Europe already claims the title of largest residential storage market globally. And over the next five years, the market will experience growth that goes beyond Germany, the regional leader to date.
Europe's cumulative base of deployed residential storage capacity is expected to grow fivefold, reaching 6.6 gigawatt-hours by 2024.
Annual deployments within the region are set to more than double to reach 500 megawatts/1.2 gigawatt-hours by 2024, according to new research from Wood Mackenzie.
Residential storage is beginning to proliferate beyond Germany and into other countries, particularly where market structures, prevailing power prices and disappearing feed-in tariffs create a favorable early-stage deployment landscape.
While the economics of storage have been challenging in the past, the market is reaching a tipping point. The major markets of Germany, Italy and Spain are moving toward grid parity for solar-plus-storage in the residential space — when the costs per kilowatt-hour of power from the grid meet the cost per kilowatt-hour of a solar-plus-storage system.
European Energy Storage Vendor Landscape by Segment
Modeling shows positive economics — net present values (NPVs) and internal rates of return (IRRs) — in Italy by 2021 and in Germany by 2022. Although these two countries have embraced residential storage more than others, we expect this trend to diffuse throughout 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.
Mergers and acquisitions in residential storage are also heating up in Europe. Utilities (both new and incumbent), oil and gas majors, storage companies and connected home companies are exploring residential storage M&A. Successful investment plays are being followed by further controlling-stake investments or full on acquisition.
Storage system costs continue to decrease
Rapidly decreasing storage system costs 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, WoodMac expects economic conditions and market growth to continue to improve.
The economic tipping points for the U.K. and France are further away, however. Both are hindered by more expensive systems on a cost per kilowatt-hour basis and unfavorable or yet-to-be-developed storage frameworks. Grid parity will not be achieved over our outlook period, but deployments are expected to continue irrespective of this.
Europe Annual Residential Energy Storage Deployments, 2013 to 2024E (GW)
All eyes on Spain
Spain is a market to watch for residential storage in Europe. There is no specific residential storage policy in Spain yet and the country has suffered from damaging solar policy in the past (retroactive feed-in tariff policies and the infamous "tax on the sun").
However, new government thinking (with a nudge from the European Commission) means that the country will soon see renewal in the residential PV market and self-consumption, paving the way for solar-plus-storage in one of the sunniest regions in Europe.
There is still a hefty premium for adding storage to a home solar installation — 93 percent in WoodMac's 2019 base case for Germany. 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.
Rory McCarthy is the author of the recent Europe Residential Energy Storage Outlook, 2019-2024 report, which contains more information on residential storage market dynamics across Europe.