In an article published recently, Andy Tang, vice president of energy storage business and optimization at Wärtsilä, pointed out that the energy storage industry is in the early stages of a global pricing adjustment that will affect the deployment of energy storage systems in the coming years. But there are a few things that can help energy storage developers and suppliers navigate and adapt to changing market dynamics.
The market demand for batteries has skyrocketed in recent years. A decade-long decline in costs has driven widespread adoption of battery products, and the U.S. has become the world's largest battery storage market. According to Bloomberg New Energy Finance, the annual demand for lithium-ion batteries will exceed 2.7TWh by 2030.
The U.S. Energy Information Administration claims that the U.S. plans to deploy 5.1GW of utility-scale energy storage in 2022. But disruptions to the battery supply chain have called growth forecasts into question. Prices rose across the board for nearly all materials needed to make lithium-ion batteries, including aluminum, copper and nickel. The price of lithium carbonate has risen 500% in the past 12 months. For every 20% increase in lithium carbonate prices, the total cost of batteries increases by 3%, according to estimates by Bloomberg New Energy Finance. The development speed of lithium materials simply cannot keep up with the pace of market growth. Industry insiders estimate that lithium prices will see two to three years of sustained growth.
Today, most of the world's lithium-ion batteries are produced in China, so the cost of energy storage systems is also affected by the global shipping crisis caused by the new crown epidemic. Before the pandemic, the cost of shipping a standard container was only $1,300, but in September 2021 it reached an all-time high of over $11,000. In late October 2021, it took twice as long to unload containers at the U.S. port of Long Beach, one of the world’s largest container ports, as it did before the COVID-19 pandemic. The freight benchmarking platform does not expect container shipping costs to normalize until 2023.
The solar power industry is dealing with a similar industry-wide supply chain crisis, which has led the Solar Energy Industry Association (SEIA) to cut its 2022 market forecast by 25%. PV modules are more expensive than ever, and research firm IHS Markit expects prices to remain high through 2023. Driven by rising PV module prices, the price of solar power systems has increased by nearly 50% from below US$0.20/W, rising to US$0.26/W to US$0.28/W from 2020 to the second half of 2021.
This is significant considering that 80% of the cost of a solar-plus-storage project comes from the solar power generation facility and the remaining 20% from the energy storage system. Since most of the battery storage systems planned for the next three years in the United States will be deployed in conjunction with solar power generation facilities, the industry also hopes that photovoltaic modules will return to their original prices.
Rising prices have caused many lithium-ion battery energy storage projects to delay deployment over the past year, while the adoption of energy storage systems using other batteries has increased. Energy storage developers working on non-lithium and non-electrochemical technologies raked in hundreds of millions of dollars in revenue last year, and the prolonged turmoil in the lithium-ion battery market presents them with more market opportunities. As the demand for renewable energy continues to grow, it will also see long-duration energy storage technologies become more critical.
Amid these challenges, the role of energy storage system integrators becomes even more important. Due to the explosive growth of market demand, many new players from different upstream and downstream ends of the industry have entered the field of system integration. During this time, customers will interact well with traditional integrators with long track records and in-house expertise.
In return, energy storage integrators will need to do their part by setting transparent and reasonable expectations with off-takers on cost structures and timelines. And Wärtsilä is working hard to find creative solutions to help its customers meet this global challenge. This ranges from how to interact and communicate with customers, to proposals and contract terms, to forecasting and supply chain strategy.
While waiting for raw material and battery prices to recover, customers can increase their revenue by integrating energy management software with existing assets. For power producers, optimizing the long-term economics of their portfolios has never been more important. For example, automated bidding software like Wärtsilä's IntelliBidder can maximize revenue from energy storage assets while also developing new strategies for future growth and return on investment.
This intelligent control system can support a variety of applications to maximize the value of the energy storage system. Using weather, use cases, historical system performance and battery data, energy management software can predict how much power an energy storage system will provide and leverage and balance insights like price changes.
Finally, if the US Congress can pass the Build Back Better Act, which includes the Investment Tax Credit (ITC) for independently deployed energy storage systems, it would significantly ease the price increases of the past six months. The Investment Tax Credit (ITC) will reduce costs and create much-needed certainty in the energy storage market. Energy storage is now key to America’s aggressive decarbonization and electrification goals, and the Investment Tax Credit (ITC) will go a long way to help get the battery storage industry back on track.
