With the next phase of Paris Agreement goals rapidly approaching, governments and organizations everywhere are looking to increase the adoption of renewable-energy sources. Some of the regions with the heaviest use of energy have extra incentives for pursuing alternatives to traditional energy. In Europe, the incentive stems from an energy crisis. In the United States, it comes courtesy of the Inflation Reduction Act, a 2022 law that allocates $370 billion to clean-energy investments. These developments are propelling the market for battery energy storage systems (BESS). Battery storage is an essential enabler of renewable-energy generation, helping alternatives make a steady contribution to the world’s energy needs despite the inherently intermittent character of the underlying sources. The flexibility BESS provides will make it integral to applications such as peak shaving, self- consumption optimization, and backup power in the event of outages. Those applications are starting to become more profitable as battery prices fall.
according to our analysis—almost a threefold increase from the previous year. We expect the global BESS market to reach between $120 billion and $150 billion by 2030, more than double its size today. But it’s still a fragmented market, with many providers wondering where and how to compete. Now is the time to figure out where the best opportunities will be in the rapidly accelerating BESS market and to start preparing for them.
Here are some questions—and answers—to help BESS players formulate their strategies.
What are the main opportunities? The best way to get a sense of the opportunities associated with BESS is to segment the market by the applications and sizes of users. There are three segments in BESS: front-of-the-meter (FTM) utility-scale installations, which are typically larger than ten megawatt-hours (MWh); behind-the-meter (BTM) commercial and industrial installations, which typically range from 30 kilowatt-hours (kWh) to ten MWh; and BTM residential installations, which are usually less than 30 kWh (Exhibit 1).
All of this has created a significant opportunity. More than $5 billion was invested in BESS in 2022,
Exhibit 1 Battery energy storage systems are used across the entire energy landscape.
Front of the meter (FTM)
Behind the meter (BTM)
Commercial and industrial (C&I) • Renewable integration (rooftop photovoltaic) • Uninterruptable power supply (UPS) • Power cost optimization • Electric-vehicle (EV) charging infrastructure
Electricity generation and distribution
Residential
Use cases • Price arbitrage
Home integration of: • Renewable integration (rooftop photovoltaic) • EV charging infrastructure
• Long-term capacity payments • Ancillary service markets • Derisking renewable generation • Investment deferral
Source: McKinsey Energy Storage Insights
McKinsey & Company
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