Against the backdrop of accelerating global energy transition, the European energy storage market is becoming a focus of attention in the new energy sector. As a pioneer in the global energy transition, Europe has shown strong advantages in the field of energy storage, and its investment potential has attracted much attention.
Rapid growth in demand for energy storage
The rapid development of the European energy storage market is mainly due to the accelerated energy transition and strong policy support.In 2022, the European Union released the REPowerEU programme, which will increase the target of renewable energy share from 40% to 45% by 2030, and significantly increase the installed capacity of wind power and photovoltaic. This increased target has led to a sharp increase in demand for energy storage systems, which have become a key means of addressing the intermittency and volatility of renewable energy.
A structural turn in the market: large storage overtaking household storage
In 2024, the European energy storage market experienced a significant turning point, signalling the dawn of a new era. In that year, for the first time, the installed capacity of large energy storage systems, often referred to as large-scale storage or big storage, surpassed that of residential storage systems, capturing 49 per cent of the total market installed capacity, equivalent to 11 GWh.This remarkable shift heralds the continued growth of large-scale storage installations in the coming years, with the number projected to increase significantly to 35.911 GWh by 2028.This transformation of the market landscape was driven by a number of factors:
Grid stability needs: new energy grid bottlenecks intensify, renewable energy generation in many European countries accounted for more than 50%, energy storage has become the key to alleviate the pressure on the grid.
Economic enhancement: large storage through participation in the capacity market, frequency regulation services and other diversified revenue models, gradually get rid of the dependence on a single subsidy.
Market volatility and technological bottlenecks
1. The short-term pressure of household storage market: Electricity price fluctuations impact: 2024 Germany, Italy, residential electricity prices fell to 0.31-0.39 euros / kWh, household storage cost recovery extension to more than 8 years, suppressing end demand.
Inventory and interest rate risk: Inverter companies go through the inventory cycle, overlaid on the euro zone benchmark interest rate from 4.5% to 3.5% short-term market growth slowdown.
2. Big storage profit model challenges: Insufficient arbitrage gains: European electricity price difference needs to reach 200 euros / MWh to profit, much higher than the current actual level (about 100 euros / MWh).
Dependence on policy subsidies: frequency response market revenue accounted for more than 80%, but the market tends to be saturated, the need to shift to capacity payments and other diversified revenue.
Supply chain and cost pressure: Europe plans to achieve 89% of the battery localised supply in 2030, but is still dependent on China's lithium industry chain, superimposed on the rising price of raw materials, system integration costs remain high.
Technology innovation and policy synergy
1. Policy optimisation and market mechanism adjustment:
Simplify the process: Germany cancels storage capacity restrictions, and the UK allows storage to participate in a variety of electricity services to enhance project flexibility.
Financial and tax incentives: Austria exempts VAT for household PV, and Italy provides zero-interest loans to reduce users' initial investment costs.
2. Technological innovation to reduce costs and increase efficiency:
Long-time energy storage technology: Liquid flow battery and compressed air energy storage break through the 4-hour time limit, adapting to the peak demand of the power grid.
Intelligent management: AI algorithms optimise charging and discharging strategies, boosting arbitrage returns by 10% to 15%.
3. Business model diversification:
Industrial and commercial energy storage outbreak: German industrial and commercial storage penetration rate of less than 1%, low penetration rate shows that the future has a huge growth force. Optical storage self-generation and self-consumption mode can reduce corporate electricity costs by 30%, shortening the payback period to within 5 years.
Virtual Power Plant (VPP) Integration: Aggregation of distributed energy storage to participate in power trading and enhance marginal returns.
Future trends: structural opportunities and global synergies
It is expected that the installed capacity of large storage in Europe will reach 21GWh in 2025, a year-on-year growth of 75%, with an installed capacity share of 60%, surpassing the installed capacity share of household storage (35% of household storage). Commercial and industrial storage due to tariff policy and grid demand, become the new growth pole, is expected to 2025 European energy storage new installed capacity will reach 28.7GWh, of which commercial and industrial storage is expected to double growth.
In terms of technology routes, in the short term, lithium batteries will still dominate the market, but sodium-ion batteries and hydrogen storage is expected to achieve large-scale application after 2030, energy storage costs are expected to decline by 30%. In the long term, although pumped storage will still occupy 90% of the stock of energy storage, the new installed capacity of electrochemical energy storage is expected to exceed 70%.
China-Europe industrial chain cooperation is also deepening. Chinese enterprises have significant cost advantages in the field of inverters and batteries, and the localisation policy in Europe has prompted Chinese enterprises to strengthen cooperation through joint ventures and local factories.
The localisation policy in Europe has prompted Chinese enterprises to strengthen cooperation through joint ventures and local factories, forming a win-win pattern of ‘technology+market’.
Conclusion
European energy storage market is not only a ‘stabiliser’ for energy transformation, but also a strategic high ground for global capital competition. Investors need to grasp the policy and technology dividends from a dynamic perspective, and lay out the wave of energy revolution in the next decade.
