Battery energy storage systems (BESS) are rapidly gaining market share in power grids around the world. While the industry is still relatively small with just 16 GWh of global installed capacity, nearly half of that was installed in 2018 alone. This demonstrates how quickly the technology growing.

The market remains highly concentrated, however, with five countries—South Korea, Japan, China, Germany, and the United States—accounting for 80% of global capacity. Despite this concentration, each country has a unique mix of drivers, both market fundamentals and policy, that have led to diverse portfolios. South Korea's market, for example, is dominated by smaller batteries installed behind the meter of commercial and industrial customers to help manage daytime power consumption. Germany and the United Kingdom by contrast have robust markets for grid-scale balancing services, while the United States is increasingly deploying BESS for peaking capacity.

Figure 1: Global battery energy storage: Poised for rapid growth as renewables drive need for flexibility?

Support policies—such as procurement mandates in the US and financial incentives for residential customers in Japan—continue to be a critical driver of the industry, but so too do regulatory reforms. Batteries do not fit neatly into the standard asset classifications—are they generation, transmission or load? This uncertainty raises questions about who should be allowed to own them and how they should provide services. The ability of BESS to participate in wholesale markets is also in flux as market operators wrestle with questions such as how to define their value in capacity and balancing markets. As the industry prepares to double in size again in the next few years, it will be critical for regulators to stay ahead of these issues.

Looking ahead, IHS Markit expects the industry's momentum to continue. Costs will continue to fall as the industry rides the coattails of the surging electric vehicle industry. As that happens, not only will the economics of batteries improve in the applications where they already compete, but new applications will become commercially viable. At the same time, record amounts of wind and solar are being installed around the world, increasing the need for highly flexible resources—a role batteries were born to play. As the industry matures and continues to prove itself in new applications, the future appears bright.

IHS Markit closely monitors the global battery energy storage industry, publishing data, key insights and market analysis. Learn more about our battery energy storage research.

Sam Huntington is an Associate Director at IHS Markit.

Posted 28 August 2019

Posted 28 August 2019 by Sam Huntington, Associate Director, Gas, Power, and Energy Futures, IHS Markit