June 30, 2020 – Reading time: 6 minutes
The global market for energy services is facing extensive transitions. In the past the interplay between centrally provided energy supply and distributed but easily predictable energy demand was to be managed. In the foreseeable future, new and far more complex issues like the increasing and decentralized infeed of volatile renewable energy will challenge the market for energy services. In Germany, where the distortions in the market are summarized under the term “Energiewende“, there will be an increasing demand for intelligent storage solutions (like BESS), but also worldwide the storage of electrical energy is a topic of the future.
Global BESS Investments
Global investment in Battery Energy Storage Systems (BESS) is set to increase at a stable rate of 17.8% CAGR between 2018 and 2024. For the 2020 analysis the pre-pandemic values were adjusted about -5% to reflect the lockdown effects in many countries around the world. We expect a slightly lower (than pre-pandemic) growth rates for 2021 and 2022. For the years 2023 and 2024 we expect the growth rates be back to the pre-pandemic values or even higher due to catch-up effects. It is likely that commercial and industrial customers will cause a large portion of the growth delay since the main interest for most small and mid-sized business is to postpone investments in order to save liquidity.
Battery Energy Storage Systems (BESS)
The BESS market can be divided in the three segments: Commercial & Industrial, Utility, and Residential.
The Commercial & Industrial (C&I) sector is increasingly adopting renewables, such as wind and solar power, to increase the share of self-consumption and reduce connection charges. In 2018 the C&I share was $ 1.4bn showing a clear growth trend. The utility segment had the biggest share with $ 2.7bn, followed by the residential sector with $ 2.1bn
Figure 1: Global investments in BESS. The market is expected to see a short decline in 2020 followed by the pre-pandemic growth rates which can be expected starting from 2022. (Source: DoC-USA (2017), Transformers Magazine (2019), INVENSITY analysis)
The utility sector is expected to dominate the energy storage market over the forecast period. The usage of energy storage systems in the electricity grids is gaining importance due to the growing desire to utilize renewables, accompanied by the corresponding regulations in many parts of the world.
Microgrids are one possible solution to incorporate large amounts of renewables at a high degree of self consumption into “Sub-Grids” of e.g. producing companies or local networks.
Smart control and monitoring systems are mandatory to react to fluctuations on both the generation and demand side and to maintain the stability of Microgrids. With increasing decentralization the importance and complexity of operation control systems will continue to grow in the coming years.
Enhanced microgrid connectivity with affordable and clean energy storage solutions significantly accelerates the market growth.
AI-based control software allows a higher efficiency and profitability for the entire energy system and minimizes integration challenges in inhomogeneous systems dealing with multiple software interfaces.
The global market for microgrids is expected to grow at a CAGR of 13% up to a size of $ ~4.1 bn in 2024.
Fast charging solutions are needed to make electric mobility attractive for consumers and enable mass adoption. Due to necessary investments in widespread fast chargers, the EV charging market is subject to an enormous growth of 41.8% CAGR forecasted through 2024.
Since the current grid designs cannot deal with the aspired power densities of fast charging stations, major investments into the existing infrastructure are necessary. These can either be in form of grid capability increase or the integration of buffer storage systems.
For most applications a buffer battery storage is the most economical solution, promising continuously high growth rates for the BESS market in the next decade.
The local storage of energy and the corresponding connected services depend on a specific set of megatrends that have a significant influence on the future development.
Urbanization requires battery storage systems for peak control and intelligent energy management. Smart Cities with modern information systems and communication systems use wireless sensor networks for managing goods, people and traffic flows and enable optimal planning of urban resources.
Neo-ecology systems use battery storage systems to store green energy from photovoltaic and wind power. In 2020 the global market for environmental industry is expected to reach 3.5 billion US-$. (2012, 1.75 billion US-$). The renewable energy market will increase with 8.2% per year until 2023.
Mobility is the major driver for new battery technologies due to the tough quality requirements on mobile batteries while the second key parameter -Cost- is estimated to decrease down to 70 US-$/kWh in 2030 with the increasing introduction of mass production.
Digital connectivity enables a permanent connection to the internet. Public networks requires battery backup systems for data processing centers and antenna stations. This year, 50 billion devices will be networked with 6.5 devices for each person worldwide on an average.
Figure 2: BESS market shares of the different customer groups/fields of application. (Source: Yole Dévelopment, INVENSITY analysis)
Experts assume rising prices for raw materials such as cobalt and lithium because the demand will rise. Lithium demand for example is assumed to triple from 250,000 tones in 2017 to 750,000 tones in 2025. Technology developments and improved production costs offset rising raw material prices and overall battery costs are expected to decrease.
For the application of battery storage solutions, we see three categories of possible value generation services.
These services are naturally connected with each other, so that a combination of value generation services is desired by provider & consumer.
Energy storage devices are capable of providing a suite of ancillary services that largely benefit ISOs/RTOs and vertically integrated utilities.
Utility services generally fall into two categories. One set of services -T&D-system upgrade deferral- focuses on using investments in energy efficiency and distributed energy resources to defer large investments in T&D infrastructure. The other set of utility services is comprised of resource adequacy and transmission congestion relief. These services are needed to meet system peaking requirements on a day-to-day basis.
Customer services like bill management provide direct benefits to end users. Accordingly, the value created by these services can only be captured when storage is deployed behind the meter.
As for today Redox-flow batteries are no major competitor to lithium-ion battery solutions
But due to the early development status of Redox-flow (RF) batteries, a potential next generation could become a real alternative to lithium-ion batteries in case the price decrease and the energy density improves. The lithium-ion battery technology has been improved continuously and will continue to improve in quality and cost as automotive market penetration rises. One of the main targets is the replacement of expensive raw materials for cathode, anode and the separator.
In case the price for lithium-ion batteries will decrease to 70 US-$/kWh as expected, more possible applications for lithium-ion batteries become valuable and the private use of battery storage systems in combinations to PV systems becomes more attractive.
Lithium, nickel and cobalt are important materials to reach high life span, high energy density and specific power.
Experts estimate the world reserves for cobalt to be 7 million tons and nickel to be 74 million tons. For lithium, which is expected to become a more and more important material for batteries, the available reserves are estimated to an amount of 16 million tons. In mid-term a raw material shortage for lithium-ion battery production is not to be expected. In short term a bottleneck for lithium and cobalt could arise because the production volume cannot be scaled in the required velocity.
Figure 4: Progress in technology and an increased market demand lead to lower battery production costs in the past (Source: INVENSITY analysis) Cost reductions in automotive lithium-ion batteries are most likely to affect the costs of stationary lithium-ion batteries. The manufacturing costs for lithium-ion battery falls continuously. In 2024 104 US-$/kWh and in 2030 70 US-$/kWh are expected.
Increasing the energy density of batteries and reduction of manufacturing costs are the main development targets for the future. Lithium-ion battery cost driver are expensive nickel and cobalt materials. Current development activities are aimed at reducing or to replacing nickel and cobalt.
From the market side we expect a positive outlook for the future due to active megatrends and increasing energy demand in emerging markets.