Battery Energy Storage: Europe’s Market on the Verge of a Breakthrough

The market for battery energy storage systems (BESS) in Europe is on the verge of a genuine boom. Driven by ambitious climate targets, the rapid expansion of renewable energies, and falling battery prices, the European storage market offers enormous growth opportunities for established providers and new market participants. However, in international comparison, Europe still lags behind. The challenge is to overcome obstacles and set the right course to fully exploit the potential of battery storage for the energy transition.

The Smarter E Europe (ees 2024)

📅 Date: 19–21 June 📍 Location: Messe Muenchen 🔋Boot No. FM705/30

Current Market Size and Growth Forecasts

The European market for battery storage systems is experiencing dynamic growth, driven by ambitious climate targets and the rapid expansion of renewable energies. According to estimates, the installed battery storage capacity in Europe will increase to around 159 GWh by 2031, representing a 20-fold growth compared to the current level. Given that global demand for energy from lithium-ion batteries is expected to rise to 1,100 GWh by 2028, and energy demand for electric vehicle batteries alone could reach 400 GWh, it can be assumed that these capacities may be achieved much earlier.

The enormous potential of the European battery storage market is also reflected in market value forecasts. According to some sources, the potential market value in Europe could reach 250 billion euros annually from 2025 onwards. This growth will not only support the expansion of renewable energies but also contribute to job creation. The European Commission estimates that the rising demand for electric vehicle batteries alone could create at least three to four million jobs by 2028.

Germany is taking a leading role in the European battery storage market. By May 2024, approximately 1,261,000 home storage systems with a total capacity of 11.2 GWh and a power output of 7.0 GW were installed in Germany. In the commercial and industrial storage segment (30 kWh to 1,000 kWh battery capacity), the installed base reached around 8,000 systems with a capacity of 522 MWh and a power output of 251 MW in May 2024. The strongest growth is observed in the large-scale storage segment with battery capacities of 1,000 kWh and above. In April 2024, the installed base reached 1.6 GWh capacity and 1.3 GW power output. Experts expect Germany to become the third-largest energy storage market after the USA and China by 2030, with a forecast of 32 GWh, 61% of which will be attributed to home storage systems.

Forecasts suggest that the dynamic growth of the German battery storage market will continue in the coming years. Estimates for the growth of production capacity range from 227 GWh/a to 546 GWh/a, with 364 GWh/a considered realistic.

Strong growth is also expected on a global scale. The entire lithium-ion battery supply chain, from mining to recycling, could grow by over 30 percent annually between 2022 and 2030, reaching a value of more than 400 billion dollars and a market size of 4.7 TWh. Regionally, the largest share is attributed to the Asia-Pacific region with a focus on China, followed by America with a focus on the USA. Europe represents one of the key markets, with Germany playing a central role.

Overall, it is evident that the European battery storage market is facing promising growth. With the right strategic decisions and investments, Europe can strengthen its position in the global competition and seize the opportunities arising from the increasing demand for energy storage solutions. The forecasts suggest that the targeted capacities may be achieved faster than previously assumed. Germany has the opportunity to take a leading role and drive the expansion of the European battery storage market forward.

Drivers of Market Growth

The rapid expansion of battery storage in Germany and Europe is driven by a variety of factors that together create a dynamic market environment and open up new opportunities for storage providers and users. Particularly important are falling battery prices, the expansion of renewable energies, and the need for grid stability and flexibility.

Cost Degression in Batteries

A central driver for the growth of the battery storage market is the continuously falling prices for lithium-ion batteries. Technological advances, efficiency improvements in production, and economies of scale through the expansion of manufacturing capacities have led to a significant cost degression in recent years. Since 2010, battery prices have fallen by around 90% overall. In the period from July 2023 to summer 2024 alone, a price decline of more than 60% is expected.

These cost reductions improve the economic viability of battery storage projects in all application areas. For end customers, home storage systems in combination with photovoltaic systems are becoming increasingly attractive as payback periods shorten and self-consumption is optimized. In the commercial and industrial sector, new opportunities for load management and increased self-consumption are emerging. For grid operators and energy suppliers, the profitability of large-scale storage for applications such as grid stabilization and arbitrage trading on the electricity markets is improving.

Renewable Energies as a Growth Engine

Another central driver for the storage boom is the massive expansion of renewable energies, particularly wind and solar energy, in Germany and many other European countries. In the course of the energy transition and ambitious climate targets at national and EU levels, the share of volatile renewable energy sources in the electricity mix is continuously increasing. According to the scenario of the German Renewable Energy Federation (BEE), the share of renewable energies in Germany’s gross electricity consumption rose from around 17% in 2010 to over 45% in 2020. By 2030, this share is to be increased to 65%.

This development poses new challenges for the electricity system. The fluctuating feed-in of wind and solar energy requires additional flexibility options to balance generation and consumption at all times and ensure grid stability. Battery storage can make an important contribution here by temporarily storing excess electricity and feeding it back into the grid when needed. By smoothing out feed-in peaks and bridging generation gaps, storage systems help facilitate the integration of renewable energies and reduce the need for conventional backup capacities.

As the share of renewable energies increases, the need for storage capacities also rises disproportionately. Studies suggest that in Germany, a storage demand of several gigawatts and up to 40 GWh is required by 2030 to achieve the goals of the energy transition. At the European level, a storage demand of over 100 GW and several 100 GWh is expected by 2030. These figures illustrate the enormous growth prospects for the battery storage market in the coming years.

Grid Stability and Flexibility as Demand Drivers

With the expansion of renewable energies and the increasing decentralization of electricity generation, the requirements for the stability and flexibility of the power grids are also growing. Battery storage can make an important contribution here by providing various grid services and thus supporting grid stability.

The most important applications include frequency control, where battery storage systems quickly respond to frequency deviations and stabilize the grid frequency by feeding in or absorbing electricity. By providing primary and secondary control power, storage systems can increasingly replace conventional power plants. Further applications are voltage control through targeted injection or absorption of reactive power, congestion management by balancing regional imbalances, and black start capability to support grid restoration after power outages.

The demand for these grid services is continuously increasing with the expansion of renewable energies and the decommissioning of conventional power plants. Grid operators and transmission system operators are therefore increasingly relying on the use of battery storage to ensure system stability. Regulatory frameworks and market mechanisms, such as the opening of balancing power markets for storage or the introduction of flexibility mechanisms, create additional incentives and improve the economic viability of storage projects in this area.

Political and Regulatory Framework Conditions as Growth Catalysts

The political and regulatory framework conditions play a crucial role as growth catalysts for the battery storage market in Germany and Europe. In recent years, various measures and instruments have been introduced at national and EU levels to support the expansion of storage and accelerate market growth:

• Ambitious climate targets and energy strategies: Goal of climate neutrality by 2050 and increasing the share of renewable energies to 32% by 2030 at the EU level. Many countries have also formulated ambitious targets at the national level, requiring the use of storage.
• Funding programs and incentive mechanisms: Innovation tenders under the Renewable Energy Sources Act (EEG) provide additional support for the expansion of storage.
• Removal of regulatory barriers: Exemption of storage from the EEG levy and simplification of approval procedures in Germany. The EU’s “Clean Energy Package” envisages various measures to facilitate the use of storage and ensure non-discriminatory market access.
• Storage-friendly market design and flexibility mechanisms: The Redispatch 2.0 in Germany improves the market integration of storage and creates new revenue opportunities.

The increasing sector coupling and the use of renewable electricity for the production of hydrogen and other power-to-X products are opening up new fields of application for battery storage. Political support for the development of a hydrogen economy, for example through the National Hydrogen Strategy in Germany or the European Hydrogen Strategy, is creating additional growth impulses for the storage market.

In summary, it can be said that the political and regulatory framework conditions are decisive growth drivers for the battery storage market in Europe. They support the expansion of storage, improve market integration, and create new fields of application, resulting in significant growth opportunities for the market.

Reasons for the Delayed Development in Europe

Despite the strong growth, the European storage market still lags behind in international comparison. The main reasons for the lag are:

• Later investments in storage expansion compared to North America, China, and Australia
• Obstacles such as high upfront costs, complex approval procedures, and partly storage-unfriendly regulations
• Lack of experience and reservations about the technology
• Limited market access and lack of revenue opportunities
• Overregulation by the European Commission and low commercial experience of decision-makers
• Lack of investment in research and development and lack of a coordinated industrial strategy

To catch up and fully exploit the potential of battery storage for the energy transition, further efforts are needed:

• Creation of stable regulatory frameworks
• Removal of market barriers
• Introduction of incentive mechanisms for investments
• Strategic promotion of research and development

Through these measures, Europe can reduce its dependence on fossil fuels, strengthen security of supply, and take a leading role in the global storage market. The growing demand for storage solutions, coupled with falling costs and political support, is likely to accelerate market development in the coming years. However, Europe must intensify its efforts to avoid falling behind in global competition.

Opportunities and Challenges for Market Participants

The booming battery storage market in Europe offers enormous opportunities for both established providers and new market participants, but also brings a number of challenges. One of the greatest opportunities lies in the rapidly growing demand for storage solutions across all market segments. From home storage to commercial and industrial applications and large-scale storage for grid operators, attractive growth potentials are emerging. In particular, the utility-scale solar and storage, community solar, and electric mobility sectors are experiencing a surge in demand and offer promising business opportunities for project developers, investors, and storage system providers.

At the same time, increasing price pressure poses a challenge. While falling battery prices improve the economic viability of storage projects, they also increase pressure on the margins of market participants. To remain competitive, continuous efficiency improvements, technological advancements, and the development of innovative, customer-oriented solutions are essential. Optimized battery placement and control becomes a critical success factor in ensuring project profitability.

The importance of vertical integration and control over the value chain is coming into focus given the increasing intensity of competition in the market. Companies that can manufacture key components such as battery cells themselves and integrate them into their systems gain advantages in terms of cost, quality, and delivery capability. The ability to offer turnkey storage solutions and cover the entire project lifecycle is becoming an important differentiating factor.

Established companies can benefit from their experience, existing customer relationships, and economies of scale. However, they are required to flexibly adapt their structures and processes to market dynamics and invest in research and development to keep pace with technological innovations. New players and start-ups, on the other hand, often score points with agility, specialized solutions, and innovative business models. However, they face the challenge of establishing themselves in a fiercely competitive market and raising the necessary capital for growth and scaling.

Another challenge is the shortage of skilled workers and supply bottlenecks for battery components. Competition for qualified talent in areas such as project development, financing, and specialization in battery technologies is intensifying. Attractive working conditions and investments in education and training will be crucial to succeed in the “war for talents”. Bottlenecks in the supply chain, especially for battery raw materials and cells, can negatively impact project realization and costs. Companies are challenged to diversify their supply chains, build long-term partnerships, and increase transparency and sustainability in procurement to minimize risks.

The market entry of new players from adjacent industries such as the automotive and IT sectors increases competitive pressure but also offers opportunities for partnerships. Economies of scale in battery cell production and the digitalization of the energy industry open up new possibilities for strategic cooperations and innovative business models. Storage providers can benefit from the expertise and resources of companies from outside the industry but must also assert themselves against financially strong competitors. Here, it is important to identify one’s own strengths and differentiate oneself through specialized offerings and customer-centric solutions.

Research and development play a central role in the competitiveness of companies in the dynamic storage market. Technological trends such as the further development of lithium-ion batteries, the development of new battery chemistries, and the integration of artificial intelligence into energy management systems open up new opportunities for efficiency improvements and cost reductions. Companies that invest early in forward-looking technologies and enter into partnerships with research institutions and start-ups can secure a lead in the innovation competition.

Standardization and scaling are further levers to improve competitiveness. By developing modular, scalable storage solutions and optimizing planning and installation processes, companies can achieve cost advantages and tap into new customer groups. The convergence of storage technologies with other sectors such as electric mobility or the hydrogen economy also offers potential for standardized solutions and synergy effects.

Overall, it is evident that the European battery storage market offers enormous growth potential but also brings specific challenges. Market players are required to achieve competitive advantages through technological innovation, cost reductions, customer-oriented solutions, and strategic positioning in the value chain. At the same time, it is important to manage risks such as skill shortages and supply bottlenecks and seize the opportunities of new partnerships. Only companies that adapt early to market dynamics and play to their strengths will benefit from the storage boom in the long term.

Importance of Value Chain Depth and Vertical Integration

In the increasingly competitive battery storage market, the question of value chain depth and vertical integration is gaining importance for market participants. Companies face the strategic decision of whether to specialize in individual stages of the value chain or to cover and control multiple stages through vertical integration.

Impact on Competitiveness

High value chain depth and vertical integration can have a positive impact on the competitiveness of battery storage providers. By controlling multiple stages of the value chain, from the development and production of battery cells to integration into storage systems and the offering of energy services, various advantages arise:

Cost advantages: Vertically integrated companies can leverage economies of scale and scope to reduce their production costs. By internally passing on components and intermediate products, transaction costs and profit margins can be saved at each stage of the value chain.

Quality and innovation advantages: Control over the entire value chain enables companies to enforce higher quality standards and implement innovations more quickly. From material selection to cell chemistry to system integration, vertically integrated providers can exploit optimization potential at all levels.

Security of supply: By building their own production capacities for battery cells and modules, vertically integrated companies reduce their dependence on external suppliers. In view of potential supply bottlenecks and geopolitical risks in the battery supply chain, this can be a decisive advantage.

Differentiation potential: Vertically integrated providers have the opportunity to differentiate themselves from competitors through specialized storage solutions tailored to customer needs. By bundling product and service components, holistic and integrated offerings can be created that stand out from standardized solutions.

However, high value chain depth also brings challenges. Building own production capacities and competencies at all stages of the value chain requires high investments and ties up capital. In addition, companies must be able to efficiently manage and optimize the complex processes along the entire chain. Specialists with a focused orientation on individual value-added stages can have advantages here.

Examples of Successful Business Models

In practice, various examples of successful business models can be found in the battery storage market that rely on different degrees of vertical integration:

Tesla: The US electric car manufacturer relies on extensive vertical integration. With the “Gigafactory” in Nevada, Tesla produces its own battery cells and modules in cooperation with Panasonic. Through close integration of battery production, vehicle manufacturing, and charging infrastructure, Tesla realizes economies of scale and innovation advantages. Tesla is also active in the stationary storage market with its Powerwall and Powerpack systems.

BYD: The Chinese company BYD has its roots in battery production and has evolved into a vertically integrated provider of electric vehicles and energy storage solutions. By controlling the entire value chain, BYD can offer cost-effective and high-performance batteries for various applications.

Sonnen: The German storage manufacturer Sonnen specializes in decentralized home storage systems. Sonnen relies on close cooperation with battery suppliers and focuses on developing intelligent energy management systems and networking storage systems into virtual power plants. By bundling hardware and service components, Sonnen creates a differentiated offering.

Fluence Energy: Fluence Energy is a joint venture of Siemens and AES that focuses on utility-scale energy storage solutions. Fluence relies on collaboration with battery suppliers and the integration of storage into its digital energy platform ecosystem. By combining technology and project development expertise, Fluence can offer turnkey storage solutions.

These examples show that there is no single optimal degree of vertical integration, but that different business models can be successful. It is crucial for companies to align their value creation strategy with their specific strengths, resources, and target markets and to leverage synergies through intelligent cooperations and partnerships.

Outlook and Strategic Implications

The European battery storage market is on the verge of a genuine boom. Experts expect the installed storage capacity in Europe to increase twentyfold by 2031, reaching a capacity in the triple-digit gigawatt-hour range. Particularly strong growth is expected for the segment of grid-connected large-scale storage, driven by the expansion of renewable energies, the increasing need for flexibility in the power grid, and falling technology costs.

To unlock the enormous market potential and assert themselves in an increasingly competitive environment, storage providers must act strategically and position themselves clearly. An early focus on promising application segments such as utility-scale storage, industrial applications, or electromobility can bring decisive competitive advantages. At the same time, it is important to further reduce costs and improve the economic viability of storage projects through technological innovations, economies of scale, and optimization of the value chain.

A central success factor will be the ability to offer holistic and customer-oriented solutions that go beyond pure storage hardware. By integrating energy management systems, forecasting software, and digital services, providers can create additional value and differentiate themselves from the competition. The development of new, flexible business models, for example in the area of energy-as-a-service or through participation in flexibility markets, also holds great opportunities.

To achieve the ambitious growth targets, strategic partnerships and cooperations along the value chain are also of great importance. By collaborating with energy suppliers, grid operators, project developers, or technology providers, storage companies can strengthen their market presence, leverage synergies, and expand their solution competence. Cooperation with research institutions and startups can also help to integrate innovative approaches and technologies into own product development at an early stage.

Last but not least, successful market development also requires a careful analysis and evaluation of the regulatory and political framework conditions in the various European countries. While some markets, such as Germany, the UK, or Italy, already offer favorable conditions for storage, there is still a need to catch up in other countries in terms of adapting market rules, grid fees, or approval processes. Storage providers should actively monitor the development of the framework conditions and focus on promising markets at an early stage.

Overall, the European battery storage market is facing a decade of opportunities and growth. However, to realize the enormous potential and take a leading position in global competition, great efforts and close cooperation of all stakeholders are required. Politics and regulation must create reliable framework conditions and incentives for investments, while industry and research must continuously improve the economic viability and performance of storage technologies through innovations and cost reductions. If these challenges can be mastered and the opportunities consistently seized, the battery storage market can become a key element for the success of the energy transition in Europe.

Conclusion

The European battery storage market is on the verge of a real boom. Experts expect the installed storage capacity in Europe to increase 20-fold by 2031, reaching a capacity in the triple-digit gigawatt-hour range. Strong growth is particularly expected for the segment of grid-connected large-scale storage, driven by the expansion of renewable energies, the increasing need for flexibility in the power grid, and declining technology costs.

To tap the enormous market potential and assert themselves in an increasingly competitive environment, storage providers must act strategically and position themselves clearly. An early focus on promising application segments such as utility-scale storage, industrial applications, or electric mobility can bring decisive Cmodels. Partnerships along the value chain and a focus on promising markets and application segments will become critical success factors.

At the same time, challenges such as increasing price pressure, skill shortages, and regulatory uncertainties must be mastered. Policymakers and regulators are called upon to create reliable framework conditions and incentives for investments in storage technologies and to remove obstacles.

Despite the lag behind leading markets such as the USA or China, Europe has the potential to assume a leadership role in the global battery storage market. However, this requires a concerted effort by industry, research, and policymakers to drive innovation, reduce costs, and facilitate the market integration of storage systems.

The battery storage market is not only a key element for the success of the energy transition but also a major industrial opportunity for Europe. By consistently leveraging the potentials and overcoming the challenges, Europe can strengthen its competitiveness, create new jobs, and shape a sustainable, climate-neutral future. The coming years will be crucial in setting the course for a successful development of the European battery storage market.