Last year, the average cost of utility-scale BESS systems reached a historic low of $300 per kilowatt-hour (kWh), with market indications that this downward pricing trend will persist. In the short term, however, certain supply components not exclusively dedicated to the BESS market, such as inverters and substation equipment, may temper the pace of cost reductions. Nonetheless, the continued decrease in global lithium-ion battery cell prices is expected to sustain the overall declining cost trend.

The next three to four years represent a potential golden era for investment in the battery energy storage sector. This is driven by the maturation of technology and supply chains, increased demand for flexibility in power markets due to the high integration of variable renewable energy sources, and the completion of regulatory frameworks that enable BESS owners to capitalize on their investments.

BESS plays a crucial role in supporting the energy transition and accelerating electrification efforts – the technology can buy time for transmission grid expansion to keep up with the growth of generation capacity in the transition. In addition, battery storage technology provides the essential flexibility and reliability needed to manage unpredictable output from solar and wind energy generation, thereby paving the way for a smarter future power grid.

Last year saw a strong increase in battery cell production, with 33% year-on-year growth and passing 1 terawatt-hour (TWh) of production globally. The global supply picture suggests an oversupply situation; however, excluding import options, undersupply could become an issue in all markets expect for mainland China.

Of the total 1 TWh of battery cells produced last year, less than 15% was utilized by the energy storage system segment, with the majority deployed in the electric vehicle (EV) sector. Despite this, production capacity for BESS is on an upward trajectory, mirroring the expansion of battery cell gigafactories. The BESS supply chain saw a near 65% year-on-year increase last year, achieving over 220 GWh of production capacity, 90% of which is in China. For the BESS supply chain outside of China, BESS manufacturing in the next three to four years is expected to rely on third parties to provide battery cells.

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