1.1 Introduction
The grid-tied energy storage market is poised to take off. However, pricing remains inconsistent and economies of scale have yet to translate into accessible system costs for the end user. Energy storage systems (ESSs) consist of a core storage technology—such as an advanced battery or a flywheel—as well as power conversion systems, software, and controls. In addition to the hardware and software in an ESS, systems integration expertise is required to deliver a fully intelligent, bankable system to the customer.
Energy storage enabling technology (ESET) is a portion of the energy storage value chain undergoing intensive scrutiny. While battery prices have fallen anywhere from 40% to 60% in the past 18 months thanks to manufacturing innovations and volumes, energy storage systems (ESSs) overall still vary wildly in terms of price. This variation is a function of system size, volume ordering, and business models. Now that battery prices have responded to cost pressures, the rest of the balance of plant—or the ESET portion of system cost—is under more pressure to deliver more consistent pricing. Once this happens, more transparency in overall ESS pricing is expected, allowing the industry to scale further.
The three ESETs covered in this report are power conversion (primarily focused on inverters), system-level software and controls, and systems integration services. Power conversion is mainly a hardware offer, though there is software within the inverter. System-level software and controls, hereby referred to simply as software and controls, refers to the different types of software and hardware that are used to optimize an overall storage system for lifetime, performance, communications, safety, and market value. Systems integration services refers to the technical expertise required to physically integrate a storage system into a solution for an end user. This expertise can include any number of areas depending on a systems integrator’s business model and breadth of offerings.
The ESS value chain is beginning to mirror solar PV. Parallels are developing between the solar PV market and the ESS market in terms of the individual components and the reduction in costs over the entire value chain. In the early years of the solar PV industry, there was intense pressure to reduce panel costs, since this was the core technology and represented a significant portion of overall installed cost. At the same time, there was also pressure to deliver consistent quality panels as well as to commoditize this key component as much as possible.
Once this was achieved, greater scrutiny was applied to the balance of system (BOS) costs for solar PV and, as a result, other hardware costs for solar PV began declining in cost.
1.2 Market Forecasts
The distribution of the market among the three ESET segments will be skewed toward systems integration. Power conversion is a hardware market, so the ability to reduce costs is related directly to manufacturing strategies. As the market grows, the supply chain will respond, becoming more robust—much as the industry has seen with lithium ion (Li-ion) battery cells.
Power conversion revenue is expected to grow from $184.7 million in 2015 to $5.7 billion in 2024 at a compound annual growth rate (CAGR) of 46.3% for a total market of $19.4 billion over the 10-year period.
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The software and controls application is a combination of software and hardware. Software requires less capital to scale, but there is an expectation of greater and more regular innovation with software such that the cost pressures will be less strong on software and controls. In addition, there is highly variable pricing within the software space. This is expected to even out over the forecast period. Software and controls revenue is expected to grow from $16.7 billion in 2015 to $65.3 billion in 2024 at a CAGR of 50.2% for a total market of $22.7 billion over the 10-year period.
Finally, systems integration services is expected to be the highest value piece of the ESET market. Since it requires labor, labor prices are expected to buoy this portion of the market. In addition, systems integration services will become more sophisticated as the market grows and customers become more perceptive, expecting more functionality from ESSs. This burden will likely be borne by systems integrators, which are responsible for ensuring system operation, reliability, and profitability. Systems integration services revenue is expected to grow from $25.4 billion in 2015 to $92.5 billion in 2024 at a CAGR of 49.1% for a total market of $320.7 billion over the 10-year period.
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