Drivers of Growth in the United States and Europe Residential Energy Storage Market
According to SolarPower Europe, the residential battery energy storage systems (BESS) market saw 745MWh of battery storage employments in 2019 (and a total installed capacity of 2GWh), achieving a 57% year-over-year growth. Despite the impact of the global pandemic, annual installations of 140,000 new systems are expected by 2022. In Europe, the top five countries (Germany, Italy, the UK, Austria, and Switzerland) take up 90% of the residential BESS market, with Germany accounting for 66% of the market share. In 2020 alone, 100,000 residential BESS were installed in Germany, which comprised 70% of the overall new solar installations.
Similar momentum of residential storage market advancement has been observed across the United States. The U.S. Energy Storage Association reported a 66% growth of behind-the-meter (both businesses and residential) energy storage in 2019, a trend confirmed by data from Wood Mackenzie. The residential energy storage market tripled from 2019 to 2020; particularly, the second quarter (Q2) in 2020 experienced the strongest residential storage deployments with 48.7MW/112.2MWh across the country. This dramatic growth is attributed to a multitude of policy incentives and homeowners’ surging demands for a more cost-effective and reliable mode of energy use.
While both Europe and the U.S. have gained traction towards energy storage in recent years, factors that drive the market growth of energy storage in these two regions are markedly different. Specifically, customer awareness of renewable energy, net metering structures, and the accessibility of low-cost non-renewable sources, can be three major divergences.
Factors that drive the market growth of energy storage in Europe vs. the U.S.
Since 2007, the U.S. has phased out half of its coal-based electricity generation. However, only 1/3 of the electricity was replaced by renewables and the rest of the capacity was powered by natural gas. In comparison, coal generation has been entirely replaced by renewable energy in Europe as of 2020. The increasing number of natural gas plants in the U.S. has brought down the price of gas, and the low costs of electricity and gas discourage customers to choose alternatives. In comparison, the high electricity cost in Europe serves as an essential driver for renewable alternatives. In 2019, residents in Germany and France paid 34 and 22 U.S. cents per kWh of electricity, respectively, whereas the same amount cost 13 cents in the U.S. High electricity price services as a crucial motivator for the consumers to switch to renewable alternatives, such as solar power in conjuncture with BESS.
Apart from the inexpensive non-renewable alternatives, the regionally-based net energy metering (NEM) arrangement in America might play a crucial role in determining how homeowners use solar electricity and to what extent they might be enthusiastic about adding a BESS to their system. NEM program allows residential or commercial solar users to earn credits by feeding the excess electricity back to the grid. NEM arrangement depends on various factors, including the time-invariant energy rate and time-of-use (TOU) rates. Currently, 34 out of 50 states in America mandate net metering for certain utilities.
Speculations from the U.S. have linked certain NEM arrangements to a reduced sale of BESS, as homeowners face lower financial gains with the BESS. Under the scenario of flat reimbursement rate or TOU rates at retail prices, the absence of economical benefits drives customers away from installing residential BESS. Homeowners are more likely to select BESS in the states where time-of-use (TOU) rates are below the retail rates. For instance, compared to the electricity rate of $0.33 per kWh, Germany’s feed-in tariff rate is $0.14 per kWh. The battery-friendly retail rate coupled with the incentives targeted at storages have appealed to customers and contributed to the 70% of the PV systems with BESS installed, mentioned at the beginning of the article.
The reluctance of U.S. residents to embrace BESS might also be attributed to their lower environmental awareness when compared to their European counterparts. A 2020 survey found that although Californians were generally supportive of renewable electricity policies, they lacked basic consumer knowledge on alternatives to fossil-fuel-burning appliances. By comparison, studies have shown the residential BESS market in Europe is largely driven by consumers’ high environmental awareness. The dramatic increase of climate-change-related disasters in the States might have changed this, as studies show the record numbers of extreme weathers such as hurricanes and wildfires contribute to the rising demand for battery systems. Storm-affected states like Florida and Texas and wildfire-prone areas of California have seen rapid growths in the installation of BESS as homeowners and businesses prepare for future emergency events.
Similarities
The U.S. and Europe share a few common denominators that contribute to the success of the residential energy storage market, namely, the growing commercial viability of the batteries, the raising awareness of residential energy reliability during the pandemic, and governmental policies that favour BESS, in particular, and renewable energy, in general.
The falling price of energy storage and PV panels in Europe contributed to the popularity of BESS in recent years. Research from BloombergNEF indicates that the price of lithium-ion battery packs has fallen by a whopping 79% between 2013 and 2020, from 668 ($/kWh) to 137 ($/kWh).
Furthermore, the pandemic has significantly elevated homeowners’ demands in energy resilience and security, as working from home requires reliable power supply. It is expected that residential battery backup systems maintain steady growth in popularity even after the pandemic as remote work becomes the new norm.
In both Europe and the U.S., direct financial incentives and tax exemptions are regarded as two of the most impactful governmental tools to spur the energy storage market. Several European countries have launched incentive programs to reimburse the high upfront cost of the BESS, including the costs associated with the battery modules, systems, and installations. This measure has been proven successful in attracting customers towards BESS; in particular, reimbursements using energy content-based incentives (fixed fraction plus variable fraction based on kWh) are especially effective. For example, Germany, Italy and Belgium provide subsidy that varies from EUR 200–300 per kWh to help mitigate consumers’ financial pressure. Additionally, German’s development bank, KfW, provides low-interest loans and bonuses for solar PV systems bundled with batteries. The government has also introduced various levy and tariff exemptions for energy storage facilities.
Many states in the U.S. offer similar financial incentives for BESS. Possibly the most widely known one is the California-based Self-Generation Incentive Program that involves $48.5 million state funding. Maryland’s Senate Bill 758 is another example of a state-level policy driver. A tax credit that equals 30% of the installed cost is made available for both residential and commercial systems since 2018.
The residential BESS market has grown at an unprecedented rate over the past 5 years in both Europe and the U.S. Although customers in the U.S. are not as environmentally aware of the renewable energy alternatives as their European counterparts, recent extreme weather-related disasters have brought the urgency of emergency preparedness to the spotlight. The market has been acknowledging the potential of BESS in providing independence and resilience for homeowners. On the other hand, cost-efficient battery packs and the demand for home offices with secure electricity have brought opportunities to further expand the BESS market. Favorable governmental policies serve as a significant push, which would be discussed in detail in our upcoming article.
About Tecloman
Tecloman offers high-quality energy storage solutions featuring advanced technology for reliability, efficiency and sustainability. You can find us on LinkedIn or reach out to us at marketing@tecloman.com.
About the Author
Yushuo (Alicia) Cai has been working in the renewable energy and carbon emission reduction field for 4 years. She is currently the market research analyst at Tecloman. You can connect with her on LinkedIn.
Copyright © Tecloman 2021. All rights reserved.