2015 was a dynamic year for energy storage. A proliferation of energy storage deployment, declining costs and Tesla's Powerwall announcement contributed to a successful year. But the start of 2016 did not begin as auspiciously as the previous year's headlines might suggest.

There were 18.3 MW (21.2 MWh) of energy storage deployed in the United States in the first quarter of 2016, representing 127% increase from first quarter of 2015, according to a recent energy storage report from GTM Research. But those numbers represent an 84% decline from storage deployments in fourth quarter 2015.

Much of the quarter-over-quarter decline can be attributed to a 27% decline in the non-residential market even as the residential market continued to grow, increasing by 5% from fourth quarter 2015 to first quarter 2016.

“The decline marks more of an anomaly than an inflection point,” said Ravi Manghani, director of storage at GTM.

California and PJM Markets

California, together with PJM (excluding New Jersey) accounted for 92% of all storage deployments since the first quarter of 2013. PJM has been at the forefront in terms of integrating storage into its market, but other ISOs are following suit and could play an increasing role in the growth of storage.

Storage deployments hit a peak in the PJM Interconnection region ahead of an interim cap the RTO imposed on storage for frequency regulation with developers scrambling to get projects under way before year end.

In the fourth quarter 92 MW of storage projects entered service in PJM.

PJM is in the process of revising its guidelines for storage, and Manghani expects to see storage projects in PJM will pick up again but, he notes, they are approaching a “natural ceiling.”

In any system, ancillary service requirements are about 1% of peak demand. In PJM that translates to about 1,000 MW, and PJM already has about 700 MW, including 300 MW of storage with another 60 MW to 100 MW either under construction or in development.

In 2016, Manghani said the front-of-meter market will comprise 70% of storage deployments. In the near term, the utility sector will continue to be the largest of the three markets for storage, beating out the commercial and industrial and residential sectors. But that should begin to change around 2019 when GTM expects the market to shift to the behind-the-meter market, propelled by a combination of continued storage cost reductions policies driving widespread adoption of distributed energy resources.

For example, all California customers will have to move to time of use rates by 2018, which could further strengthen the economics of using storage to reduce peak use rates.

California, meanwhile, remains the largest storage market in the country, for both the residential and non-residential sectors, accounting for 32% and 85%, respectively, of those market segments. A total of 6.2 MW were deployed in California’s non-residential market in the past quarter, roughly one-eighth of the state’s cumulative deployments in this segment.

States are beginning to catch up

While PJM and California are leaders in the energy market, at least six other states are beginning to show up on GTM’s storage radar screen.

In the residential market, GTM ranks Hawaii third in terms of storage deployments, behind number one ranked California and second ranked All Others category. In the non-residential market, New Jersey took the same third place status.

New Jersey in January doubled its allocation of funding for energy storage to $6 million. In Arizona, Tucson Electric Power has contracted with E.on Climate & Renewables to install two 10-MW storage facilities.

Manghani also mentioned Texas and New York as markets where the energy storage market is growing quickly. The report notes that the Public Utility Commission of Texas has approved Oncor’s application for a 317-MW compressed air energy storage plant. And in New York, a proposal to extend property tax exemptions to energy storage was amended and passed the State Assembly and was amended by the State Senate.

On the Federal level the Federal Energy Regulatory Commission has scheduled a workshop to examine issues such as barriers to entry and tariffs related to energy storage. “It shows that FERC is very serious about storage,” Manghani said.

Overall, the report projects robust growth for energy storage, estimating that the market will exceed the 2,000 MW threshold by 2021, nine times the size of the market in 2015.

In terms of value, the storage market will be worth $2.9 billion by 2021, GTM estimates, and in dollar terms the utility scale sector will continue to dominate, growing to $1.2 billion in 2021 from $356 million in 2015.

And, as noted, the behind-the-meter sector will account for an ever large share of the total storage capacity deployed, rising to 49% by 2021 from 15% in 2015. That falls in line with previously identified trends from GTM. Despite rapid growth in the behind-the-meter market in 2015, most of the growth in storage in 2016 will come from the front-of-the-meter applications, GTM said in a December report. “The behind-the-meter market will continue to take a back seat until 2020,” Brett Simon, energy storage analyst at GTM Research, said.