The fast-growing battery industry is most associated with electric vehicles, but its growth is also being driven by energy storage on a wider scale.
The market for this “grid-scale” storage — enough to power a town or city — more than doubled last year. And almost all of the growth came from lithium-ion batteries — the same as those used to power electric cars.
Along with wind turbines and solar panels, shipping containers full of these batteries are set to become a more common sight in the future. That’s because grid-scale storage is essential for helping renewables become the largest source of electricity over the next few decades.
Wind and solar power have become dramatically cheaper over the past decade, but the bigger challenge is coping with their intermittent supply — keeping the lights on when the sun does not shine and the wind does not blow.
Batteries offer one solution because they can quickly store and dispatch energy. As installations of wind turbines and solar panels increase — especially in China — energy storage is certain to grow rapidly.
They are part of the arsenal of clean energy technologies that will enable a net zero emissions future. Without them, the world will never be able to move away from fossil fuels entirely.
How does it work?
Lithium-ion batteries are devices that can store electricity in chemical form. They incorporate different metals and chemicals depending on what they are to be used for.
They are very good at absorbing and releasing energy very quickly — think of the swift acceleration of an electric vehicle. That makes them ideal for traders on the wholesale energy markets where electricity can be bought and sold in response to changing prices. Batteries can also help the electricity grid to deal with sudden changes in supply and demand.
As they grow in scale, batteries can help to increase the amount of time when renewable energy is available, too. For example, they can store solar energy in the middle of the day, when solar generation is at its strongest, and then help meet demand from consumers in the evening. They already account for 98 per cent of the grid-scale energy storage market, according to consultancy Rho Motion.
Battery installations are getting bigger as the industry scales — and new solar power plants are being built next to containers of lithium-ion batteries in order to store their output.
What are the pros and cons?
Lithium-ion batteries are getting cheaper, which is accelerating their deployment. Their cost has fallen more than 90 per cent over the past decade to around $70 per kilowatt-hour of capacity, according to Benchmark Mineral Intelligence. There is also an abundant supply from Chinese battery producers, which are keen to expand into global markets.
One factor that is making battery energy storage cheaper is the falling price of lithium, which is down more than 70 per cent over the past year amid slowing sales growth for electric vehicles.
However, there is now a huge reliance on China for the technology: the country produces almost all the cheapest types of lithium-ion batteries used for energy storage. Many purchasers would prefer a greater diversity of producers, to reduce the supplier risk. This year, China will produce more than 99 per cent of lithium iron phosphate (LFP) battery cells, the cheapest type, according to Benchmark.
A further risk is that lithium-ion batteries rely on critical minerals that are expected to be in short supply by the end of the decade. However, that could be balanced out by the development of other storage technologies, such as sodium-ion batteries.
In addition, the costs are currently still too high to make lithium-ion batteries economic for longer-term storage of energy, to cover periods when renewable energy is unavailable due to the weather. The batteries also eventually degrade after being charged and discharged thousands of times, although their lifespan is improving. China’s CATL, the world’s largest battery producer, says its energy storage batteries can last for 25 years.
Will it save the planet?
Not on its own — but grid-scale energy storage is part of the combination of clean energy technologies that is needed to reach net zero. Most importantly, batteries help accelerate the deployment of renewables, by increasing the promotion of energy generated that is actually used.
Without energy storage, the costs of the energy transition would be higher. Countries would need to “overbuild” wind and solar plants or look at other ways of integrating renewable energy, such as by managing demand — asking consumers to use less electricity because the wind is not blowing, for example — or importing electricity from abroad.
Has it arrived yet?
Grid-scale battery storage is a mature and fast-growing industry with demand reaching 123 gigawatt-hours last year. There are a total of 5,000 installations across the world. In the first quarter of 2024, more than 200 grid-scale projects entered operation, according to Rho Motion, with the largest a 1.3GWh project in Saudi Arabia. For comparison, 1GWh can power 1mn homes for one hour according to UK regulator Ofgem.
Who are the winners and losers?
China is likely to be the main winner from the increased use of grid-scale battery energy storage.
Chinese battery companies BYD, CATL and EVE Energy are the three largest producers of energy storage batteries, especially the cheaper LFP batteries. This month Rolls-Royce signed a deal with CATL to help deploy the company’s batteries in the EU and the UK.
Outside China, Tesla is also a producer of energy storage systems and deployed 4,052MWh of energy storage products in the first quarter of this year, according to its latest report. Tesla is also building a factory for its energy storage Megapacks in China — its second, after a plant in California.
Who is investing in it?
Some of the largest energy storage investors in the UK include funds such as Gore Street Capital, Gresham House, and Harmony Energy, as well as banks such as Santander and NatWest. BlackRock and NatPower have also both announced large investments recently. In Europe, the largest investors include the utility companies Engie and Enel, and the Sosteneo fund.
Large renewable companies such as Denmark’s Ørsted are deploying the technology, too. In June, the company said it would install a Tesla battery storage system on the same site as an onshore facility near Norwich, eastern England, for its Hornsea 3 offshore wind farm.
In the US market, the largest players are Quinbrook Infrastructure Partners, Blackstone, JPMorgan, and Morgan Stanley. Gore Street is now expanding to the US. There are also several large developers that own and operate assets, such as Arevon, Strata and Calpine.
Henry Sanderson, a former FT journalist, is author of “Volt Rush: The Winners and Losers in the Race to Go Green” and an executive editor at Benchmark Mineral Intelligence
Climate Capital
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