European energy storage markets heating up with total deployments nearing global highs

According to a new report from Wood Mackenzie Power & Renewables, an increasing number of major utilities have made strategic plays by investing in a relatively new European energy storage market over the past two years.

Commenting on the report, Wood Mackenzie Power & Renewable Senior Research Analyst, Rory McCarthy, said: "By investing in energy storage, these companies are able to diversify their portfolio and improve their customer offering by including a clever piece of technology alongside a necessary service. Although there are obvious gaps across Europe as policy makers struggle to keep pace with new technology, energy storage deployments continue to ramp up. Europe is now a very real contender for that global top spot in terms of total deployments.

"Given the UK and Europe are at a critical stage in the Brexit process, it's important to remember the key role energy storage has to play in these power markets. For the UK power market, Brexit has put question marks around the pipeline of interconnectors to mainland Europe. This could be good news for the UK storage market, as interconnectors are direct competitors in the flexibility marketplace. However, we have seen the price of energy storage systems increase in the UK as the GBP currency weakens. Ultimately, there will be winners and losers in the energy storage space as details of Brexit negotiations are revealed."

The report, titled 'Europe Energy Storage Landscape 2018', provides outlooks for all three market segments; utility-scale, behind the meter Industrial & Commercial (I&C), and residential.

As it stands, the U.K. and Germany lead the way for utility-scale policy and storage development. Frequency markets are the only real game in town, however they are limited in size. As these markets become increasingly crowded, we have seen prices plummet to levels which will make for lower-than-anticipated project returns. For example, in the German frequency market, a June 2016 auction cleared at €23/MW/h, while in July this number sat at just €8 - a 65% reduction.

“We are witnessing a glut of developers enter the market across all segments. There are solar developers diving into a new complimentary technology area, which has been driven by a European solar subsidy cull and tough market conditions. Additionally, major utilities who see the strategic value of this most flexible asset have the balance sheets to enter into ultra low bid auctions and accept the unattractive returns that will go alongside these in the near term," continued McCarthy.

As noted in the report, the U.K. and Germany once again come out on top in regards to C&I. However, according to McCarthy, "This is not exactly a booming marketplace. The value proposition is not there yet. Unless the C&I customer has a high onsite value for power resilience or quality, projects rely on frequency markets in order to achieve financial close. Again, an increasing number of utilities are going after this segment – with limited success to date. "

While Germany is currently the global leader in terms of residential storage, following its KfW subsidy programme coming to an end, the value proposition for this market is a challenging one. According to McCarthy, "Technology costs are high, and the electricity costs and incentives to shift energy through time-of-use rates are not there yet.

"Wood Mackenzie models an impressive 54% reduction in the levelised cost of residential solar-plus-storage in Germany since 2013, but it is still some way above electricity costs of €0.30 in the country. It's essential these two points meet before the economics begin to look attractive. However, the economics are not the deciding factor for the early adopters who are willing to accept the high cost premium for a piece of technology which can simultaneously de-risk future bill increases and include them in the energy transition."