Will storage throw troubled US solar and wind sectors a lifeline?

• Arbitrage has, for the first time, become the number one driver of US storage investment, emphasising its versatility
• In comparison to renewables, battery storage has been left relatively unscathed by ‘One Big Beautiful Bill’
• Despite being closely linked to renewables projects, storage’s versatility has meant it has managed to dodge much of the US anti-renewables rhetoric
• Now storage – which has had its tax credits preserved – could throw the US solar and wind sectors a much-needed lifeline

As the famous British naturalist Charles Darwin wisely observed, adaptability to changing environments is probably the most important trait when it comes to ensuring survival. And it is the mantra of adaptability that looks likely to be key to the continued flourishing of the energy storage sector in the US. One of the key reasons for the widely held belief that energy storage will proliferate not only in the US, but around the world in the coming years, is its ability to be adapted to suit a number of applications.

In addition to storing renewable energy produced by solar and wind, energy storage also performs a wide range of associated functions. It’s worth taking a moment to go through them, they are:

• Frequency regulation (the continuous balancing of electricity supply and demand to maintain a stable grid frequency)
• Peak shaving (an energy management strategy focused on reducing the maximum power demand on an electrical grid or within a facility during peak usage periods – it involves strategically using energy storage systems or other on-site power sources to supplement or replace grid power during these high-demand times)
• Load following (adjusting electricity output to match the fluctuating demand on the grid)
• Ramping/spinning reserve (increasing output to meet rising demand or compensate for unexpected outages)
• Load management (the process of balancing electricity supply and demand by actively controlling or adjusting the electrical load, or energy consumption, rather than the power station output.
• Backup power (an auxiliary power source used when the primary power source fails or is unavailable)
• Voltage/reactive power support (steps taken to manage and maintain voltage levels within acceptable limits in an electrical power system)
• Arbitrage (buying energy when prices are low, storing it, and then selling it when prices are high).

If we go back to 2018, the main drivers for investment in energy storage in the US were, primarily market demand for frequency regulation services, but also the need for ramping/spinning reserve, voltage/reactive power support, as well as the storage of excess generation from solar and wind assets (see chart below).

However, in contrast, in the US today, it is arbitrage that has become – for the first time – the number one driver of energy storage investment.  Energy Information Administration data shows that by 2023, the primary application of approximately 37 per cent of the US’ large scale battery storage capacity was arbitrage (see chart below). Five years earlier, in 2018, only around 14 per cent of the nation’s battery storage capacity was primarily used for arbitrage. This is partly because markets for some ancillary services – such as frequency regulation – have become increasingly competitive to the point of saturation, meaning the provision of ancillary services is not as profitable as it once was. Another factor is that revenue generated via arbitrage has enabled investors to make significant returns on investment in solar-storage hybrid projects, particularly in states such as California, Nevada, Arizona and Colorado.

The US administration’s ‘One Big Beautiful Bill’ (OBBB) – recently signed into law by President Trump – dealt a significant blow to hopes of wider solar and wind deployment by phasing out tax credits for such projects within a short period – to qualify, projects must either be completed by the end of 2027 or begin construction within the next 12 months. However, in contrast, the new law largely preserved tax credits into the next decade for battery storage. Why was storage spared? Despite the fact that energy storage is closely linked to renewables – figures from Berkeley Lab show that, in 2023, more than half of the battery storage capacity in US interconnection queues was paired with some form of generation – the storage sector was able to avoid becoming the target of much of the ‘anti-renewables’ rhetoric that was flying around during discussions of the bill. This was largely because of the technology’s versatility – while being a crucial component of many renewables projects due to the role it plays in storing excess power being produced by solar and wind farms, energy storage was, in the eyes of many, seen as being the opposite of intermittent solar and wind generation and rather viewed as a grid-firming technology, in addition to be seeing as an arbitrage opportunity. Crucially, senators also understood that battery storage was the sole option available to the US if it wanted to add energy to the grid fast enough to meet the power demands of the AI and data centre industry.

However, despite the fallout from OBBB, the prolonged backing for battery storage means all is not lost for solar and wind developers.  There is a view that, in the same way the renewables industry had a key role in nurturing the development of a thriving battery storage sector, the battery storage industry could now throw the wind and solar sectors a much-needed lifeline in the US. Discussions are known to be taking place about the possibility of using storage tax credits to build storage projects that are co-located with solar and wind assets. It’s a tumultuous time for the US renewables sector, but in the energy storage industry it has a useful and highly adaptable ally.