Who will dominate the global energy storage market?
I recently delivered a podcast story on the ‘space race’ for energy storage dominance between the United States (U.S.) and China. To recap, I highlighted that in China the government is pushing for rapid growth in renewable generation but requires energy storage to capture lost or ‘curtailed’ wind and solar energy from congestion or other grid issues. China hopes to be both leader in renewables and storage deployment. To facilitate this new energy storage build out a loan from the World Bank for 750M USD was secured.
While China is being driven by policy, the U.S. is driven by both economic value and ‘policy push’ at the state level plus tax incentives federally. Energy storage developers in the U.S. rush to new regional markets as energy storage prices drop and create the required return for investors. The regional markets have a variety of value that energy storage can provide: behind the meter value for customers like lowering peak demand charges or time of use tariffs and front of the meter value like ancillary services and wholesale energy arbitrage (buying low and selling high).
In particular, the biggest application for energy storage on the horizon is likely ‘capacity’ or peaker plant replacement. In current grid systems, many natural gas peaker plants sit dormant 90%+ of the year waiting for the maximum system load peaks; typically, the afternoons of summer days when industry is humming, and the temperature drives a temporary requirement for a few hours. Traditionally these peaker plants were the most effective way to satisfy the maximum requirements for the variable demand.
A newer use for peaker plants is to backstop the drop in solar generation in the evening as folks head home, which in high solar regions create issues like California’s duck curve. In contract to traditional relief for increased demand, the peaker can fill in for an expected, or unexpected, drop in generation
Here’s where storage is making a big play.
The policy push I mention is many cases a renewable portfolio standard at the state level; for example, a mandate that NYC will supply 70% of its energy from renewables by 2030. These mandates will increase renewables, but won’t relieve the backstop requirement for capacity from peaker plants when renewables aren’t generating enough to meet demand.
By capturing excess energy in the day and storing in energy storage—typically lithium ion batteries—the energy storage facilities can provide that short duration backstop. Grid operators haven’t been doing this up until for a few reasons: 1) renewable plants were too expensive to deploy up to a significant percent of supply; and 2) storage was too expensive compared to peaker plants.
This has changed as both technologies are getting cheap! Solar[i] and wind[ii] are seeing contract prices as low as~$20/MWh each, respectively. As such, the combination of storage plus renewables is an attractive offset to fossil fuels—and in some of the states we are seeing this materialize. One example (mentioned in the podcast) is the Public Service Company of New Mexico which recently abandoned plans to continue running the San Juan coal facility, replacing it with a combination of gas, solar, and storage. Company officials said that this new plan will actually save residential customers money.
I also mentioned the stunning prices of a recent contract negotiated by Los Angeles Department of Water and Power (LADWP) for solar under $0.02/kWh and energy storage energy contracted at $0.013/kWh. It’s unclear what additional revenue the facility owner might gain from resource adequacy payments or some other uncontracted value stream, but the price is below nuclear and coal rates.
Aside from the race to install the most energy storage these two countries also seek leadership in battery manufacturing. To date several lithium battery ‘gigafactories’ have sprung up or been in development in China and the U.S. primarily focused on the needs of electric vehicles. In recent decades, it would be assumed that China would ultimately dominate manufacturing, and while the U.S. may find it has an appetite to self-supply—particularly given the recent direction in tariffs—China appears to have the lead. In the case of manufacturing it’s not just the U.S. and China, however. A recent GTM article indicates that Europe may surpass the U.S. in manufacturing. Lithium battery supply for energy storage (vs. electric vehicles) has been supplied heavily by Korea (LG Chem and Samsung) to date, but as the energy storage market warms to Chinese manufacturers it is likely they will win this side of the race.
But aside from geopolitical economics, it’s not necessarily that important to the industry which country dominates installation or the supply of that technology. The pace, quality, and innovations related to energy storage installations will benefit everyone as renewables continue to displace fossil fuel plants.