The Next Trillion-Dollar Clean Energy Business Grid-Scale Batteries Are Finally Taking Off; Global Installed Battery Storage Capacity Is Estimated to Increase from Less Than 200 Gigawatts (GW) Last Year to Nearly 5 Terawatts by 2050
The Next Trillion-Dollar Clean Energy Business
Grid-Scale Batteries Are Finally Taking Off; Global Installed Battery Storage Capacity Is Estimated to Increase from Less Than 200 Gigawatts (GW) Last Year to Nearly 5 Terawatts by 2050
By The Economist
07/09/2024
Decarbonizing the world’s electricity supply will require more than just solar panels and wind turbines, which depend on sunlight and steady breezes to generate power. Grid-scale storage offers a solution to this intermittency issue but remains underdeveloped.
The International Energy Agency (IEA) estimates that global installed battery storage capacity must increase from less than 200 gigawatts (GW) last year to over one terawatt (TW, equivalent to one thousand GW) by the end of this decade, and nearly 5 TW by 2050, if the world is to reach net-zero emissions. Fortunately, the business of storing energy on the grid is finally gaining momentum.
Grid-scale storage has traditionally relied on hydroelectric systems that move water between reservoirs. Today, giant batteries stacked in rows of warehouses are increasingly the method of choice. According to the IEA, 90 GW of battery storage was installed globally last year, double the amount in 2022, with about two-thirds going to the grid and the remainder for other uses, such as residential solar power.
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Prices are falling, and new technologies are being developed. Consulting firm Bain estimates that the grid-scale storage market could expand from around $15 billion in 2023 to between $200 billion and $700 billion by 2030, and from $1 trillion to $3 trillion by 2040.
A drop in the price of lithium batteries is driving their adoption on the grid. According to BloombergNEF, a research group, the average price of stationary lithium batteries per kilowatt-hour of storage dropped by about 40% between 2019 and 2023. A global slowdown in electric vehicle adoption, which uses similar technology, has led battery manufacturers to take a greater interest in grid storage.
In 2019, stationary lithium batteries were nearly 50% more expensive than those used in electric vehicles; this gap has narrowed to less than 20% as producers entered the market. The IEA calculates that solar power combined with batteries now competes with coal-generated electricity in India and is on track to be cheaper than gas power in the United States within a few years.
China is the hub of global battery production. It is home to four of the world’s five largest manufacturers, including CATL and BYD. China’s share of battery production allocated to stationary storage rose from nearly nothing in 2020 to about one-fifth last year, surpassing the share used in consumer electronics. Growth was aided by domestic policies requiring large solar and wind projects to install storage as well.
Chinese battery companies are intensely innovative. CATL, for instance, has increased its research and development investment eightfold since 2018, to $2.5 billion last year. BYD, which has invested heavily in robotics and artificial intelligence, built a battery facility in Hefei, China, that is almost entirely automated.
However, the industry is also facing an overcapacity problem. According to BloombergNEF, China already produces enough lithium batteries to meet global demand across all sectors. The industry has announced plans for an additional 5.8 terawatt-hours (TWh) of capacity by 2025, more than double the current global capacity of 2.6 TWh.
This will be catastrophic for many companies in the battery sector, including those producing for the grid. According to Benchmark Mineral Intelligence, another research group, construction at 19 battery factories in China was canceled or delayed in the first seven months of 2024. The drop in prices has also hurt many Western battery startups.
One example is Sweden's Northvolt, seen by some as Europe’s answer to China’s battery giants. Last year, the company posted a loss of $1.2 billion, compared to $285 million in 2022. The consequence of all this will likely be a wave of consolidation, as CATL’s CEO Robin Zeng predicted earlier this year.
Nevertheless, a bloodbath among battery manufacturers could help, rather than hinder, the adoption of battery storage. Prices may fall further as the most productive companies take a larger share of the market.
Fierce competition is already driving innovation, as companies seek new technologies to compete. Sodium-ion batteries are a promising alternative. They do not require expensive lithium, and although they offer lower energy density, this is less of a problem for stationary batteries than for those powering electric vehicles.
Established companies are racing to develop the technology for the grid. Several startups are also betting on it. Natron, a U.S. company backed by oil giant Chevron, is investing $1.4 billion to build a sodium-ion battery factory in North Carolina, set to open in 2027. Landon Mossburg, CEO of sodium-ion startup Peak Energy, says he wants his company to be “the CATL of America.”
Tom Jensen, CEO of Freyr Battery, another startup, believes the only way Western battery companies can compete is with new technologies. The list of innovative approaches is growing. EnerVenue, another startup, is commercializing a nickel-hydrogen battery. The company has raised more than $400 million and will build a plant in Kentucky that aims to produce affordable batteries capable of storing energy for long periods.
Moreover, these new technologies are well-suited to meet the growing energy demands of data centers, which tech giants want to power with renewable energy. The fact that sodium-ion batteries are less prone to fires compared to lithium batteries makes them especially attractive to tech companies, notes Jeff Chamberlain, CEO of Volta Energy Technologies, an investment firm focused on the energy storage sector. In addition to enhanced safety, this characteristic could significantly reduce insurance costs, which is a relevant factor for these companies. Colin Wessels, co-head of Natron, notes that his startup plans to supply batteries primarily for data centers.
The rapid deployment of data centers is also creating gaps in the grid infrastructure needed to produce and transmit energy, which longer-duration batteries like EnerVenue’s could help fill. Aaron Zubaty, head of renewable energy developer Eolian, predicts a boom in four- to eight-hour storage solutions to handle the growing demand on power grids over the next decade.
Grid-scale storage is advancing rapidly. “Batteries have achieved in five years what solar energy took 15 years to reach,” says an experienced analyst of the solar boom, who now follows the battery industry. As Fatih Birol, executive director of the International Energy Agency, points out, “Batteries are changing the game before our eyes.”