When it comes to energy storage in Europe, the initial association for most individuals is typically home energy storage. However, with the reduced costs of solar and energy storage in 2023, the utility-scale photovoltaic (PV) and large storage market in Europe are experiencing a gradual boom. The scale of energy storage projects is on the rise, propelling Europe to the forefront of the world's new energy transformation planning.
In light of this, TrendForce anticipates a substantial increase in new energy storage installations in Europe, expecting to reach 16.8 GW/30.5 GWh – a notable surge of 38% and 53%, sustaining a period of high growth.
Presently, subsidized energy storage policies in mainstream European countries are largely facing budget exhaustion or amount retreat. As the growth of home storage slows down, the proportion of installations in countries primarily focused on residential energy storage is declining. Contrastingly, in the United Kingdom, where utility-scale energy storage dominates, there has been a significant increase. The demand for large-sized energy storage is primarily being fueled by government tenders and market-based projects, signaling a robust growth momentum.
Furthermore, Germany, Britain, and Italy stand out as the three countries with the most substantial installed demand in Europe.
Europe’s utility-scale energy storage systems (ESS) are on the rise, boasting a robust revenue model.
The European large storage market is starting to shape up. According to data from the European Energy Storage Association (EASE), new energy storage installations in Europe reached approximately 4.5GW in 2022. Among these, utility-scale ESS installations accounted for 2GW, representing 44% of the total power. EASE predicts that in 2023, new European energy storage installations will surpass 6GW, with utility-scale ESS installations expected to be at least 3.5GW. This points to the growing significance of utility-scale energy storage in Europe.
Wood Mackenzie’s forecast suggests that by 2031, cumulative installations of utility-scale ESS in Europe will reach 42GW/89GWh, with the UK, Italy, Germany, and Spain leading the utility-scale storage market. The growth of renewable energy installations and the continuous refinement of revenue models are driving the development of utility-scale energy storage in Europe.
The demand for utility-scale ESS installations is derived from the need for flexible energy management due to the integration of renewable energy into the grid. The REPower EU aims to have renewable energy installations account for 45% of the EU's energy mix by 2030. Fueled by this objective, renewable energy installations in Europe will persistently grow, fostering the expansion of utility-scale energy storage installations.
Europe’s utility-scale energy storage installations are primarily propelled by market dynamics, with power stations generating revenue mainly through auxiliary services and peak arbitrage. However, as highlighted in the European Commission's working paper released in early 2023, the currently deployed utility-scale ESS in Europe present significant returns. Despite this, investors remain skeptical due to fluctuations in the return standard for auxiliary services and the uncertainty surrounding the capacity in the auxiliary services market, challenging the belief in the sustainability of commercial returns for large-scale storage power stations.
In terms of policy guidance, European countries are progressively advocating for revenue stacking. This approach aims to enable energy storage power stations to benefit not only from auxiliary services but also from energy and capacity markets, among other avenues. The goal is to encourage the widespread deployment of utility-scale storage power stations.
Delving into specifics, the energy storage market in the United Kingdom stands out for its diverse revenue sources and rich revenue stacking. The relatively high degree of liberalization in the UK electricity market has laid the foundation for a robust revenue mechanism for energy storage plants. With over 10 ways for Energy Storage Systems (ESS) to generate revenue, ranging from the high-value FM service market and standby market to the lower-value energy market, the UK exemplifies a multifaceted approach. Simultaneously, the declining cost of ESS contributes to reducing the construction expenses of energy storage power plants, further enhancing their economic viability.
The UK stands at the forefront of the European large storage market, boasting impressive growth in installed capacity and a wealth of project reserves. According to EASE data for 2022, the UK witnessed the highest installations of utility-scale energy storage, reaching 830MWh, a notable achievement that surpassed all others in Europe. Furthermore, its cumulative installations reached 2.4GW/2.6GWh, securing the top spot in the region. According to Solar Media data, the UK approved a substantial 20.2GW of utility-scale energy storage projects by the end of 2022, set to be completed within the next 3 to 4 years. Additionally, the country has planned and deployed a substantial 61.5GW of Energy Storage Systems (ESS), signaling ample room for further growth.
In the United Kingdom, there is a demand for power supply guarantees and enhanced power grid stability, providing strong impetus for the promotion of utility-scale energy storage. As the UK fervently develops renewable energy, there remains a need to continue promoting the construction of utility-scale ESS. This ensures that large-scale integration of renewable energy into the power system receives adequate support.
While Europe has sufficient planning for utility-scale energy storage projects, the uncertainty lies in their implementation and construction. Nevertheless, Europe has taken a leading role by proposing a 2050 carbon neutrality target, acknowledging the imperative nature of energy transition. With the increasing share of new energy in the energy mix, energy storage becomes a crucial component, leading to an expected rapid growth in ESS installations.
Residential storage is set to continue its development, with residential PV systems and storage systems retaining their strong economic viability.
The advancement of residential energy storage has entered its second phase, and its compelling economics are poised to drive its sustained growth. As the natural gas supply shortage in Europe eases, local natural gas and electricity prices have seen a significant decline compared to the same period last year. By December 2023, in Germany, for instance, the local electricity price has plummeted to 0.1 euros/KWh and even lower. As the local energy crisis eases, there has been an accumulation of residential storage products exported to Europe.
According to Customs data, domestic inverter product exports to the Netherlands experienced a decline between January and October 2023. However, in November, the number of domestic shipments of inverters to the Netherlands surged to 233,000, marking the first positive month-on-month increase since August. This signals a positive shift in the market and highlights the resilience of residential storage products in the face of changing economic conditions.
The energy crisis sparked by the Russian-Ukrainian geopolitical conflict in 2022 brought widespread attention to residential PV and storage systems, as well as other green energy products across Europe. Despite the reduction in interest rates for PV ESS, the economic potential of residential PV and energy storage products still has significant room for improvement. Calculations indicate that with an electricity price of 0.11 euros/KWh and an investment cost of 0.35 euros/Wh for PV and storage ESS, the Internal Rate of Return (IRR) remains high at 12.7%, with a payback period of approximately 6 years. As electricity prices normalize, the ongoing decrease in investment costs for PV and energy storage systems is expected to further stimulate local demand for green energy products like residential ESS.
In the short term, the gross profit rate of energy storage products outside the country will likely remain higher than that within the country. In recent years, energy storage manufacturers have enjoyed higher gross profit margins when selling products in the overseas market, although the gap is gradually narrowing. In the first half of 2023, each enterprise's gross profit margin is around 20%. The primary reason is that overseas users prioritize brand reputation and installation economics, showing less sensitivity to price. Looking ahead, with increased competition in the industry, it is anticipated that gross profit margins for products sold in the overseas market will remain higher, though the gap will continue to narrow.
Energy storage products are gradually transitioning from split machines to integrated machines. Presently, most residential energy storage products in the market follow a split-type model, where battery cell manufacturers and inverter manufacturers supply their products separately to integrators or users. However, in recent years, an increasing number of inverter manufacturers have started integrating their products and selling them independently. This shift has advantages, as the all-in-one machine not only yields higher gross profits, enhancing enterprise profitability, but it is also easier to install and maintain, thereby saving costs for consumers.
Since the second half of 2023, the European home storage market has experienced inventory build-up and a decline in demand, prompting varied expectations in the industry for 2024. Although the installation growth rate in the European market in 2024 is expected to be slower than that in 2023, it will still maintain a high growth rate, primarily supported by the rise in utility energy storage installations. The demand for utility energy storage in mainstream European countries is primarily driven by government tenders and market projects. Concurrently, with the increased application of utility-scale energy storage projects on the grid side and the power side, there remains a robust growth momentum in installed capacity.