Hot Energy Storage Sector Keeps Growing Despite High Battery Prices

Lithium-ion battery storage has increased dramatically since the 1990s, with new devices creating a growing demand. Camcorders were the first to use lithium-ion batteries, followed by personal computers and then smartphones and other personal electronics. In the 2010s, electric vehicles emerged as the biggest demand center for lithium-ion batteries, driving manufacturing and research and development.
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As the industry of lithium-ion battery storage scaled, the cost per kilowatt-hour declined by 80% from 2013 to 2021.
The trend reversed last year, with prices rising for the first time in at least 12 years by 7%. This is expected to continue this year, with prices not dropping until 2024.
The price increase of battery cells obviously impacts the cost of electric vehicles — but it also matters for other energy applications. The same battery cells that power electric vehicles can also be used to regulate frequency and voltage in the electricity grid, or to store electrons for several hours. Integrating batteries into a grid-compatible system requires additional equipment, and is contingent on financial margins for developers, builders, and system integrators. All of these elements are under inflationary pressure, resulting in a 30% increase in costs for installed energy storage systems around the world in 2022.
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The installed capital cost for a large four-hour battery energy storage system can vary depending on the size and type of battery used. However, as battery technology continues to improve, the cost of these systems is expected to decrease.
Every asset developer does its best to control costs, but stationary batteries are fundamentally constrained by scale. Stationary battery storage is also a far smaller-volume market than electric vehicles. That means that last year's strong EV demand bid up battery prices for all buyers, in a way that developers of energy storage could not control.

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Despite the recent price movement, the energy storage sector is still booming. According to BloombergNEF, global energy storage capacity is expected to almost double between 2022 and 2023. By the end of the decade, annual installations are expected to be three times higher than they are this year.
Annual energy storage capacity additions are expected to continue to grow in the coming years. This growth is being driven by a number of factors, including the increasing penetration of renewable energy sources, the need for grid flexibility, and the declining cost of storage technologies.
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There are several big drivers of demand for energy storage buildout. The US Inflation Reduction Act, with its billions of dollars in clean energy incentives, is expected to increase demand by almost a quarter compared to previous estimates. Russia’s invasion of Ukraine is also driving the development of storage in support of the EU’s expanded installations of large-scale renewable energy. High residential power prices in Europe (and government incentives for households there) are also a factor; last year, more than half of all installed batteries in Europe were for residential applications.
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The US is still expected to be the largest market in 2030, though this is a change from last year's predictions. China was thought to be pulling ahead, but the US market is still expanding for various policy and economic reasons. However, there are still potential barriers to growth, such as planning and permission timelines, as well as interconnection costs.
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It's been a complex year for the storage industry, with more positive market drivers than negative ones. Higher costs have created opportunities for new market entrants in battery supply and power control systems. System resiliency is increasingly important in all electricity markets, providing an expanding role for storage.
According to BloombergNEF's latest energy storage system cost study, none of the over 180 surveyed participants said they would cancel their project if prices stay high. Two-thirds said they would proceed, a quarter said they would evaluate, and only 10% said they would postpone. Energy market fundamentals appear to be more important than high prices for now.