European residential storage market at economic tipping point

The European residential storage market deployment base is expected to grow five-fold to 6.6 GWh by 2024, according to new research from Wood Mackenzie.

Commenting on Wood Mackenzie’s ‘Europe Residential Energy Storage Outlook 2019', Rory McCarthy, Wood Mackenzie Senior Research Analyst, said: “Germany’s world-leading foray into the residential storage market has enabled Europe to claim the title of the largest residential storage market globally. Our research shows that annual deployments within the region are set to more than double to reach 0.5 GW/1.2 GWh by 2024.

“Off the back of Germany’s success, residential storage is beginning to proliferate into other European countries, particularly where market structures, prevailing power prices and disappearing feed-in tariffs create a favourable early-stage deployment landscape.

“The economics of storage have been challenging in the past, however we are in the midst of an economic tipping point. The major European markets of Germany, Italy and Spain are moving towards grid parity for solar-plus-storage in the residential space – when the costs per KWh of power from the grid meet the cost per kWh of the solar-plus-storage system.

“Our modelling shows positive economics - net present values (NPVs) and internal rates of return (IRRs) - in Italy by 2021 and Germany by 2022. Although these two countries have embraced residential storage more than others, we expect this trend to diffuse through Europe - moving the proposition from an emotive purchase to a sound investment decision. Although positive NPVs are not essential for market growth, evidenced by strong growth in Germany and Italy to date, they assist with mass adoption and market uptick,” added Mr. McCarthy.

Storage system costs continue to decrease

Rapidly decreasing storage system costs, despite increasing electricity bills, are the primary drivers for this economic tipping point.

“As the electrification epoch gets underway, infrastructure upgrades and the remnants of policies designed to address high-capex power systems will encourage electricity bills on their upward trajectory. With ongoing system-cost reductions, we expect economic conditions and market growth to continue to improve.

“The economic tipping points for the U.K. and France are further away. Both are hindered by more expensive systems on a cost per kWh basis and unfavourable or yet-to-be-developed storage frameworks. Grid parity will not be achieved over our outlook period, however deployments are expected to continue irrespective of this.

All eyes on Spain

“We think Spain is a market to watch. Although it has suffered from damaging solar policy in the past, new government thinking - with a nudge from the European Commission - means the country will embrace self-consumption. This will prompt a resurgence of residential solar, paving the way for solar-plus-storage in one of the sunniest regions in Europe.

Financial innovations still needed

“There is a hefty premium for adding storage to a solar installation - 93% in our Germany 2019 base case. This makes the customer proposition more challenging. More innovative business models are needed to absorb the upfront cost, allowing residential storage to become a common European residential technology for consumers who want to be a part of the energy transition. Electricity price increases, along with consumers’ desire to live in a more environmentally sustainable household, may be enough to drive the residential business case across the line,” said Mr. McCarthy.