According to the new market research report "Battery Energy Storage System Market with COVID-19 Impact by Element (Battery, Others), Battery Type (Lithium-Ion, Flow Batteries), Connection Type (On-Grid And Off-Grid), Ownership, Energy Capacity, Application, and Geography - Global Forecast to 2025", the battery energy storage system market is projected to grow from USD 2.9 billion in 2020 to USD 12.1 billion by 2025; it is expected to grow at a CAGR of 32.8% from 2020 to 2025. The growth of this market is expected to be driven by the prevailing trend of adopting low-carbon and less fossil fuel-based economy and ongoing renewable energy revolution, surging requirement of continuous power supply from critical infrastructures in wake of COVID-19, growing adoption of lithium-ion batteries in renewable energy sector owing to their low costs and improved performance, and increasing demand for grid energy storage systems. These factors have helped the battery energy storage system market gain traction in applications, such as utilities, residential, and commercial.
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COVID-19 impact on the battery energy storage system market
The battery energy storage system market has historically been subjected to significant growth due to the rise in demand for battery energy storage systems in the utility sector. However, the outbreak of the COVID-19 pandemic has resulted in a decline in the growth rate.
As a result of COVID-19, the expected growth of several application segments of the battery energy storage system market is expected to decline as it is restricting the supply of batteries and other components and the adoption due to severe disruptions in businesses and the global economy. The current situation has impacted the supply chain of the energy industry, particularly renewable energy technologies and battery energy storage systems. The key components of battery energy storage systems are mainly manufactured in Asia Pacific. The COVID-19 situation has exposed the overdependency on the region for key raw materials, especially China. The business of the energy storage system manufacturers in the US, Germany, and Australia has been adversely affected by the shutdown of operations in China and other Asia Pacific countries. It has also resulted in limited production leading to a serious decline in business inputs. The recovery depends on government assistance as well as the level of corporate debt and how the companies and markets cope with the low demand. The current demand for utility-owned energy storage systems is largely affected by the COVID-19 pandemic. Most of the projects in China, the US, Germany, and South Korea are operational and are used for integrating renewable energy power generation and grid balancing operations. However, some of the companies are facing short-term operational issues due to the limited availability of workforce. In addition, the per capita income of individuals has also been affected due to the pandemic, which has consequently declined the demand for residential battery energy storage systems. However, in countries such as India, where power cut is a major issue, battery energy storage systems have been used as a backup energy source during power shortage. However, there is no major surge in demand.
It is expected that the demand would increase in the coming years, and the market would recover by 2022. The deployment of battery energy storage in upcoming projects in the utility sector will support the recovery of the market. After the recovery phase, the market is expected to grow at a moderate rate until 2025.
Market Dynamics
Driver: Increasing demand for grid energy storage systems owing to ongoing grid modernization
Solar and wind energy are the most prominent types of renewable energy that are stored in grids. However, concealing of the sun by clouds or fluctuating wind currents lead to variations in the process of energy generation. Such fluctuations create the requirement of flexible grid systems used to store energy. Battery energy storage systems help grid operators to save electricity when the electricity generated exceeds the electricity demand. The adoption of these systems improves the reliability and flexibility of electricity supply systems with respect to generation, transmission, and distribution of electric power. During transmission and distribution of electricity, battery energy storage systems can handle asset deferral, ensure frequency regulation, carry out harmonic suppression, offer voltage support, and ensure power quality. Electric energy time shifting, baseload leveling and peak shaving, renewable energy time shifting, and renewable capacity firming are other benefits offered by battery energy storage systems for grid-connected solutions. All these factors drive the adoption of these battery energy storage systems, thereby fueling the growth of the market.
Siemens offers SIESTORAGE, an intelligent grid solution capable of overcoming the challenges in power supply in terms of the optimization of grid connections, flexibility of energy for modern grids, and support to large energy consumers. Broad Reach Power (US), an independent power generator, is planning to develop 15 small-scale battery storage plant sites in areas near Houston and Odessa in Texas (US) in 2020 and 2 large systems by 2021. Each site is expected to contain battery systems capable of storing and distributing up to 10 megawatts of power. While a number of parts of the US are facing economic challenges resulting from the spread of the COVID-19, Texas is uniquely poised for continued industrial growth in near future. The small systems developed by the company are expected to provide energy stabilization services, such as mitigating the impact of price spikes and dips that expose generators, utilities, and retail electric providers to uncertainty in the supply-demand matching that occurs in power grids.
The demand for battery energy storage systems goes hand-in-hand with grid modernization efforts, including the transition from traditional systems to new technologies such as smart grids. Batteries help unlock the full potential of smart technologies. In January 2019, a smart grid-based hybrid wind-solar project was initiated in Dubai (UAE) by the Korean Electric Power Corporation (KEPCO). This project is expected to incorporate a 500 kWh lithium-ion battery storage system, equipped with 2,000 IoT-connected sensors and smart meters.
Restraint: High capital expenditure required for installation of battery energy storage systems
Battery energy storage technologies, including lithium-ion batteries, flow batteries, and lead-acid batteries, require increased installation investments owing to high-energy density and improved performance offered by them. Lithium-ion batteries are costly as they offer high energy density, have a low rate of self-discharge, and require less maintenance. However, in future, costs of lithium-ion batteries are expected to decline. These batteries are also used in electric vehicles (EVs) as they are lightweight and compact, as well as have a large capacity.
Costs of battery energy storage systems depend on the type and the number of batteries used in them. They also vary according to the intended application (residential, commercial, and utilities) of these systems. The integration of different batteries (in the form of packs, modules, and racks), inverters, battery management systems (BMS), and wiring in battery energy storage systems results in their increased costs. During the installation of battery energy storage systems, the required capital cost is dependent on the footprint and space requirements (energy and power density) of storage systems; components (batteries, power conversion systems, and BMS) used in them; and facility infrastructures (communications and control, environmental control, and grid interconnection) wherein they are deployed. Moreover, the total operating cost of battery energy storage systems is a combination of a number of factors, including costs of charging batteries, labor associated with their installation; maintenance of plants wherein they are installed; replacement and repair costs of these systems; and costs for their decommissioning and disposal. Thus, the installation of battery energy storage systems in a plant or any required place needs high capital investments that act as a restraint for the growth of the market.
Opportunity: Requirement of continuous power supply in datacenters
Datacenters use an uninterrupted power supply (UPS) to provide power to loads in emergencies when the main power supply fails. Battery energy storage systems play an important role in eliminating electricity fluctuations in datacenters. The combination of battery energy storage systems and UPS ensures continuous power supply to designated critical loads when utility disturbances or outages are detected. This leads to a rise in demand for UPS from large datacenters. This, in turn, is anticipated to fuel the demand for energy storage systems based on lithium-ion and lead-acid batteries. The BMS software monitors the charge/discharge functions of batteries by ensuring that UPS batteries are optimally charged. The monitoring data gathered and displayed by BMS is useful for datacenter operators.
Challenge: Ongoing disruptions in supply chain of energy generation industry and delay in ESS projects caused by COVID-19
The outbreak and the spread of the COVID-19 have impacted the energy industry supply chain, particularly renewable energy technologies and battery energy storage systems. The key components used in battery energy storage systems are mainly manufactured in APAC. The pandemic has exposed the overdependence of the world on the region, especially on China, for key raw materials. Manufacturers of energy storage systems in the US, Germany, and Australia are severely impacted by the shutdown of operations in China and other countries of APAC. The key battery energy storage system manufacturers and operators such as LG Chem (South Korea) are making efforts to shift their supply chain base outside China to reduce their dependence on the country. Moreover, countries and companies worldwide might shift to new and other energy storage technologies such as PHS, CAES, and flow battery solutions to avoid any further delays in project completions and be prepared for such situations in future.
APAC accounts for the largest market size during the forecast period
APAC held the largest battery energy storage system market share in 2019, followed by North America and Europe. The market in APAC mainly comprises developing economies, such as China and India, which have tremendous potential for installation of energy storage projects due to increasing renewable energy integration. APAC is expected to witness plans for electrification in remote areas, which are majorly off-grid in several countries. The use of residential energy storage technology will enable to increase access to electricity for these remote and island communities in the region. The battery energy storage system market in APAC is highly competitive with the presence of established players. These players are continually upgrading their product portfolio with the launch of technologically advanced energy storage products.
Some of the major battery energy storage system manufacturers based in Asia Pacific are Samsung SDI (South Korea), LG Chem (South Korea), Hitachi (Japan), Panasonic (Japan), and NEC Corporation (Japan).
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