- We expect grid-scale energy storage capacity in the US will ramp up at a rapid pace, and estimate that energy storage capacity will reach between 20GW and 22GW by 2025, with significant upside risk.
- Supporting our outlook, more than 10GW of grid-scale storage is set to come online between 2021 and 2024, and the pipeline continues to expand rapidly.
- We highlight several factors which will drive the rapid growth in battery storage capacity, including an increasingly attractive policy landscape, declining technology prices, robust renewables growth, and growing grid supply challenges.
- We expect utility-scale battery storage capacity to ramp up substantially over the next few years, with California and Texas set to lead growth at the state-level in the near-term.
Energy storage capacity is set to ramp up at a rapid pace in the United States over the medium term. According to the US Energy Information Administration’s (EIA) latest Monthly Generators Statistics from November 2020, the country had just under 1,350MW of utility-scale battery storage capacity in operation, with LS Power’s 250MW Gateway Energy Storage System in California the largest project in operation. As of late January 2021, the largest project in operation is now Vistra’s 300MW/1,200MWh Moss Landing Energy Storage facility in Monterey County, California. The project began operations in December 2020, pushing US grid-scale energy storage capacity to over 1,600MW. We expect the grid-scale battery storage landscape will continue to ramp up rapidly over the next few years, with an estimated 20GW to 22GW set to come online by 2025. Additionally, we note significant upside risks to our estimates, given an increasingly favorable policy landscape and building momentum for grid-scale storage solutions to compliment increasing levels of renewables integration.
Supporting our outlook, we highlight that project pipeline of grid-scale storage projects continues to expand rapidly. The battery storage project pipeline in the US power sector continues to expand at a rapid rate. According to the EIA’s November 2020 Monthly Generator Inventory, 10,360MW of grid-scale storage capacity are set to come online between January 2021 and December 2024. This represents nearly a three-fold increase in comparison to the planned project capacity that was recorded in the January 2020 Monthly Generator Inventory, which showed 3,603MW set to come online over the same time period. We expect that planned annual energy storage project capacity additions will continue to increase, particularly from 2023 onwards.
Furthermore, we highlight several key factors which will encourage further growth in energy storage capacity, including an increasingly attractive policy landscape, declining technology prices, and the need to address growing grid supply challenges. Among the factors which have contributed to initial grid-scale storage growth, and will encourage exceedingly more rapid growth, we highlight:
- Expansions in state-level policy: State-level policy for grid-scale energy storage will be a key driver of growth over the decade, with the landscape becoming increasingly more favourable towards supporting rapid development over the decade. More than 20 states have some level of policy geared towards increasing the competitiveness and capacity of energy storage projects, including regulatory adaptation, consumer protections, financial incentives, and procurement targets. Among these, we highlight the seven states which have enacted energy storage procurement targets – California (CA), Oregon (OR), Nevada (NV), New York (NY), New Jersey (NJ), Massachusetts (MA), and Virginia (VA). California surpassed its procurement target for 2020, with more than 1.5GW of projects approved or installed by year-end, making the state the current global leader in grid-scale storage. Virginia is the most recent state to set an energy storage procurement target, establishing a goal for 3,100MW of utility-scale energy storage capacity by 2035 – the highest of any state – through the Virginia Clean Economy Act that was signed into law in 2020.
- Increasingly favourable federal policy: While energy policy is largely driven by state-level policy, an improving landscape at the federal level will also support growth over the coming decade. We expect a strong boost to renewables growth and a focus on clean energy technologies under the Biden Administration will drive substantial growth in grid-scale storage technology. In line with our view, President Joseph Biden passed several executive orders (EOs) in relation to addressing climate change and reducing greenhouse gas emissions in his first weeks in office. In particular, the EO from January 27 2021, titled ‘Tackling the Climate Crisis at Home and Abroad,’ informs federal agencies to take steps to ensure that the US can achieve a carbon pollution-free electricity sector no later than 2035. In addition, Biden’s climate plan, released in July 2020, specifies battery storage as a key area of interest for research and development (R&D) and innovation within the power sector, with substantial cost reductions being a primary goal. We note that battery storage already received a major boost in R&D funding recently. On December 28 2020, then-President Donald Trump signed into USD2.3trn Covid-19 relief and government spending bill into law. The bill includes USD1.089bn in funding for energy storage over the next five years, including USD500mn for R&D and USD355mn for competitive solicitations for energy storage pilot projects by states, utilities, and private companies. Finally, we also note increased chances under the Biden Administration for the establishment of stand-alone tax incentives for energy storage.
- Growing grid supply challenges: We expect that robust growth in the non-hydropower renewables sector, particularly wind and solar sectors, in combination with the retirement of traditional power sources such as coal and nuclear, will drive additional growth in battery storage as utilities, cities, and states aim to address grid supply challenges. Most notably, California’s rapid rise in both small-scale distributed energy storage resources and grid-scale storage capacity can be attributed to the state’s growing grid supply challenges. California’s electricity grid has become increasingly strained in recent years as a result of increased demand during extreme weather events such as heat waves and increasing supply-side issues due to the intermittency of renewable resources such as wind and solar.
- Increasing adoption by utilities: Over the past three years, interest in grid-scale energy storage by US utilities has increased significantly – boosting growth outlooks and the project pipeline throughout the country. While nearly every major utility has plans to increase energy storage capacity, we expect utilities will continue to increase plans for renewables-plus-storage projects and standalone projects as they look for ways to further improve grid reliability and resilience given increased renewables capacity and the retirement of baseload sources such as coal and nuclear. Most recently in December 2020, Southern California Edison announced it had signed procurement contracts for three utility-scale battery storage projects, totalling 585MW. We also highlight Florida Power & Lights (FPL), a utility owned by NextEra Energy, as one utility which is boosting its storage capacity to complement its renewables growth outlook. In January 2021, the company began construction on the Manatee Energy Storage Center, a 409MW/900MWh project that is expected to be the world’s largest solar-powered battery system when it begins operations later this year. FPL aims to have 10GW of solar capacity installed by 2030.
- Technology improvements & declining costs: The EIA estimates that costs for utility-scale energy storage projects decreased nearly 70% between 2015 and 2018. The steep cost decline was primarily driven by advances in lithium-ion battery technologies, which has significantly improved the performance of energy storage systems and increased the maximum storage capacity and duration. Looking forward, the US Department of Energy’s National Renewable Energy Laboratory (NREL) estimates that costs will fall an additional 45% through 2030, resulting from further advances in technology and rising competition and battery production.
California, Texas and Arizona appear set to lead storage capacity growth in the near-term. The three states account for just under 66% of the 10.4GW of planned battery storage capacity that has been registered with the EIA. California’s energy storage push, resulting from the state’s significant grid reliability issues and large share of renewables in the state grid, leads to the state accounting for nearly 40% of total planned capacity alone. In addition, seven of the top ten largest projects in the project pipeline are located within the three states, with California once again leading with four of the top ten projects with the largest capacity.
That said, we expect battery storage adoption will quickly gain traction in other regions and states. While initial growth over the next couple of years will be focused in the Western US and Texas, we expect adoption to quickly ramp up throughout the country. As previously noted, several states in the Eastern US, such as New York and Virginia, are aiming to add gigawatts of grid-scale storage over the coming decades, while the largest project currently under construction is located in Florida.
We highlight the Eastern US and Midwest US as two regions which we expect will begin to take off over the coming years, as both regions would benefit significantly from increased utility-scale energy storage. In particular, grid-scale storage in the Eastern US will help increase the resiliency and reliability of the grid given a substantial renewables growth outlook – particularly from the offshore wind power sector. In total, the offshore wind targets by Northeast US states aim to install nearly 30GW of offshore wind capacity by 2035. In the Midwestern US, battery storage will help address growing grid bottlenecks throughout the region, particularly in relation to curtailments for wind power projects – improving project financials. That said, we note that battery storage costs will need to decline substantially or federal incentives will need to be established for really robust growth to take place in the Midwest, given the generally low electricity prices in the region.
This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 (‘FSG’). FSG is an affiliate of Fitch Ratings Inc. (‘Fitch Ratings’). FSG is solely responsible for the content of this report, without any input from Fitch Ratings.