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The Multibillion-Dollar Opportunity for Battery Storage

By Travis Hoium - Nov 30, 2017 at 10:16AM

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Energy storage is entering a phase of growth that could make it a big player in energy before you know it.

Tesla ( TSLA -2.13% ) completed the world's largest battery storage installation in South Australia recently, a 129 Megawatt-hours (MWh) project that will shave the peak demand in a high-cost part of the country. The project shows how big energy storage projects can be, but it's also just the tip of the iceberg for energy storage. 

A new report from Bloomberg New Energy Finance (BNEF) predicts that 305,000 MWh of energy storage will be installed between 2017 and 2030, or 2,364 projects the size of Tesla's South Australia storage system. The numbers are mind-boggling, but if the history of renewable energy is any indication, the opportunity could be even bigger than the most bullish projections. 

Three battery storage systems on a wall.

Image source: Getty Images.

The potential for battery storage

Most of the easily deployed storage projects in the next decade will be battery storage, led by lithium-ion batteries for the foreseeable future. Based on BNEF's prediction, the opportunity amounts to $103 billion in the 305 Gigawatt-hours (GWh) of installations. The dollar amount could be high given its average over $300 per kilowatt-hour (kWh) and the fact that we know Tesla, LG Chem (NASDAQOTH: LGCLF), Samsung, and others are already selling batteries for under $300 per kWh. But the falling costs could make the opportunity even larger, a trend we saw when solar costs fell more quickly than expected. 

To put the scale of 305 GWh in perspective, that's the equivalent of 22.6 million Tesla Powerwalls or 1.5 million Tesla Powerpacks. 

Where energy storage will experience growth

According to BNEF, the U.S. will be the No. 1 market for battery storage between now and 2030. There are a few reasons that could be true, depending on how the industry plays out. The first is that the U.S. has an aging electricity infrastructure, and as old assets go offline or need to be upgraded, energy storage can fill the gap. New York has already demonstrated what this will look like, deferring $1 billion in spending on a new substation by installing $200 million in energy storage. Utilities can also use storage to smooth the peaks and valleys of wind and solar generation or shave peak demand during the middle of the day by storing energy at night, saving money for the grid. 

It's not just utilities, however, that will see value in battery storage. Commercial buildings and homes will be huge demand sources over the next decade. Commercial customers are using energy storage to reduce their demand charges, which are fees paid based on the peak amount of electricity used in a month, even if it's only for a few minutes. Batteries are being justified economically today by decreasing these charges. 

Homeowners are a likely growth market because they're facing increased fees for installing solar and the loss of net metering in some states. Energy storage will allow self-consumption of electricity or arbitrage between times of high and low rates from the utility. 

Everyone in energy has their eyes on battery storage

It's not a question of whether battery storage will be big over the next decade -- it's how big and who the winners will be. Right now, BNEF has set the target at 305 GWh, but if you take solar as a guide, that may fall way short of reality. Projections have regularly come up short when projecting both the rate of cost reductions and the pace of solar installations. The same could be true in energy storage, and I wouldn't be surprised if this is a much bigger market than 305 GWh at a much lower cost than $300 per kWh by 2030. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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