Dive Brief:
- U.S.-made lithium-ion battery energy storage systems could compete on price with Chinese-made systems by 2026 as more U.S. production capacity comes online this decade, Clean Energy Associates said June 12 in its Q1 2024 ESS Price Forecasting report.
- The Inflation Reduction Act’s 45X tax credit will help close the current pricing gap of more than 20% between U.S. and Chinese batteries, the report said.
- Global production overcapacity is pushing down battery prices worldwide, with major Chinese manufacturers claiming prices as low as $60/kWh, according to a second CEA report released July 8 and focused on battery supply, technology and policy.
Dive Insight:
CEA’s twin reports come as U.S. energy storage deployments accelerate. Utility-scale installations rose 101% from Q1 2023 to Q1 2024 and set a capacity record for the typically slow first quarter, Wood Mackenzie said in June. The Q1 jump followed a 358% increase in utility-scale deployments from Q4 2022 to Q4 2023, WoodMac said in an earlier report.
The growth in U.S. utility-scale installations is driven by the addition of renewable generation capacity, especially in the Southwest, Wood Mackenzie Global Head of Storage Allison Weis said last month.
However, the pace of U.S. energy storage installations is likely to decline later this decade as “interconnection queues continue to exhibit bloat,” CEA said in its ESS Supply, Technology and Policy report. The U.S. interconnection queue has more than 700 GW of active storage capacity requests, CEA said.
“We continue to see a lot of delays on projects compared to when they were expected to go online,” Weis said last month.
Another significant headwind for utility-scale storage growth is years-long lead times for procuring new transformers and high-voltage circuit breakers, CEA said.
Despite these challenges, global battery energy storage demand grew by 60% from 2023 to 2024 and is expected to grow 21% annually through 2028, CEA said.
Meanwhile, CEA expects global lithium-ion battery storage production overcapacity to worsen through 2028. Global battery cell production capacity exceeded demand by 125% in 2023, according to the supply, technology and policy report. That gap is expected to increase by 74% from 2024 to 2025 and by lesser amounts the following three years, ending the forecast period 184% ahead of expected 2028 demand, CEA said.
The production capacity boom is driven by planned manufacturing expansions in China and the United States, according to the production, technology and policy report. Most of the added capacity is for cell production, and despite recent investments in battery materials mining projects outside China, “more investment in raw material refining and processing is still required to shift away from China for battery material supply,” CEA said.
Despite rising demand and generally falling battery cell prices, U.S. trade policy could pressure prices upward in the near term. Higher tariffs on certain imported battery materials will increase costs for U.S.-based battery integrators by 11% to 16%, depending on how much value the integrators add in the United States, according to the report.
However, the tariff won’t phase in until 2026, giving more time for the U.S. market to add onshore production capacity, CEA said. The production, technology and policy report attributed several recent battery manufacturing announcements in the U.S. and Canada to Inflation Reduction Act incentives. Since last year, major production announcements have included a $5.5 billion LG facility in Arizona, a Northvolt plant in Quebec, a Volkswagen-PowerCo factory in Ontario and a FREYR facility in Georgia.
While some of these capacity additions have taken longer to materialize than expected, “most of the capacity to meet local requirements will likely come online around 2026,” CEA said in its price forecasting report.
