2023: US storage development to surpass natural gas

US energy storage capacity additions are expected to surpass those of natural gas in 2023, but interconnection problems could jeopardise progress


March 9, 2023

·  Planned US storage capacity surpasses natural gas for first time

·  But concerns about interconnection queues jeopardise progress

·  Critics say Inflation Reduction Act does not address interconnection problem

In a sign that the energy transition is in full swing in the US, recent data from the Energy Information Administration (EIA) showed that 2023 will be the first year in which more battery storage capacity than natural gas-fired capacity will be developed.

Data from the EIA shows that developers have reported plans to develop 9.4GW of battery capacity in the US this year, compared to 7.5GW of natural gas-fired capacity.

It represents a significant turnaround in the last 12 months. The EIA’s early projections for last year showed that planned natural gas capacity additions in the US (9.6GW) would dwarf planned battery storage capacity (5.1GW) in 2022.

Storage will exceed wind deployment too

This year new battery storage capacity will not only exceed new natural gas capacity, but also new wind capacity in the US – the EIA estimates that developers will add 6GW of new utility scale wind capacity in the US in 2023. But its solar that will lead the way, with 29.1GW of new additions expected this year, representing 54 per cent of new electric generating capacity.

The EIA’s 2023 projections indicate that the Inflation Reduction Act (IRA) will have the desired effect and prove to be a significant boost for US energy storage. Among the act’s key provisions was the introduction of a 30 per cent investment tax credit (ITC) for standalone energy storage projects.

The storage tax credit appears to be having the desired effect. In what was claimed to be the first use of the ITC for standalone utility-scale battery energy storage, Eolian – a portfolio company of Global Infrastructure Partners – announced last month that it had successfully closed a “first-of-its-kind” tax equity investment in two standalone utility-scale battery storage projects located in Mission, Texas with a combined operating capacity of 200MW.

Optimism should be tempered

There’s no doubt that the IRA has filled investors with confidence about the prospects for energy storage market. The legislation is seen as providing a robust and long-term renewable energy policy framework in the US that has gone a long way to providing momentum for state-level community solar-storage programmes in particular. This was cited as the rationale behind the acquisition of 100 per cent of the equity interests in Amp US Primary Holdings, a US-based renewable energy generation and battery storage business, by a consortium comprising funds managed by Fiera Infrastructure – an affiliate of Fiera Capital – and Palisade Infrastructure Group last month.

But optimism should be tempered. The EIA data refers to battery storage capacity additions that are merely planned, the question is how much of this capacity will actually get developed. The uncomfortable truth is that interconnection queues in the US are scuppering many storage projects. Data from the Lawrence Berkeley National Laboratory, a US DOE Office of Science laboratory managed by the University of California, has shown that there is 427GW of storage capacity in interconnection queues in the US. The bad news is that the queues are only going to get longer – solar and battery storage accounted for 85% of new capacity entering the queues in 2021.

IRA ‘ignores’ interconnection problem

This has been one of the criticisms levelled at the IRA – yes, it has provided a 30 per cent investment tax credit (ITC) for standalone energy storage projects, but clean tech executives are warning that the act is failing to address practical considerations such as interconnection. The fear is that the interconnection backlog will mean the US doesn’t hit its green targets.

Such is the backlog of interconnection requests that, last year, it was announced that PJM Interconnection, a regional transmission organisation operating in the eastern US, would not review new interconnection requests until 2026 because it needed time to clear its backlog of existing applications.

The fact is that such delays often result in project developers abandoning plans to build new storage capacity. According to the Lawrence Berkeley National Laboratory, only 23 per cent of all projects seeking connection during the period 2010 to 2016 “subsequently reached commercial operations”.

Speculative applications further clogging up system

Another issue is that local grids can become inundated and therefore unable to absorb more power. The result is that the costs can mount for developers in that, in addition to paying for a simple connecting line, they may also have to finance a wider scale grid upgrade to enable it to accommodate the new capacity.

This has resulted in a number of developers submitting multiple proposals for renewable energy projects while having no intention of building them all. They do this in the hope that one of the proposals will be granted a connection after a rival developer has paid for the necessary grid upgrades. These type of speculative applications have exacerbated interconnection queues.

Further dithering could prove costly

The Federal Energy Regulatory Commission (FERC) is attempting to rectify the problem. Last year it proposed interconnection reforms aimed at speeding up the process – they included implementing a “first-ready, first-served cluster study process”, which would mean transmission providers would conduct larger interconnection studies encompassing numerous proposed generating facilities, rather than separate studies for each individual facility. However, there are doubts about whether these proposals will be adopted amid talk of disagreement on the proposals among FERC’s four commissioners.

But time for dithering is fast running out. While interconnection problems persist, dreams of drastic reductions in US emissions will remain just that, dreams. Worse still, if renewables capacity is blocked, we could actually see emissions increase due to a resurgence in the use of existing coal and gas plants as the US seeks to meet shortfalls in energy supplies. The IRA has undoubtedly provided a solid platform for the further deployment of energy storage, but major obstacles remain.


Investment expertise. High-quality events. Exclusive content. Lead generation.

Talk to the Tamarindo team today to find out how membership would benefit your business.

Related content