With the Inflation Reduction Act underway alongside global efforts to limit the Earth’s warming, Calibrant is publishing a three-part series examining the top energy transition trends for the second half of 2023. In part two, we dive into the critically important topic of energy storage.
The rise of energy storage
Energy storage provides the flexibility our energy grids need to make clear, steady progress on the path to net zero. Renewable energy sources like solar and wind produce power intermittently. Power grids need to make sure they can capture and store that energy, releasing it for use when it’s needed.
According to BloombergNEF, energy storage capacity globally is on the rise as a total of 16GW was added last year. That’s equivalent to 68% growth year-on-year. There are a number of factors behind these stats, including declining costs driven—in part—by tax credits from the Inflation Reduction Act (IRA). Lowering cost barriers for strategic investments like energy storage will increase demand and that’s certainly been the case in this sector, which had healthy interest even before the IRA became law.
With the massive investments from IRA elevating demand to new levels, the U.S. has firmly established itself as a leader in the energy storage market. In fact, the U.S. distributed energy storage market is expected to expand 13-fold, exceeding 100GWh cumulatively by 2031. Recent signs point to a strong future for this sector. A significant portion of the distributed storage market falls with the residential segment where according to Wood Mackenzie, capacity installations increased every quarter in 2022, indicating sustained demand. Looking beyond the residential segment, community, commercial and industrial storage installations saw their second highest quarter on record in Q1, a 145% increase from last year.
We will be keeping an eye on evolving policy and market dynamics. Changes here could yield significant upside, but that’s not guaranteed. As with many other industries and sectors, supply chain challenges continue to be a drag on otherwise healthy near-term growth. The market is adjusting to project delays and cancellations due to battery supply limitations and material pricing pressures. These forces may suppress deployment in the near term but manufacturing capacity for storage is increasing despite the challenges. We remain optimistic that global investments in raw material supply and processing should help ease supply chain cost pressures into 2024, creating opportunities for more projects to be energized.
At Calibrant, we remain excited about energy storage as a promising area for growth in the distributed energy space where we are well-positioned to assist clients with developing, managing, and operating energy storage assets.