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Behind-the-meter energy storage to be heavily hit by COVID-19, but industry growth will be resilient

By Julian Jansen

Despite the challenges presented by COVID-19, the outlook for energy storage remains strong, says Julian Jansen of market research group IHS Markit, taking a deep dive across segments and geographies. 

Last year was the first year we saw installations of grid-connected battery energy storage decline. A total of 2.7 GW of grid-connected battery energy storage was deployed globally in 2019, compared to 3.7GW in 2018.

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While the market was ready to accelerate again in 2020, the outbreak of the global COVID-19 pandemic and subsequent economic shock have significantly impacted the short-term outlook for energy storage. 

Revising down our forecast by 19%, IHS Markit expects installations to total 4 GW / 10.9 GWh in 2020. While demand in the residential and commercial and industrial (C&I) segment will particularly suffer over the coming months, the overall market will still grow by 49% compared to 2019.

COVID-19 pandemic disrupts the global stationary energy storage market

Initial estimates show that the economic downturn caused by the coronavirus may be very severe. Preliminary results from IHS Markit’s Economics and Global Risk team's latest global forecast update indicate a global GDP decline that will be far worse than the contraction in 2009”. 

This highlights the wider financial difficulties in the coming months as this is not a crisis purely defined by temporary restrictions on workforces and logistics, but increasingly by an economic collapse of unprecedented proportions. 

The energy storage industry is still in an early stage of rapid development. Thus, the epidemic should have a limited impact on the overall market development in 2020. As the fundamental need for the technology underpins strong project pipeline and the existing steep growth curve. Growth in 2021 and beyond will thus continue to accelerate.

Across the world, the effect of the COVID-19 pandemic will be diverse. Despite severe economic challenges the United States will be the largest global market installing just over 2 GW in 2020 – with a drop in behind-the-meter demand and project delays in the front-of-the-meter (FTM) market causing the forecast to be lowered by 18%. 

IHS Markit expects the United States’ GDP to heavily contract in 2020. The impact on the rapidly growing energy storage industry will be less severe than other industries, as many projects remain contracted to complete in 2020, and current indications are that project construction is currently still going ahead – albeit with delays of 3 to 6 months, due to slower planning and permitting, and potential component delivery lead times.

Across Europe, installations grew strongly in the first two months of the year, particularly owing to good weather, with demand in the residential segment particularly strong. However, IHS Markit expects the Eurozone to drop into a severe recession. 

This will particularly impact the behind-the-meter segment, where residential customers are facing financial uncertainty, as well as businesses avoiding unnecessary capital investments, impacting demand in the C&I segment. 

In front-of-the-meter, IHS Markit expects some project delays, as well as investors possibly shying away from risky merchant projects due to growing uncertainty over future power prices in light of declining electricity demand. Subject to the future trajectory of the virus, suppliers are expecting installations to grow again from Q3 onwards, with strong order books waiting to be fulfilled. However, wider economic challenges caused by a global recession will continue to subdue demand into 2021.

The impact across Asia will vary. After a very weak 2019, and a conservative outlook for 2020, major Asian markets – China (mainland) and South Korea – will not see a significant further reduction in demand for energy storage, although project delays are likely. For these reasons, IHS Markit has held the forecast for these markets unchanged. In Australia, behind-the-meter markets will likely see a reduction in demand, because of wider economic uncertainty.

Emerging energy storage markets across South and South East Asia are likely going to suffer from slower regulatory processes, reducing the prospect of accelerated growth in 2020 and subsequent years. Project delays will particularly impact markets such as India and the Philippines.

On top of potential risks surrounding tenders and regulatory reform in emerging markets, governments and regulators around the world are focused on managing public health challenges and mitigating the economic impact of COVID-19 restrictions. This has caused other government and regulatory functions to be delayed and put on hold. 

Specific policy and regulatory packages that have been delayed include the European Green Deal and potential delays in regulatory decisions made by FERC in the United States. Much of the policy advancements taking place with relevance to energy storage are disruptive and require rounds of consultation with wide stakeholder groups. As policy makers and regulators are focusing on managing the spread and economic impact of the pandemic and private organisations focus on key priorities, regulatory reform in the industry has been significantly slowed.

The future remains bright for stationary energy storage

Energy storage will be crucial to provide resilience and reliability as renewable penetration increases. With more than half of the states in the United States adopting renewable energy goals, and states such as California targeting 100% clean energy by 2045, the need for storage and especially long-duration bulk storage is becoming more pressing.

This is evidenced by ever increasing amounts of curtailed renewable electricity. Finding ways to better match the supply of abundant low-cost renewable generation with demand throughout the year will require longer duration storage, including multi day and seasonal storage. Without significant deployment of long duration storage, clean energy policy goals will not be met.

Despite a subdued year in 2019 and a challenging start to 2020 caused by the COVID-19 outbreak, the outlook for energy storage remains strong, with cumulative installations of grid-connected battery energy storage predicted to reach 64.3 GW / 179 GWh in 2025.

Cover image: A recently completed large-scale front-of-meter battery project delivering frequency regulation ancillary services in the mid-western US. Image: Sinexcel. 


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