The changing landscape of utility-scale energy storage integration

The utility-scale energy storage (UES) market has grown increasingly competitive in recent years. With cumulative UES deployment revenue projected to exceed $215 billion by 2030, the market represents a significant opportunity, writes Ricardo Rodriguez, research analyst at Guidehouse Insight.

Driven largely by the increasing use of solar and wind generation, interest is mounting in energy storage to maintain grid stability and increase efficiency by allowing nonessential fossil fuel power plants to close. In this environment, UES is considered a key component of new power system planning efforts in countries around the world, representing a major shift from five years ago when the technology was still largely considered too expensive or complex for integration into energy markets.

As the market matures, the role of utilityscale energy storage systems integrators (UESSIs) has become the key position in the value chain for ensuring that projects are successfully built and that they become profitable.

What is a UES systems integrator?

Guidehouse Insights provides the following definition for energy storage systems integration: Software and controls-based integration of core energy storage technology into complete, intelligent systems that deliver the performance required by the customer while ensuring the overall profitability of the system.

Systems integration has continued to be one of the most important roles within the energy storage value chain. The competencies and services included in the value chain of UES include several technical functions, system designs, and follow-on services that transform hardware and software into an intelligent storage-based solution that delivers maximum return on investment. Systems integrators can be active in all upstream segments of the energy storage value chain, as Figure 1 shows. However, the primary focus for these companies is offering software and controls and the actual integration services.

Figure 1: Energy Storage Value Chain: Upstream Segment
(Source: Guidehouse Insights)

The upstream portion of the value chain is primarily focused on technology. Typical activities may include component manufacturing and testing, software development, controls algorithm development, implementation of communication systems between utilities or markets, and component- and systemlevel modelling, design, and testing. Though there are straightforward aspects to systems integration such as hiring experienced engineering, procurement, and construction (EPC) firms for local installations, other aspects are highly specialised and rely on experience or technical differentiators such as system design and system-level software and controls. Systems integrators may be active in all downstream energy storage value chain roles, as Figure 2 shows.

Figure 2: Energy Storage Value Chain: Downstream Segment (Source: Guidehouse Insights)

As the energy storage industry has matured, the value of advanced software for system design and operation/optimisation has become clear. Due to the demand for complex and reliable energy storage systems (ESSs), advanced software is necessary to manage all requirements and unlock the maximum value for stakeholders that may have differing and often competing needs. Balancing this complexity requires sophisticated analytical and systems control capabilities to ensure that an ESS provides the maximum value and maintains peak performance for as long as possible.

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As a result, a key criterion for systems integrators to be named a leader by Guidehouse Insights is having strong software offerings that allow companies to build flexible and reliable energy storage projects.

Current trends in UES integration

In recent years, UES integration companies have shifted their focus from turnkey project development (including systems integration) to a more pure-play systems integrator and operator role. Although many leaders still offer turnkey project development as it might be preferred by some customers, the overall market is trending toward specialised systems integrators being hired by project developers.

This transition has occurred as systems integrators have become better at optimising the value of energy storage across multiple revenue streams for different customers, using sophisticated software and controls.
The greater assurance of project success has enabled the introduction of pure-play project developers that have confidence in the guarantees that integrators can offer for a project’s revenue streams and reliability.

The multi-year pattern of record-breaking deployments of UES coupled with the confluence of cheaper, more capable
components and the democratisation of analytical prowess, is the source of increasing competition in the UES integration space.

In recent years, this has added urgency to an age-old question that founders and CEOs must ask at various inflection points in a company’s life: when to keep building the company from the inside and when to grow through acquisition. The answer to that question is not uniform, as significant differentiation remains in the market.

However, from 2016 to 2021, several major acquisitions of leading integration companies and AI-enabled software companies focused on energy storage and generation asset optimisation have occurred. Perhaps the most notable acquisition came in October 2020, when industry leader Fluence announced the acquisition of Advanced Microgrid Solutions (AMS) to build on Fluence’s existing digital capabilities.

What is on the horizon for UES?

UES is currently projected to play a major role in future decarbonised electricity grids around the world. Government policies, utility procurement targets, and regulatory bodies have begun to forecast greater levels of UES deployments, with project sizes of larger power capacity also being planned around the world. At the same time, there is little agreement on which attributes of energy storage will be required and valued over time, specifically in the energy capacity or duration of energy storage that could be cost-effective for certain electricity grid services and applications. Nevertheless, as plans to deploy substantial amounts of new renewable energy generation by governments and utilities mount, future electricity grids will require different types of energy storage than those being deployed today – particularly for long-duration challenges and, in the longer-term, seasonal capacity challenges.

Investors have recognised the market opportunity and have responded with a flurry of investment in lithium ion (Liion) alternatives, including some options that are competitive today, with 4-hour systems and systems that are even more competitive at longer durations. While Li-ion has some notable advantages, particularly at shorter durations, it has a relatively high marginal energy cost, making it less competitive at longer durations. Alternatives can also offer comparative advantages on factors such as safety and lifetime. The next few years will be pivotal as these technologies look to scale, which requires significantly more investment to grow manufacturing and win new projects. Companies that are able to attract this investment and achieve scale can improve their cost-competitiveness and bankability, supporting continued growth.

Given these trends, UES integrators, utilities, and regulators must improve their software capabilities and planning techniques to capture the full operational value of long-duration storage and very high renewable penetrations – while
ensuring reliability under a wide range of complex, interconnected system conditions. Those that do will stand
to benefit the most from the changing landscape of utility energy storage.

About the author

Ricardo Rodriguez is a research analyst with Guidehouse Insights leading the Utility-Scale Energy Storage solution and supporting the Distributed Solar Plus Storage and Energy Storage Systems Tracker solutions. He specialises in financial and regulatory analysis, market sizing and forecasting, and business process improvement for energy storage and other renewable energy technologies. Prior to joining Guidehouse Insights, Rodriguez completed research on resource adequacy policies for independent system operators and regional transmission organizations, as well as capacity market design models, at Columbia University