The global front-of-the-meter (FTM) solar-plus-storage market took off in 2018, with more than 6 times as many new solar-paired storage megawatts deployed than in the previous year. 2019 is also forecasted to be a strong year for FTM solar-plus-storage.

However, this dramatic growth does not yet include Europe. The markets that added the most FTM solar-plus-storage by megawatt last year were Australia, South Korea, and the U.S, which combined for 540 megawatts of FTM solar-plus-storage in 2018. In contrast, the whole of Europe deployed only 6 megawatts.

What’s holding back the European solar-plus-storage market — and will there be meaningful growth in the next few years?

Policy plays a key role in enabling FTM solar-plus-storage market development. Government auctions drive almost all utility front-of-the-meter solar development in Europe, and those auctions currently do not incentivize solar-plus-storage development.

Although Europe will see a spike in solar installations in 2019 and is a contender for the largest energy storage market in terms of deployments, the region lacks effective market-pull policies for utility solar-plus-storage. Such policy is a driving force behind other regions' strong deployment rates.

Europe’s government auctions call for either wind and/or solar buildout in accordance with European Union carbon targets, but do not value dispatchable solar generation. Solar developers, eager to ink government contracts, know that adding storage to their bids would take them out of the running.

Global FTM solar-plus-storage deployed and planned

Source: Wood Mackenzie Power & Renewables

While some European solar developers are turning to storage to complement their PV revenue stream, they tend not to combine the two.

In contrast, Australia's FTM solar-plus-storage growth last year was linked to an ambitious renewables policy which involves grants for large solar-plus-storage projects. The growing U.S. market is enabled by the dominance of utility power-purchase agreements in determining new capacity, which allows utility scale solar-plus-storage to compete head to head with gas plants.

South Korea’s FTM solar-plus-storage market was supercharged by large-scale government procurement and battery subsidies in 2018. (As South Korea’s incentives wind down, lower solar-plus-storage activity is expected in 2019). China’s market is expected to grow significantly this year as new policies there pave the way for solar-plus-storage development.

There is logic to the way the FTM solar-plus-storage market has developed so far. South Korea is a key country in the global storage supply chain and is home to high liquid natural gas (LNG) prices. Australia is also a major LNG importer, and has a widely distributed population and an unstable grid, making resiliency a high priority. The U.S. electric system is generally less reliable than other developed nations.

Countries that share these characteristics could be more likely to prioritize solar-plus-storage development, which may help to explain why Europe is behind.

Despite the challenging market circumstances, certain players in Europe may find value in solar-plus-storage in the future. This is becoming more feasible as the EU opens up the balancing mechanism to smaller players in Europe through project TERRE, enabling real-time system balancing. 

“We are starting to see smaller developers pioneering solar-plus-storage in Europe, led by a number of subsidy free projects in the United Kingdom,” said Rory McCarthy, senior storage analysts with Wood Mackenzie in Edinburgh who delivered a recent research presentation on the topic.

“We expect deployments to pick up in Europe, not only for the smaller developers but the large utilities as well, as more and more solar projects are commissioned subsidy free, with not only power-purchase agreements but also fully merchant revenues part of the revenue stack.”

McCarthy argues that because merchant solar power will be exposed to the increased risk of renewables cannibalization, solar-plus-storage will become more appealing over time in Europe as merchant renewables expand.

“Pairing storage with solar plants derisks power volumes by enabling dispatchable power and access to additional revenues,” noted McCarthy. “Pairing the technologies on site, as opposed to through a virtual power plant, provides further economic benefits through sharing on-site infrastructure.”

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The slides from the Wood Mackenzie presentation are available here.