Energy Storage to herald the transition to clean energy

/ Renewables / Tuesday, 30 July 2019 09:09

Bank of America Merrill Lynch has recently published a report ‘Thematic Investing’, which outlines the reasons why the Energy Storage market will herald the next clean energy phase.

The annual battery energy storage (ES) market could grow at 16% 2020-30 CAGR, reaching $27bn by 2030 and $58bn by 2040. ES will herald the next major phase in the transition to clean energy, with 50% cost reduction by 2025 vs. 2018 a key catalyst. This will trigger new investments and business models and disrupt the fossil economy over the long term. Renewables help lower emissions, but they need ES to smooth the output and provide on-demand clean energy.

Fortunately ES costs are falling, helped by EV battery cost reductions, new products are emerging and adoption is picking up, underpinned by changing policies, attitudes and needs. ES could represent 6% of global power capacity by 2040 and we believe this could be much higher by 2050.

3-way battle on CO2: renewables, storage & electric vehicles

The three interlinked solutions, renewables, energy storage and electric vehicles (EV), are credible ways to materially reduce emissions in electricity+heat and transport, sectors with two-thirds of global emissions. Annual CO2 emissions continue to rise even as we see record extreme weather - Europe's five hottest summers since 1500 have all been in the 21st century, France suffered from all-time highest temperature of c.46oC in 2019. At the current pace, the remaining carbon budget for 1.5 degrees Celsius warming could be exhausted in just c.10 years, posing risks not only to GDP but the planet itself.

Boost to renewables from storage likely underappreciated

2010-20 saw a >70% fall in wind/solar costs, leading to wide adoption. It is expected that 2020-30 will similarly see a rise in energy storage and electric vehicles, thanks to falling battery costs. ES is a must to materially raise renewable share - 4-6 hour storage would be ideal but even 2-3 hour storage may allow for c.10-15% higher wind + solar share than would otherwise be the case, to >60% by 2050. Fossil share in electricity is expected to decline 30 % points by 2050 already, but ES may facilitate bigger cuts. ES + renewables may even boost EVs via cleaner electricity and bring forward peak oil (2027-2030).

Multiple applications, Green alliance with wind & solar

ES solutions take multiple forms - Renewables+ES, Home ES and Grid ES offer the most promise but there are other use cases like Vehicle to Home (V2H), Vehicle to Grid (V2G) and ES in micro-grids. In 3-5 years, the cost of renewables and 3-hour ES could improve enough to create a green alliance competitive against peak fossil power.

Implications - sub segment exposures and geopolitics

The US seems ahead on ES adoption, followed by Europe while Asia is lagging. Sub-segments that could benefit from ES via higher demand are renewable equipment suppliers, renewable developers, batteries suppliers, battery materials/recycling and electrical equipment suppliers. Fossil power plant suppliers, merchant fossil generators and coal mining will be challenged longer term, although gas seems better placed than coal. ES may even influence geopolitics as renewables + ES negatively impacts regions dependent on coal mining and benefits those with abundant renewables.

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