With the sustained growth of wind and solar generation facilities in the US (some 27 - 28 GW of additional installed capacity in each of the past two years), the appetite for technology that can reinforce these assets is growing in kind, particularly to meet peak electricity demand. In recent years, battery storage has been moving to the top of the menu as an option.

Add to this appetite the passage last year of the Inflation Reduction Act (IRA), with its inclusion of tax credits for stand-alone as well as paired storage, alongside incentives for domestic manufacturing and supply chains. It is expected these tax credits and incentives will help accelerate the battery market from today’s 6.5 GW of operating capacity for grid-scale storage to somewhere between 122 - 135 GW of capacity by 2031, according to Wood MacKenzie.

As the Wall Street Journal commented in August 2022, “if tax credits’ benefit to wind and solar growth are any indication, extending that perk to energy storage could end up being a real turning point for one of clean energy’s biggest missing pieces.”

So, if the IRA is helping to answer the question in the US of “should we build battery storage?” what else is influencing expansion?

The rapid growth in renewables, massive capital flows supporting storage investment (especially given ESG investing targets’ desire to transition away from fossil fuels), and long-term cost competitiveness of batteries are likely to further accelerate demand for large-scale battery storage. This trend is supported by higher natural gas prices in the medium term, the traditional alternative to storage for balancing renewables intermittency and providing other grid services.

Currently, Texas and California still dominate battery storage additions (with almost 1 GW new capacity added across both states in Q2-2022), but an increasing number of projects are entering the pipeline across the US. Although specific to each market and use case, average duration is also increasing, with projects across the industry noted as being in advanced development, showing an average of 3.53 hours, almost an hour longer than the current installed base. This increase in duration demonstrates meaningful technological progress – both in software and hardware – in how battery system scan reinforce power grids even more effectively.

What are some of the challenges?

As with many parts of the renewables ecosystem, supply chain issues have been particularly challenging for the rapidly expanding US market. Beyond the delays and shortages of battery components (both hardware and software) seen globally, the geopolitical tariff issues with China have stalled many projects. The inclusion of relatively aggressive domestic manufacturing incentives as part of the IRA may start to diversify supply chains in the medium term. In the short to medium term, competition for batteries from the automotive sector, which already has 10 times the demand of stationary storage, may be one of the biggest constraints to overcome if the US is to add upwards of 10 GW each year for the next decade.

“The rapid growth in renewables, massive capital flows supporting storage investment (especially given ESG investing targets’ desire to transition away from fossil fuels), and long-term cost competitiveness are likely to further accelerate demand for large-scale battery storage.”

While the IRA has created a catalyst in terms of incentives and tax clarity, it did not address permitting and interconnection challenges. In late 2021, a Berkeley Labs study indicated there was 421 GW of stand-alone and hybrid energy storage requesting transmission interconnection queue positions (clearly not all of this will move forward) and average wait times are now around 4 years. The industry is focused on advocating for changes both at the federal and state level as well as with Regional Transmission Operators (RTOs)/Independent System Operators (ISOs), where accelerating the process of interconnection will be most critical.

With rapidly growing renewable capacity across many RTOs/ISOs - Integrated Resource Plans (IRPs)for grids will need to increasingly reflect the role of storage (both grid scale and distributed) in their modeling. To some degree, storage is still not recognized as critically in plans as it needs to be. If the US grid is to move towards its aggressive 2035 targets, then storage will need to become a more central component of plans over the next decade.

To help cement this role in resource planning, battery system software will need to continue to evolve and become more sophisticated to meet the specific, and dynamic, market and dispatch rules in each region of the US with the utmost precision. Battery software has to be able to adapt seamlessly to changes in a given market, which is no small technical task, and as such, no small investment in IT infrastructure and data scientists. A key question is whether to try to build the critical software capabilities and teams in-house, and at what scale, or to contract with teams of specialists at external firms.

“As one of North America’s leading developers of renewables, ENGIE has been working to evaluate and manage all of these issues given our focus on building a strong pipeline in the US, expanding on existing co-located distributed battery storage, and planning for some 700 MWh of co-located grid-scale battery projects to be commissioned in 2023 alone,” said Annam Muthu, ENGIE North America’s Vice President of Energy Storage. “Our company has a material pipeline of both co-located and stand-alone storage, including the recently announced acquisition of assets from Bell town U.S. which added 3.1 GWh of stand-alone storage pipeline across ERCOT and PJM.”

“Storage is now part of ENGIE’s consideration set for co-location with all renewable assets across North America, and we see increasing opportunity for stand-alone assets,” Muthu added. “While developing and building storage assets is top of mind for many in the industry, long-term success will require in-depth asset management, commercial skills, and IT and optimization capabilities to drive value.”

Navigating the Path

If storage is a key component, or even a “missing piece” of the energy transition, the industry and ENGIE are indeed accelerating activities to meet the rapidly growing demand and to be part of completing the puzzle to take up the challenge of decarbonizing the grid. Like in any transition, advancing new possibilities while navigating the challenges will be at the heart of delivering on the opportunity.