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US Energy Storage Market Booms—With Growing Pains: 5 Trends

The new Troutman Pepper report forecasts five post-IRA trends expected to shape the sector in the coming years.

Posted by Staff

May 19, 2023

3 Min Read
The Saticoy Battery Electric Storage System (BESS) was completed in mid-2021; it can power the entire city of Oxnard, CA for 4 hours or all of Ventura County for 30 minutes.Image Courtesy of Arevon

Global energy storage companies are shifting their focus towards the battery market in the United States, capitalizing on the transformative Inflation Reduction Act (IRA). However, they are encountering challenges related to scaling constraints in battery supply and accessing skilled workforce. Despite these obstacles, these firms are hopeful that external interventions will alleviate interconnection queues and policy uncertainties.

Troutman Pepper, a US law firm, has released a recent industry insight report titled “Taking Charge: Inside the US Battery Boom,” which highlights the accelerating plans of companies in the US battery storage sector following the implementation of the IRA. The report also acknowledges the “growing pains” that the market will face in the future.

The report draws upon the perspectives of various stakeholders involved in funding, developing, advising, and operating battery storage assets in the US. Given the current limitations in battery supply and workforce, which are expected to worsen as the sector rapidly expands, these experts have identified short-term solutions while awaiting the implementation of long-term measures outlined in the IRA. These interim measures include competing for battery supply from Asian manufacturers until US battery gigafactories are established and leveraging external consultants to alleviate capacity bottlenecks in early-stage project development.

Related:The World’s 6 Biggest Grid Battery Storage Systems

Market participants are also optimistic that intervention from the Federal Energy Regulatory Commission and the Department of Treasury will address challenges related to interconnection lines and uncertainties surrounding key elements of the IRA, such as tax credit transferability.

The ITC as the primary catalyst

The report emphasizes that the compounding nature of these market challenges reflects the positive response of the global industry to the IRA. Less than six months after its enactment, the US Energy Information Administration reported a significant increase in battery storage projects under development. The pipeline capacity, which reached 26.5GW in February—a 58% increase from before the IRA—is expected to continue expanding throughout 2023.

Troutman Pepper's report highlights that the introduction of an investment tax credit (ITC) for standalone battery storage projects has been the primary catalyst behind this growth. This policy change has not only attracted a wave of viable storage projects to the market but has also provided developers with greater flexibility across their portfolios. Additionally, it has encouraged higher installed capacities and created a favorable environment for investors.

John Leonti, partner and co-leader of the Energy Industry Group at Troutman Pepper, expressed his observations on the energy storage sector and stressed the importance of collaboration for success. He noted that while the industry is currently thriving, the surge in project development following the IRA has placed additional strain on the supply chain.

“Collaboration is a well-worn industry motto, but it really does sit at the heart of battery storage’s path to success in the US,” Leonti stated. “The market needs fine-tuned specialist expertise to demonstrate that it’s possible to act smartly and quickly, without acting in haste. It’s heartening to find, through this report, that optimism in the market remains high, and we look forward to the challenges that will accompany the sector’s success.”

The report concludes with Troutman Pepper’s forecast of five post-IRA investment trends expected to shape the sector in the years ahead:

  1. Significant inward investment into the US battery sector from established renewables markets in Europe, Asia, and South America will also bring expertise to build the integrated battery supply chain in North America.

  2. Battery developers and investors in the US will be exposed to trade disputes between the US and China. They will turn to the solar sector for lessons in handling such short-term volatility.

  3. Standalone storage may be grabbing the headlines but there will be plenty of activity in the co-location space, especially with the addition of battery storage to operational wind and solar projects.

  4. Large institutional investors will enter the tax credit market on the back of tax credit transferability measures. This will change the due diligence dynamic for projects.

  5. Utility-scale battery storage projects are booming under the IRA but, in time, investors will begin to look at how they can apply the IRA rules to projects with emerging long-duration storage technologies.

“Taking Charge: Inside the US Battery Boom” can be downloaded here.

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