The United States is the world’s leading energy storage market. Industry data shows the country installed 4.8GW battery storage in 2022, with the residential energy storage market growing fastest, registering a year-on-year increase of 47%. During the year, front-of-meter storage remained the largest market, accounting for over 80% of the total installed. In addition to business models, government policies are driving the rapid development of the energy storage industry in the United States. Following our analysis of energy storage policies in Germany and China, we will analyze and summarize US energy storage policies.
Federal government measures to drive energy storage development.
In recent years, the federal government took different approaches to promote energy storage development, such as encouraging diversified technologies, economic measures (i.e. tax credits), and expanding energy storage market access. In addition, energy storage is one of the key industries in which the government promotes localized manufacturing in the United States. Furthermore, improving the competitiveness of energy storage technology is a key focus of the US federal government. The various measures introduced by the federal government to drive energy storage development are detailed below.
1. Clarify goals for technology development. In 2019, the BEST Act (the Better Energy Storage Technology Act) amended the U.S. Energy Storage Competitiveness Act, which was enacted in 2007. The BEST ACT focuses on the deployment of long-duration energy storage systems that continue to discharge for at least 6 hours (but more commonly 10 to 100 hours) and discharge over periods as long as weeks or months for large-scale utility technology development and seasonal energy storage. In December 2020, the U.S. Energy Administration (DOE) proposed solving the three major challenges – “innovation here”, “make here”, and “deploy everywhere” – in the Energy Storage Grand Challenge Roadmap (ESGC). The ESGC is intended to establish and maintain U.S. global leadership in energy storage applications and exports by 2030, and build a domestic supply chain by reducing dependence on foreign sources of materials and components. In addition, the Inflation Reduction Act, introduced in 2022, provides extra tax credits for energy storage systems that meet minimum localization rates.
2. Financial incentives. The U.S. government provided a lot of financial support for the development of energy storage technology. In 2021, the U.S. House of Representatives’ Transportation and Infrastructure Committee passed the Infrastructure Investment and Jobs Act, which allocated $500 million for energy storage demonstration projects and $2.8 billion for new energy projects, including battery material and battery manufacturing. There are other policies and regulations that have also been rolled out allocating government-backed financial incentives for energy storage R&D and project deployment.
3. Financial schemes. In 2019, the Battery Energy Storage Innovation Act amended the regulations in the Energy Policy Act (released in 2005). It clarified that energy storage projects in the residential, industrial or transportation sectors are eligible for “innovative technology loan guarantees.” DOE provided a $504 million loan guarantee for hydrogen and energy storage projects in Utah in June 2022.
Cost reduction for energy storage systems is another major focus of the federal government. Based on the research of the National Renewable Energy Laboratory (NREL), ESGC put forward a medium- and long-term goal of energy storage cost reduction – cutting the average cost of long-duration energy storage (discharge at least 12 hours) to $0.05 per KWh by 2030. The “Long-duration Energy Storage Research” plan announced by DOE in 2021 proposes to reduce the system cost of 10-hour and above energy storage by more than 90% within 10 years, and the plan also takes into consideration a variety of energy storage technologies, such as electrochemical, mechanical, thermal, and chemical energy storage.
In light of the current high system costs, the federal government has introduced a tax credit for energy storage. In 2018, the United States issued a regulation providing a 30% tax credit for eligible residential energy storage installations. Meanwhile, in September 2022, the Inflation Reduction Act extended the solar investment tax credit (ITC) for ten years (until 2033), continuing to provide a 30% tax credit for energy storage projects configured for renewable energy generation, and for independent energy storage included in the scope of tax credits. The move is expected to significantly increase the enthusiasm of new energy users and investors for energy storage technology, thereby promoting the large-scale development of the industry and driving down the cost of energy storage systems.
In addition, the Federal Energy Regulation Committee issued Directive 841 and Directive 2222, which clarify the market position of energy storage and expand energy storage participation in the electricity wholesale market to a minimum project size of 100KW.
Different state energy storage policies
Despite the overall momentum in the US energy storage market, there are obvious differences between energy storage installation and related policies in different states. According to our preliminary research, a total of 27 states in the United States have issued energy storage-related policies and regulations, summarized below:
California is leading the way in US energy storage
California is the largest energy storage market in the United States across various application scenarios, such as front-of-meter utility projects, behind-the-meter industrial and commercial, and residential energy storage, and the state government has introduced a series of policies to promote the residential energy storage market. As early as 2013, the state set an energy storage installation target of “1325 MW by 2020” (which was exceeded), and then an increased target of “500 MW of distributed energy storage by 2024.”
- In terms of fiscal schemes, California has implemented the Self-Generating Incentive Program (SGIP) since 2001, and, in 2009, energy storage was fully included within the program scope, providing fiscal incentives for residential energy storage projects. Furthermore, the state has extended the program until 2024, with a budget of more than $1 billion.
- In addition, there are also mandatory requirements for energy storage installation. For example, the Building Efficiency Standards Directive approved by the California Energy Commission in 2021 required that new and renovated commercial buildings and multi-family residential buildings must have photovoltaic systems and energy storage systems installed as of January 1, 2023.
In the field of front-of-meter energy storage, the California state government included energy storage in the Renewable Energy Portfolio Standard (RPS) in 2017, requiring utilities and electricity wholesalers to trade a fixed proportion (initially 20%) of electricity from renewable sources (including energy storage). After several amendments, the state government issued the latest requirement in 2018 (Senate Bill 100) to increase RPS to 60% by the end of 2030 and achieve 100% carbon-free electricity by 2045. California’s proactive energy storage policies have delivered a significant boost to the local energy storage market.
Texas, another major energy storage market in the United States, introduced relatively few energy storage policies, focusing primarily on market regulations instead. In 2019, Texas allowed utility companies and electric cooperatives to own energy storage facilities and sell electricity or ancillary services without registering as power generators. In recent years, with the exception of the Texas Electric Reliability Council (ERCOT) updating its electricity market rules, we have not tracked any other incentives or planning documents for energy storage in Texas.
Arizona has set a target for renewable energies to account for 15% of total energy in 2025, while the development of energy storage is mainly driven by the public utility sector. The Arizona Corporation Commission (ACC) and utility companies in the state have proposed to develop new energy storage, for example Arizona Public Service announced in February 2019 plans to build 850 MW battery energy storage by 2025. Two major utilities companies – Tucson Electric Power and SRP – have also announced plans for battery energy storage deployment.
It is worth noting that at the end of 2022, New York State announced it is revising its energy storage installation target up from 3GW to 6GW by 2030, and, in March 2023, New Mexico announced an energy storage plan to require private utilities to purchase 2GW/7GWh energy storage by 2034.
Opportunities and Challenges co-exist
The US energy storage market is developing rapidly. In the behind-the-meter market, an aging power grid system, the frequent occurrence of large-scale power outages, and high energy prices have stimulated demand for residential energy storage. What’s more, favorable policies, such as tax credits included in the federal “Inflation Reduction Act”, have also ignited the enthusiasm of residents and businesses to install energy storage. In the front-of-meter market, the installed capacity of battery energy storage has increased significantly, and many state governments have set energy storage procurement targets for utility companies, with a growing number of local governments expected to introduce or renew their project deployment plans.
At the same time, the US energy storage market also faces challenges. Federal government launched a series of policies driving energy storage development, however energy storage policies vary between states. For example, California adopted various proactive measures to promote the development of the energy storage market, while Arizona is currently relying on public utility companies to promote energy storage independently. In addition, the electricity market in the United States is operated and managed by different regional transmission operators (RTOs) and independent system operators (ISOs) in each region, and therefore electricity market rules and regulations vary from state to state. For instance, Directive 841 issued by FERC required barriers to small-scale energy storage to be removed in order to participate in the RTO and ISO markets, but this would require all regional electricity markets to adjust their own rules. This has undoubtedly created problems with deployment across the country. How to balance the operating rules of regional electricity markets and reduce obstacles to implementing federal policies may be one of the important topics of utility-scale energy storage policy in the US.
For more information on our upcoming report, Power Conversion System in Battery Energy Storage System, contact Principal Analyst Shirly Zhu.