Energy Storage Market Already Feeling Effects of Coronavirus Pandemic: Part 2

As COVID-19-related impacts continue to wreak havoc on economies around the world, Guidehouse Insights is monitoring disruptions to the energy storage market and their possible effects over the coming months and years. The first part of this two-part blog series explored the supply chain disruptions and delays already being reported. Part 2 examines the potential long-term impacts on the demand for energy storage around the world.

Despite the negative outlook for the global economy in the near-term, the energy storage market has the potential to experience both positive and negative effects.

Potential Negative Effects

Social distancing restrictions and reported delays in product deliveries will postpone project development timelines and slow new project origination. While some developers only expect a 1-2-month delay in their projects, others predict at least 6-month delays. Furthermore, it may be increasingly difficult for developers to obtain project financing and for new companies to raise venture capital funding due to the collapse of stock markets and the overall lack of confidence among investors.

While the grid conditions driving investments in energy storage are unlikely to change, the underlying dynamics of the energy markets are shifting and may affect the storage market. The crash in fossil fuel prices has pushed gasoline prices to record lows, reducing the financial benefit of switching to EVs. Cheap fossil fuels are also driving down the price of natural gas for power generation. Both trends negatively affect the prospects for energy storage due to reduced peak demand growth from EV charging and more cost-effective natural gas generation.

A critical factor in the demand for storage will be the actions of utilities over the coming year. Utilities are currently the main driver of large-scale storage development, and their support of the technology will be key to long-term market growth. However, utilities and regulatory agencies may prioritize critical reliability needs over pilot projects for newer technologies such as energy storage to avoid any rate increases.

Potential Positive Effects

The initial US government stimulus measures to combat COVID-19’s economic impacts have focused on immediate relief for individuals and businesses. As the situation stabilizes, a second round of stimulus is expected that aims for longer-term support, similar to efforts seen after the 2008 recession. Depending on the federal government’s priorities, these stimulus measures may provide support for clean energy investments. Long-term infrastructure projects will likely receive major support, which may include renewable energy generation and grid modernization.

Additionally, the overall uncertainty and anxiety caused by the pandemic may heighten interest in resiliency. While power grid operations have not been affected, the potential for electric service disruptions remains a cause for concern. Many home and business owners will place a greater value on backup power, and they may explore solar plus storage technologies. Energy storage can also allow for more automated grid operations and resiliency at the utility level, potentially reducing the impact of labor shortages during disasters.

The long-term effects of COVID-19 on the energy storage market will be highly dependent on governments’ responses and the size and specifics of stimulus programs. We may first experience the negative effects of reduced demand and the economic recession. The potential positive effects may only be seen in the long term, yet they provide reasons for optimism as we look toward the next phase of recovery. Promising signs show that the energy storage industry should continue to see strong growth over the coming years as economies reopen and business begins to normalize.