IFC ENERGY STORAGE MARKET REPORT DEVELOPMENTS AND OPPORTUNITIES FOR ENERGY STORAGE IN EMERGING MARKETS JANUARY 9, 2016 ANISSA DEHAMNA PRINCIPAL RESEARCH ANALYST NAVIGANT RESEARCH 1 / 2016 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED
NAVIGANT CONSULTING AND THE ENERGY PRACTICE Navigant Consulting (4,500 Employees) Core business areas: Management consulting, Economics, Financial Advisory, and Disputes & Investigations Publicly traded since 1996 (NYSE: NCI) 2014 revenue: $859.6 million 35 offices in North America, Europe, and Asia Global Energy Practice Our clients: 50 largest electric and gas utilities; 20 largest independent power generators; 20 largest gas distribution and pipeline companies; leading oil & gas companies; international, federal, and state government organizations; and numerous new energy market entrants and investors. Our 400+ consultants comprise the largest energy management consulting team in the industry. Our team has an average of 15 years of experience, 60% have an advanced degree, and 51% have an engineering degree. Our consultants serve leading energy companies to address their most complex business opportunities and challenges. Focused on high value, high quality projects. Navigant named "Best Advisory Renewable Energy" in the 9 th and 10 th Annual Environmental Finance and Carbon Finance Market Surveys 2 / 2016 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED
NAVIGANT RESEARCH INTRODUCTION NAVIGANT RESEARCH PROVIDES IN-DEPTH ANALYSIS OF GLOBAL CLEAN TECHNOLOGY MARKETS. The team s research methodology combines supply-side industry analysis, end-user primary research and demand assessment, and deep examination of technology trends to provide a comprehensive view of the Energy Ecosystem. RESEARCH PROGRAMS: Energy Technologies Utility Transformations Transportation Efficiencies Building Innovations RESEARCH OFFERINGS: Research Reports Subscription Research Services Custom Market Research Custom Market Analysis Market Sizing and Forecasting Primary Research Go-to-Market Services Strategic Advisory Sessions Commercial Due Diligence Technology Evaluation 3 // 2016 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED
PROJECT INTRODUCTION Energy storage is a crucial tool for enabling the effective integration of renewable energy and unlocking the benefits of local generation and a clean, resilient energy supply. However, the development of advanced energy storage systems (ESS) has been concentrated in select markets, primarily in regions with highly developed economies This study provides an overview of energy storage developments and opportunities specifically in emerging markets; including details on the services ESSs can provide at the utility-scale, in buildings, and in remote power systems Key trends and barriers for this technology in emerging markets are explored in depth for each of the three major energy storage market segments The study also includes case studies to highlight successful projects around the world that demonstrate both the challenges and potential for energy storage in emerging markets Regions included in this study: - East Asia & Pacific - Latin America & Caribbean - South Asia - Sub-Saharan Africa - Eastern Europe & Central Asia - Middle East & North Africa 4
MARKET DRIVERS & BARRIERS Market Drivers Market Barriers Rising electricity rates, increased distributed energy resource (DER) penetration Increasing installations of renewable generating assets Need for reliable, resilient power for critical infrastructure Increased grid security needs and protection from physical and cyber attacks Grid stability concerns and capacity needs New utility infrastructure needs Lack of familiarity with storage technology among utilities, regulators and financiers High upfront costs The need for highly skilled and experienced technicians to maintain and operate systems correctly Regulations preventing third-party or customer ownership of certain DERs Regulations preventing storage from competing in energy, ancillary service, or capacity markets Generation T&D Residential C&I In Front of the Meter (FTM) Behind the Meter (BTM) 5 / 2016 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED
ENERGY STORAGE MARKET SEGMENTS Utility-Scale Behind-the-Meter Remote Power Systems Refers applications for largerscale energy storage located on the utility side of the meter. Key applications include peak pricing arbitrage, generation capacity, transmission and distribution (T&D) asset capacity, frequency regulation, volt/voltampere reactive (Volt/VAR) support, and renewables ramping/smoothing. Refers to ESSs located on the customer side of the meter, e.g. commercial and industrial (C&I) systems or residential systems Demand charges generally account for a significant portion of a customer s bill, therefore utility rate structures are expected to play heavily in the economics within a given region. Refers to networks that are not typically interconnected with a utility grid, or may interconnect with a highly unreliable grid. Because of these limitations, these systems predominantly operate in island mode. Remote systems integrate high penetrations of variable renewables and are addressing frequency and voltage challenges within a tightly confined space. 6 / 2016 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED
MARKET FORECAST OVERVIEW CUMULATIVE (2016-2025) 100 80 60 40 20 0 52.3 65% 10.4 13% 5.6 7% East Asia & Pacific South Asia Middle East & North Africa Cumulative Deployments (GW) 5.4 7% Latin America & Caribbean 4.0 5% Eastern Europe & Central Asia 3.3 4% 80.9 Sub-Saharan Africa Total 150 100 72.0 55% 15.2 12% Cumulative Revenues ($ bn) 15.5 12% 9.7 7% 5.4 4% 14.1 11% 131.8 50 0 East Asia & Pacific South Asia Middle East & North Africa Latin America & Caribbean Eastern Europe & Central Asia Sub-Saharan Africa Total 7 / 2016 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED
MARKET FORECAST OVERVIEW - ANNUAL Projected Annual Stationary Energy Storage Deployments, Power Capacity and Revenue by Region, Emerging Markets: 2016-2025 To date the is approximately 1.9 GW of non-hydro energy storage installed throughout these emerging markets The sector is entering a period of steady growth, with an inflection point expected around 2019-2020 due to maturing technologies, business models, and contract structures Across all regions in this study, utility-scale energy storage is expected to be by far the largest market segment: - Utility-scale: 66% of new capacity - Residential: 6% of new capacity - Commercial & Industrial: 23% of new capacity - Remote Power Systems: 5% of new capacity 8
MARKET FORECAST - EAST ASIA & PACIFIC Projected Annual Stationary Energy Storage Deployments, Power Capacity and Revenue by Market Segment, East Asia & Pacific: 2016-2025 Key barriers to storage growth in the region include: Vertically integrated/highly regulated energy markets Underdeveloped grid infrastructure in certain areas Limited renewables deployed outside of developed areas Projected Annual Stationary Energy Storage Deployments, Power Capacity and Revenue by Market Segment, China: 2016-2025 East Asia & Pacific region expected to be the largest regional market covered in this study, with China anticipated to be the largest country market in the region. Commercial & industrial is forecast to be fastest growing market segment in the region, CAGR of 50.6% 2016-2025 9
MARKET FORECAST SOUTH ASIA Projected Annual Stationary Energy Storage Deployments, Power Capacity and Revenue by Market Segment, South Asia: 2016-2025 India is by far the largest market in the South Asia region, about 80% of the total regional market Much of the demand in India will be driven by the country s ambitious National Solar Mission, and weak grid infrastructure India s National Solar Mission Goals South Asia is expected to be the fastest growing region in this study, with an overall CAGR of 49% in annual energy storage deployments from 2016 to 2025 Key barriers in the region: - Underdeveloped grid infrastructure - Limited local experience and knowledge of energy storage - Access to affordable financing 10
MARKET FORECAST EASTERN EUROPE & CENTRAL ASIA Projected Annual Stationary Energy Storage Deployments, Power Capacity and Revenue by Market Segment, Eastern Europe & Central Asia: 2016-2025 Eastern Europe & Central Asia is expected to see 84% of new energy storage capacity come from utility-scale systems, the highest percentage of any region in this study. The region is expected to see strong growth in remote power systems for the next 6 years, however that market is likely to contract significantly around 2022 after most ideal sites are developed Key barriers include: - Existing pumped hydro storage capacity, and generation over-capacity limit need for new resources - Highly regulated, often state-run energy markets 11
MARKET FORECAST LATIN AMERICA & CARIBBEAN Projected Annual Stationary Energy Storage Deployments, Power Capacity and Revenue by Market Segment, Latin American & Caribbean: 2016-2025 Chile, Brazil, and Mexico are expected to be the largest country markets for energy storage in the region From 2016 to 2020, Navigant Research expects that an additional 21 GW of wind and 15 GW of solar generation will be added to the grid in Latin America requiring energy storage to effectively utilize and integrate Key barriers include: - Economic instability in some countries - Existing energy market regulations that limit innovation - Access to affordable financing 12
MARKET FORECAST SUB-SAHARAN AFRICA Projected Annual Stationary Energy Storage Deployments, Power Capacity and Revenue by Market Segment, Sub-Saharan Africa: 2016-2025 28% of new storage capacity in the region is expected to come from remote power systems, highest of any region Remote power system demand in the region is driven by rapidly growing populations, and new business models targeting rural electrification Energy storage for remote power systems requires a greater level of investment than other market segments South Africa is expected to account for the majority of new energy storage capacity in Sub-Saharan Africa for the next 5 years Key barriers in the region include: Access to affordable financing Political and economic instability Lack of local technical expertise 13
MARKET FORECAST MIDDLE EAST & NORTH AFRICA Projected Annual Stationary Energy Storage Deployments, Power Capacity and Revenue by Market Segment, Middle East & North Africa: 2016-2025 Middle East & North Africa expected to be 3 rd largest regional market in this study Much of the new energy storage capacity will come from solar integration efforts in the Persian Gulf region Key barriers include: - Political and economic instability - Low cost of fossil fuels throughout much of the region - Highly regulated, often state-run energy markets 14
CONCLUSION Lessons and best practices can be learned from the industry s development in early adopter markets to date, that will allow emerging markets to capitalize on the potential energy storage can provide: - De-risking the sector can lower the cost of financing and catalyze deployment To unlock low-cost financing, it is important to utilize technology from reputable and established vendors that can offer warranties and performance guaranties on their products Also critical that energy storage industry participants educate relevant stakeholders, such as investors, grid operators, and energy regulators, on the benefits of energy storage These factors can reduce the perceived investment risk, and greatly increase interest and trust in energy storage as a beneficial technology for emerging markets, thus reducing the cost to finance and develop such projects - Regulatory changes and practices can enable a more profitable and sustainable energy storage market Consider ESS as a unique and agnostic asset on the grid, recognize the highly flexible nature of the technology, and allow multiple players on the grid system to install, own, and operate the system Open-up competitive markets for ancillary services to multiple technologies rather than only sourcing from large generators, thereby allowing storage operators to obtain additional sources of revenue for different services provided, enabling financial feasibility Encourage longer-term contracts for services from energy storage, thereby reducing risk for finance institutions Allow aggregated DERs to participate in capacity and ancillary service markets Introduce time-varying rates to better align supply with demand, allowing customers to use BTM energy storage to reduce their electricity costs Reform utility business models to encourage conservation and efficiency rather than large capital investment: Although energy storage can be a cheaper alternative to substation or transmission investments, utilities are often incentivized to make large capital investments 15
CONTACT ANISSA DEHAMNA Principal Research Analyst +1 646 227 4452 anissa.dehamna@navigant.com ALEX ELLER Research Analyst +1 303.493.0362 alex.eller@navigant.com navigant.com 16 / 2016 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED