Energy Transition Requires $1.2 Trillion in Battery Storage Investment

The global energy transition is projected to require a staggering $1.2 trillion in investments for battery storage, according to a recent analysis by Wood Mackenzie. As the world shifts towards renewable energy sources like wind and solar, experts emphasize the critical need for large-scale energy storage to manage the intermittent nature of these resources. This investment is essential to support over 5,900 gigawatts (GW) of new wind and solar installations expected over the next decade.

Market Dynamics and Capacity Gaps

According to Robert Liew, research director at Wood Mackenzie, the current power sector faces a significant capacity gap of 1,400 GW for battery installations necessary to achieve grid stability by 2034. This gap represents a remarkable market opportunity as countries increasingly focus on battery investments amid the rapid growth of renewable energy generation. The costs of battery energy storage have decreased substantially, with prices falling between 10% to 40% across global markets over the past year, adding further optimism to the battery storage sector.

In the United States, there has been a notable surge in utility-scale battery storage capacity, increasing by 15-fold over the past five years to nearly 30,000 megawatts (30 GW). This growth has been driven primarily by declining battery costs, with 19 states now having installed at least 100 MW in utility-scale battery storage. Nevertheless, the future of the U.S. battery production sector appears uncertain following legislative changes under the OBBBA, which has rolled back numerous clean energy incentives.

Legislative Impacts on U.S. Battery Production

The OBBBA is expected to significantly alter the landscape for battery manufacturing in the U.S. by phasing out various tax credits and funding for clean energy and electric vehicle production, while simultaneously promoting fossil fuels. A report by the International Council on Clean Transportation predicts that these cuts could lead to a dramatic decline in U.S. battery production, projected to fall by approximately 75%. The new forecast estimates that battery production will reach only 250 gigawatt-hours (GWh) by 2030, down from earlier projections of 1,050 GWh, with electric vehicle sales also expected to be 40% lower than previous estimates.

Following the enactment of the Inflation Reduction Act in 2022, nearly 130 battery manufacturing facilities have been initiated in the U.S., although less than half are currently under construction. States such as Texas, Michigan, Tennessee, Georgia, Kentucky, and Nevada are likely to be the most adversely affected by reductions in funding and support for clean energy initiatives.

Despite the challenges, the situation is not entirely bleak for the U.S. battery manufacturing sector. The OBBBA modifies the Section 45X credit, which supports the production of solar and battery components domestically. While it phases out credits for critical minerals used in battery production starting in 2031, it maintains incentives for battery modules and components, encouraging domestic integration.

China’s Alternative Approach to Energy Storage

In contrast, China has taken a different approach to grid stabilization. Over the past year, China accounted for 24.6 GW in new global hydropower capacity, representing nearly 60% of the global total. Of these additions, 7.75 GW was attributed to pumped storage hydropower (PSH), a method recognized for its cost-effectiveness and long-duration energy storage capabilities, often viewed as a more viable option than lithium-ion batteries.

China’s aggressive ramp-up in hydropower construction aligns with its ambitions to reach carbon neutrality by 2060. By the end of 2023, China had installed 436 GW of hydropower capacity, accounting for more than a third of its total 1,200 GW in combined wind and solar capacity. Recent policy revisions, effective from January 2025, are expected to further incentivize the development of PSH projects, positioning China as a leader in renewable energy storage solutions.

The urgent need for substantial investments in battery storage is becoming increasingly apparent as countries transition to renewable energy sources. With the right funding and policy support, the potential for growth in this sector could significantly contribute to global energy stability and sustainability.