Energy storage deployments in emerging markets could grow 40% annually over the next five years, from 2GW today to 80GW, but barriers include the lack of access to low-cost capital, a new report from the International Finance Corporation has found.
The IFC, which finances and provides advice for private sector ventures and projects in developing countries, has produced Energy storage trends and opportunities in emerging markets. Its authors, analysts Alex Eller and Dexter Gauntlett of Navigant Research, took an exhaustive look at everything from physical grid infrastructure to market design and regulatory structures and the different uses and applications for energy storage.
At present, some 1.2 billion people in the world lack access to electricity. Eller and Gauntlett quote the United Nations Sustainable Energy for All Initiative (SE4All) that US$45 billion in investment through 2030 would be required to provide universal access to “modern electric power”.
Energy storage is a vital tool for enabling the increased use of renewable energy and other distributed resources and in providing resilience to power supplies, the report says, but the development of energy storage systems (ESS) has been confined to a small number of select markets.
“Despite rapidly falling costs, ESSs remain expensive and the significant upfront investment required is difficult to overcome without government support and/or low-cost financing,” the authors write.
Eastern Europe and Latin American countries showing promise
Much of the report is an overview assessment of the global picture including the factors which might influence the speed and scale of adoption of energy storage in different regions. Worldwide the report’s authors anticipate the addition of 378.1GW of solar and wind generation capacity over the next five years, with the added variability forming a powerful driver for utility-scale storage in particular. The reduction of carbon emissions mandated by the multilateral Paris Agreement could also mean inertia on the grid is provided increasingly by large-scale storage systems.
While existing grid infrastructure could lean on energy storage to provide a growing number of services, remote microgrids could drastically reduce their dependence on diesel fuel to meet energy demand, the report highlights. Cost comparisons show both utility-scale and distributed lithium ion battery storage systems competing favourably with diesel in terms of annual fuel savings, with an installed cost of US$2,062 per kilowatt and US$2,150.3 per kilowatt respectively and saving US$2,223.6 per kilowatt in fuel costs in either case.
Latin America is viewed by the IFC report as one of the most attractive markets for energy storage deployment, with Chile, Mexico and Brazil in particular seen as hotbeds for both renewables and for storage. The deregulated Chilean market also has the richest solar resources in the world in the Atacama Desert, and over the last three years three large-scale storage systems totalling 42MW have been commissioned in Chile and El Salvador. Mexico currently produces 23% of its electricity from renewables, rising to 35% by 2024, with government agencies reviewing the potential of energy storage to help integrate these resources. Brazil, while seemingly holding the most potential of the three countries overall, is currently hampered by economic and political instability.
The report also says there is strong potential for energy storage in Eastern Europe, with the region’s EU countries including Hungary and Latvia seemingly the most attractive markets due to the binding nature of the EU’s commitments to carbon reduction.
Meanwhile, India and China have led the way in the South Asian and East Asia regions respectively. However, the many islands of developing Asia-Pacific regions present “some of the most attractive near-term opportunities for energy storage”, the report says. These islands have limited or new electrical infrastructure, but developers and governments will need to work together to overcome the high cost of deploying systems “driven by logistical challenges and a lack of local technical expertise”, Eller and Gauntlett wrote. They refer to 100MW of lithium ion storage projects in the pipeline in the Philippines as an example of the way energy storage is starting to gain a foothold in the region.
Similarly, while Sub-Saharan Africa could grow a significant need for energy storage if renewable resources continue to grow in importance, especially in South Africa, a lack of familiarity locally with the technology could prove a barrier, as could a lack of affordable financing.
Energy storage could help drive development in emerging economies, the report concludes, by providing access to power and aiding the integration of renewable energies. New markets will quickly be opened by the falling costs of the technologies and recognition of the services they can provide.
The IFC, which is part of the World Bank Group, will be particularly keen to focus on the report’s final, and perhaps most significant, conclusion. This is that access to low-cost finance for project development will be the most important factor for developing successful energy storage markets. The authors write that pairing technology from established and reputable vendors will be key, as well as putting projects in the hands of capable system integrators. Investors, grid operators, energy regulators and other stakeholders must be schooled by industry participants on the benefits of energy storage, all of which will reduce the perceived investment risk.
The report’s authors believe that despite the continued existence of barriers such as local content requirements and obstructive regulations in electricity market design, energy storage will be playing an “increasingly important role in the development of many emerging market countries” in the next 10 years.
The full IFC report can be viewed here.