Pandemic restrictions have considerably slowed down the pace of non-residential energy storage projects during the second quarter due to challenges related to customer acquisition, installation and interconnection. The market disruption is likely to continue into 2021 and beyond, impacting both commercial and industrial clients, experts say.
While most installations are being postponed rather than cancelled, some deals may not close in the context of an extended economic downturn.
“When it comes to projects in later stages, (where) the contract is already signed and the site is already prepared, they will get installed,” said Brett Simon, senior energy analyst at Wood Mackenzie. “The projects at more risk for cancellation are some of those early stage-projects where discussions are happening but now a commercial customer may say, ‘… we have to reevaluate. Our business is down and we might not be able to enter into a contract right now.’ ”
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Simon added that the decrease in new business could extend well into 2021.
Ricardo Rodriguez, research analyst, distributed energy storage, at Guidehouse Insights (formerly Navigant), has revised downward the estimate of new distributive energy storage capacity that will be deployed this year because of COVID-19-related delays. Furthermore, Rodriguez projects that the total new capacity for commercial and industrial customers in 2020 to be about 70 megawatts, down from the original forecast of 141 megawatts. “While there are some delays there, I expect the majority of that will be rolled into 2021 and 2022,” Rodriguez said.
The pandemic had caused slight delays in permitting and construction for some JLL client energy storage projects—with and without solar panel installations—but they were continuing to move forward, reported Kyle Goehring, EVP with JLL’s Clean Energy Solutions team.
“COVID-19 may have slowed the progress on a few programs but this is not on hold,” he said. “We anticipate most properties that were considering these energy solutions will proceed in the near term.”
Goehring noted that clients installing solar projects this year include financial, health-care—both at hospitals and medical office buildings—and government, including commercial offices and data centers. Among others exploring energy storage projects are JLL’s retail, industrial and entertainment clients.
“More clients are aware of the potential benefits of battery storage and this has been an increased item for discussion in the past few years,” said Goehring, who has fielded a surge in questions about the economic viability of energy storage. “The news reports about energy storage have sparked some interest as well as the increasing number of climate events and utility grid outages, both planned and unplanned. Resiliency is a hot word right now and energy storage fits nicely into this concept.”
Strong Start, Muted Impact
Because the coronavirus did not hit the U.S. with full force until late March, its effects on the market were muted for the first quarter. The non-residential space registered its third-strongest quarter ever with 31.6 megawatts deployed. Residential deployments in the first quarter were 44.4 megawatts, a 10 percent jump from the fourth quarter of 2019.
Both residential and non-residential markets were coming off a record-breaking 2019, when the U.S. energy storage sector set a power capacity record totaling 168.4 MW and 362.2 megawatt-hours (MWH) of storage, according to Wood Mackenzie and the U.S. Energy Storage Association.
The fourth quarter marked the largest-ever quarter for storage deployments across all U.S. market segments, according to the US Energy Storage Monitor report from Wood Mackenzie and the Energy Storage Association. The non-residential behind-the-meter sector recorded its second-strongest quarter on record with 42.2 megawatts deployed. The year-end report noted a total of 186.4 megawatts of energy storage was deployed in the U.S. in the final quarter of 2019, a 33 percent increase year-over-year.
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Despite the expected delays caused by the COVID-19 crisis in the second quarter and lingering deployment issues expected during the second half of the year, the total U.S. energy storage market is set to grow from 1.2 gigawatts in 2020 to nearly 7 gigawatts in 2025, representing sixfold growth. The most recent US Energy Storage Monitor report notes that large-scale utility procurement will drive much of the growth as more utilities include storage in long-term resource planning. The non-residential space will grow at a much slower pace than residential, according to the report.
“A significant amount of non-residential upside is tied to community solar-plus-storage, which is concentrated in Massachusetts and New York and driven by those states’ strong incentive programs and access to wholesale markets,” the report states. However, since these markets are relatively small, even a slight delay or cancellation of a single project could trigger a sweeping blow in the year’s expected positive performance.
For its part, JLL is working on 2020 energy storage installations in California, Arizona and New York. “We are exploring both in the Northeast and Western portions of the U.S.,” Goehring said. “Certain client energy profiles in other geographic areas make sense as well, but will not be realized this year.” However, other regions will become more viable in the near future, he added.
While clients have concerns about costs, “the economic and operational benefits of storage are increasingly favorable with more properties looking to benefit,” Goehring said. For example, battery storage can be eligible for increased incentives when coupled with onsite solar photovoltaic production.
In Simon’s opinion, additional savings depending on the incentives and requirements in the market could also be beneficial. Massachusetts, which was the first state to make battery storage eligible for incentives, requires solar project of a certain size to be paired with storage. California, Maryland and New York have incentives that don’t require the storage system to be paired with solar. Federal tax credits are available when storage is paired with solar and the property gets at least 75 percent of its electricity from the solar installation.
One of the fastest-growing segments in the industry is energy storage for microgrids (ESMG). According to a new Guidehouse Insights report, the ESMG market is expected to exceed $40 billion over the next decade, with nearly 37,000 megawatts of new installed ESMG capacity.
The report notes that the energy storage systems are a popular component of distributed energy networks: “Innovation in business models and financing are key drivers propelling the market forward, and the most successful companies are unlocking the potential of these new business and financing models to reduce the risk and upfront costs to customers.”
According to Rodriguez, major price decreases have accelerated adoption in markets for both energy storage and microgrids, particularly among commercial and industrial customers seeking to reduce energy expenses and improve resiliency.
The global ESMG market is expected to grow rapidly during this decade, with annual capacity additions increasing from 650. megawatts in 2020 to more than 8,600 megawatts in 2029,” Rodriguez said.
Although the microgrid report was completed before COVID-19 hit, Rodriguez anticipates the ESMG market should hit its long-term targets as many of this year’s projects will roll over into 2021.