.
- Environmental benefits: ESS efficiency and the integration of renewable energy sources reduce greenhouse gas emissions.
For more information, check out Understanding Energy Storage Systems - New Trends in Technology.
Factors Driving Growth in Energy Storage Technology
Why is the energy storage industry now growing more rapidly than ever before? Haven’t energy storage systems provided benefits for years?
Yes — but their adoption is accelerating given a variety of factors:
Other Industry Growth
Energy storage is most commonly used in companies with electric vehicle infrastructure and renewable energy applications such as solar and wind. These industries are growing quickly as they strive to meet their ambitious goals.
For example, the Solar Energy Industries Association is aiming for solar to be 30% of all electricity consumed in the U.S. by 2030 — it is currently 3.4%. Similarly, the Biden administration is aiming to have a public network of 500,000 EV chargers by 2030 — there are currently 130,000. There is a lot of work to be done to achieve goals in these industries.
New projects will continue to place a great deal of pressure on the electrical grid. Renewable energy cannot support the grid in a meaningful way without an ESS. Storage is absolutely critical for grid modernization and advancement. Therefore, as these electricity-hungry industries grow, so will the need for energy storage.
System Upgrades
In addition to new projects, energy storage is also a great option for upgrading current systems. For example, today more inverters are coming to the end of their 10-year lifespan as the solar photovoltaic (PV) industry matures. While this calls for a system upgrade, an entirely new setup is not necessary — as the rest of the system, such as the PV array, can last 25 to 30 years. It is in one’s best financial interest to take advantage of that extra useful life.
Given that upgrades are already being made, site owners are realizing that it is also in their financial interest to add an energy storage system as part of the process. Investment in an ESS is a great value-add opportunity that yields long-term savings, along with other benefits.
Government Incentives
A major breakthrough in the energy storage industry came when the Inflation Reduction Act (IRA) was signed into law in August 2022. The IRA will deliver $270 billion in tax incentives for energy production — and for the first time, large-scale, standalone battery storage projects in the U.S. are eligible for investment tax credits ranging from 30% to 70%. Here is an incentive breakdown:
- 30% - Meets registered apprenticeship requirements and the developers and operators pay prevailing wages.
- +10% - Is constructed with equipment and materials produced in the U.S. Look for an increase in domestic manufacturing.
- +10% - Is in an “energy community” — a brownfield site of oil/gas/coal activities.
- +10% - Is paired with wind/solar and installed in a low-income community. Raises to 20% if the project is part of a low-income residential building or economic benefit project.
Previously, tax credits were only available for renewable plus storage systems. Developers would often have to explore partnerships with a larger entity to take advantage of incentives. Now, the process is much simpler and more accessible. Since the IRA was passed, billions of dollars in storage investments have been announced with billions more to come.
Technological Advancements
Lithium-ion battery systems have been the most widespread form of energy storage for many years. However, reliance on a single source is risky as fluctuations in cost, supply and reliability could be detrimental. Therefore, the industry has evolved to produce lithium-ion alternatives such as iron flow, zinc, and sodium batteries which have emerged and started to scale up.
Furthermore, innovations across a wide range of technologies have provided reliable alternatives to battery energy storage systems (BESS) entirely. This has helped the industry respond to increased demand by creating multiple potential methods for success. The Energy Storage Association divides ESS solutions into five main categories:
- Batteries: Electrochemical cells convert chemical energy into electrical energy. For more information, check out Battery Basics.
- Thermal: Heat or cold is captured in a medium to create energy on demand.
- Mechanical: Kinetic or gravitational energy is harnessed and stored.
- Hydrogen: Excess electricity is converted into hydrogen via electrolysis and stored until it is re-electrified.
- Pumped Hydropower: Large reservoirs store energy as water.
Challenges Remain
While it is clear that the energy storage industry will experience substantial growth in the immediate future and for years to come, the ability to progress will likely be determined by the following factors:
Supply Chain
Volatility in supply continues to affect almost every industry, and energy storage is no exception. While demand for battery metals such as lithium increased over 30% in 2022, supply was hindered by the war in Ukraine, COVID-19 in China and inflationary pressures. In 2023, sustained demand will push manufacturers to establish economies of scale to improve prices, production and delivery. Creating a diversified and resilient supply chain is critical to industry growth.
Costs
While alternative technologies are on the rise, the cost of lithium-ion batteries remains a key point given their footprint in the energy storage industry. The average price of a lithium-ion battery pack dropped more than 80% from 2013 to 2021, promoting major growth. However, a 7% cost increase in 2022 interrupted a decade of decline. Lithium-ion prices are forecast to remain fairly stable in 2023 before declining again. And the emergence of cheaper and/or longer duration alternatives may cool high demand.
Stakeholder Behavior
New policies, technologies, and challenges make the energy storage industry a fast-moving environment. In response, stakeholders are frequently changing how they do business to adapt to the latest trends and capitalize on business opportunities. This creates a degree of uncertainty, which is only increased by the current economic and supply chain environment. Willingness to take risks will influence the potential for significant change in the industry moving forward.
Conclusions
Energy storage has grown on the coattails of renewable energy markets. Now, it is stepping to the forefront as many industries realize that energy storage is absolutely critical for reliability, regulation and grid modernization.
An ESS can provide generation, transmission and/or distribution. It can provide cost savings, improve reliability and integrate new sources while reducing environmental impact.
The benefits are clear, and they are not going unnoticed as incentives and investments continue to pour in.
The industry will continue to move forward, but just how far will be determined by every stakeholder’s ability to predict, manage, and overcome challenges.
How c3controls Can Help
As more energy storage systems are manufactured and installed, quality electrical controls will remain a key component of the ESS supply chain for all segments. Electrical controls include:
- Miniature Circuit Breakers (MCBs)
- Disconnect Switches
- Contactors
- Pilot Devices
- Control Panels
- & much more!
c3controls is ready and able to assist, by delivering the world-class products and services necessary for producing all types of energy storage systems.