There are several powerful dynamics influencing California’s energy storage market today. With both headwinds and tailwinds, many evolving over time, it has become increasingly difficult to predict what the future of California’s energy storage system (ESS) market holds.
The Energy Toolbase team has compiled data from both internal and external sources to provide a state of the union on California’s energy storage market, unpacking the direct impacts of the most influential factors, including:
• NEM-3 the landmark policy proceeding is expected to get a final decision in 2022 and go into effect in 2023. With solar grid exports expected to get devalued this creates a stronger price signal and savings opportunity for ESS, leading to more deployments.
• Inflation Reduction Act (IRA), authorizing the 10-year extension of both solar and energy storage Investment Tax Credits (ITC) is a huge tailwind for the market.
• Self-Generation Incentive Program (SGIP) energy storage budgets, specifically the large-scale budget is nearing its end. SCE and PG&E ran out of funds in 2022, and SDG&E is expected to exhaust its budget soon, which is a market headwind.
• Rising retail electric rates, the ETB team recently authored a whitepaper showing the rapidly escalating rate of inflation of retail electric rates in both the residential and C&I sectors, which is a market tailwind for both solar and storage.
• ESS Supply Chain disruptions caused by Covid shutdowns, raw material price inflation, and EV demand are causing longer lead times and cost increases, which has created a challenging environment and been a market headwind.
• ETB Sourced Data our platform data shows strong growth in ESS proposals, attachment rates, and the number of accounts modeling ESS. Our developer survey showed optimism for more deployments.
Overall, we are bullish and optimistic about the future growth of the energy storage market in California. Our ETB Developer platform data, which is a leading indicator, continues to show strong and consistent growth for ESS modeling activity across all metrics. The extension of the ITC via the IRA, the NEM-3 outcome creating a stronger price signal for ESS, retail electric rates continuing to inflate, and developers becoming more experienced. We fully expect ESS deployments and attachment rates to continue rising. That said, there are still looming headwinds that must be considered with the sunsetting of the SGIP incentive program, along with current ESS supply chain challenges.