The next trillion-dollar clean energy business

Grid-scale storage traditionally relied on hydroelectric systems that moved water between reservoirs at the top and bottom of a slope. Today, giant batteries stacked in rows of sheds are increasingly used. According to the IEA, 90 GW of battery storage was installed worldwide last year, double the amount in 2022, with about two-thirds of that going to the grid and the rest to other uses such as residential solar. Prices are falling and new chemistries are being developed. Consulting firm Bain estimates that the market for grid-scale storage could grow from around $15 billion in 2023 to $200-700 billion in 2030 and $1-3 trillion by 2040.

The fall in lithium battery prices is driving their use in the power grid. According to research group BloombergNEF, the average price of stationary lithium batteries per kilowatt-hour stored has fallen by around 40% between 2019 and 2023. A global slowdown in the adoption of electric vehicles (EVs) powered by similar technology has led battery makers to show greater interest in grid storage. In 2019, stationary lithium batteries were almost 50% more expensive than those used in EVs; that difference has fallen to less than 20% as manufacturers have moved in (see chart 2). The IEA expects that solar combined with batteries can now compete with coal-fired power in India and will be cheaper than gas-fired power in America in a few years.

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The center of global battery production is China. Six of the world's top 10 manufacturers are based here, including CATL and BYD (see chart 3). The share of Chinese battery production for power grids has risen from almost zero in 2020 to around a fifth last year, overtaking the share for consumer electronics. Growth has been boosted by domestic policies requiring large solar and wind projects to also install storage.

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China's battery companies are extremely innovative. CATL has increased its research and development spending eightfold since 2018, to $2.5 billion last year. BYD, which has invested heavily in robotics and artificial intelligence, has built a battery factory in the city of Hefei that is almost entirely automated. But the industry is also swimming in overcapacity. According to BloombergNEF, China alone already produces enough lithium batteries to meet global demand of all kinds. The industry has announced plans to add an additional 5.8 terawatt hours (TWh) by 2025, more than double the current global capacity of 2.6 TWh.

This will have catastrophic consequences for many companies in the battery industry, including those that produce for the power grid. According to Benchmark Mineral Intelligence, another research institute, the construction of 19 battery gigafactories in China was canceled or postponed in the first seven months of 2024. The price collapse has also hit many Western battery startups hard. One example is Swedish company Northvolt, seen by some as Europe's answer to China's champions. Last year it reported a loss of $1.2 billion, compared to $285 million in 2022. The result is likely to be a wave of consolidation, as Robin Zeng, the head of CATL, predicted earlier this year.

Still, a bloodbath among battery manufacturers could help rather than hurt the adoption of battery storage. Prices could fall further as the most productive companies capture a larger market share. Fierce competition is already spurring innovation as companies look for new technologies to help them stay competitive. Sodium-ion batteries are a promising alternative. They don't require expensive lithium, and while they offer lower energy density, this is less of an issue for stationary batteries than for batteries that power electric vehicles.

Established companies are racing to develop the technology for the grid, and several startups are also betting big on it. Natron, an American company backed by oil giant Chevron, is investing $1.4 billion to build a sodium-ion battery factory in North Carolina that is scheduled to open in 2027. Landon Mossburg, the CEO of Peak Energy, another sodium-ion startup, says he wants to make his company “America's CATL.”

Tom Jensen, head of Freyr Battery, another startup, believes that Western battery manufacturers can only remain competitive with new technologies. The list of innovative approaches is getting longer and longer. EnerVenue, another startup, is launching a nickel-hydrogen battery. The company has raised over $400 million and will build a factory in Kentucky where it plans to produce inexpensive batteries that can store electricity for long periods of time.

It helps that these new technologies are well suited to meeting the growing energy needs of data centers, which the tech giants would like to run on renewable energy. The fact that sodium-ion batteries are less prone to fire than lithium batteries makes them particularly attractive to technology companies, not least because they reduce insurance costs, notes Jeff Chamberlain, CEO of Volta Energy Technologies, an investment firm specializing in energy storage. Colin Wessels, co-CEO of Natron, points out that his startup plans to supply batteries primarily to data centers.

The rapid expansion of data centers is also leading to gaps in the infrastructure for power generation and transmission. These could be filled by longer-lasting batteries, such as those EnerVenue plans to produce. Aaron Zubaty, CEO of renewable energy developer Eolian, predicts a boom in storage solutions with a runtime of four to eight hours to meet the increasing demand on power grids over the next decade.

Grid-scale storage is therefore making rapid progress. “Batteries have done in five years what solar energy took 15 years to do,” notes a veteran analyst of the solar boom who now covers the industry. Fatih Birol, the head of the IEA, sums it up: “Batteries are changing the rules of the game before our eyes.”

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