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Uncharged: the Possible Market Impact of Electricity Storage

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Uncharged: the Possible Market Impact of Electricity Storage

As renewable energy sources proliferate and demand growth continues to flounder in the U.S., major questions surrounding the transformation of the U.S. generating grid remain unanswered: What role will electricity storage play in the grid's evolution, and how disruptive will it be to incumbent generators?

To date, the impact of battery storage has been, at best, muted, and a variety of factors have kept the development of battery storage at bay and the penetration by this new technology to a minimum. The vast majority of energy storage in the U.S. (about 98%) is still in the form of pumped hydro assets.(1) The pure economic rationale for battery development is unclear, and policy incentives for further development remain few, especially under the stewardship of a presidential administration that is generally not supportive of developing advanced generating technologies, instead focusing on improving prospects for baseload generation (which, incidentally, stands to lose out with an influx of battery storage).

In related articles, we focus on how we would view the credit quality of project-financed battery facilities under our methodology, efforts to reduce costs of battery storage, and how these technologies are likely to be integrated into an evolving regulatory framework. In this piece, we discuss the implications of battery storage for the rest of the market, and how it potentially aids in the decarbonization of the U.S. economy (see chart 2).

S&P Global Ratings certainly views the battery as a burgeoning disruptive technology development--one that has the potential to upend the existing power model in the U.S. over the long term. We also view it as a possible disruptor to power markets, and the reason for this is quite clear: An inclusion of energy storage can affect supply patterns and pricing, and, with 105% growth in non-hydro storage capacity in the U.S. from 2013-2016, this issue could loom large soon, with expectations that it could range up to 40 GW of total installed capacity by 2022 (2, 3). But a study of the key power markets in the U.S. shows that the disruptive impact could be severe, depending on how substantially storage penetrates over time, and what sort of renewables it is coupled with. Though the asset class itself is comparatively very new and still developing, there are lessons to be learned from the impact that pumped storage hydro assets have had, as well.

Overview

  • Battery storage is not yet having a severe impact on unregulated power markets in the U.S., in part due to still-improving economics.
  • With the proliferation of intermittent renewable energy, the demand for battery installations will likely increase, and improving costs will aid this.
  • Both energy markets and capacity markets are likely to feel this impact.
  • We also anticipate that state policies geared toward decarbonization could enhance prospects for battery storage.
  • The growth of distributed generation could also prompt greater battery development.