The Outlook for Battery Energy Storage Systems (BESS) to 2024

Energy storage will undoubtedly be a game changer for the energy industry. The key
question is how and when it can be most effectively deployed. Battery energy
storage systems (BESS) have the ability to transform the entire value chain of
electricity generation and supply by enabling self-sufficient micro-grids to improve
network asset utilisation and eliminate wholesale price spikes. To date, cost has
been the only barrier, but falling battery prices over the next 10 years will ensure
significant growth in the industry.
In this confidential report for our Strategic Research clients, Energeia examines the emerging market
for BESS in Australia. The report analyses the market’s key drivers, barriers, customer segments,
technologies, products and industry players to gain insight into its medium to long-term outlook.
Energeia’s ten year view covers total investment potential, final costs to the end consumer, and
installed BESS capacity.
Australia’s current government has scaled back many of the mechanisms that were introduced under
the previous government to support renewable energy, including key enabling technologies such as
energy storage. However, despite having no formal policy or regulatory framework, Energeia’s review
has found few institutional barriers exist to broad scale storage deployment. The main policy gaps in
Australia relative to international best practice continue to be a lack of demand-side incentives to build
capacity cost-reflective tariffs and demand management incentives.
Energeia has identified the most relevant applications for BESS at this stage to be customer, retailer
and network demand management, solar PV optimisation, reliability and fringe-of-grid rationalisation.
The key drivers behind these markets are a shift towards cost-reflective network pricing structures,
low Feed-in Tariff (FiT) rates, high levels existing solar PV, and the relative expense of maintaining
connections to remote customers. The most promising market segments are therefore remotely
located customers – whether residential, commercial, industrial or community – for whom the full
gamut of storage benefits are available. A recent spate of funding for storage projects by the
Australian Renewable Energy Agency, reflects a near-term priority for BESS in Australia.
Functional and performance gaps in BESS are being eroded by leading solutions, however, further
cost reductions will be required before products become cost effective for most customers. Whilst
lead-acid batteries have typically dominated the backup supply market for many years, deployment of
lithium-ion batteries is rising as a result of decreasing unit costs as well as the emerging need for
operational flexibility and performance.
The key uncertainties for the BESS market relate to the likely key early market niches and the most
cost-effective deployment strategy. Energeia’s analysis suggests that behind-the-meter systems can
capture the most benefits, provided a cost-reflective tariff structure is in place. Without tariff reform,
storage deployment will be limited to off-grid and utility scale deployments over the next 5 years.

Our market outlook is for rising production and competition to drive an 80% reduction
in system costs by 2020, mainly in lithium-ion BESS. Energeia sees the first major
market opportunity for storage in the remote and off-grid market segments, with
steady growth in utility scale projects until 2017 when a mass market opportunity for
behind-the-meter systems will emerge in states with high solar PV penetration and
maximum demand based tariffs. Our modelling shows that BES will unlock several
billion dollars of value for customers, retailers and networks over the next ten years.