Despite a global shortage of lithium-ion battery cells, large-scale energy storage stations continue to proliferate in record volumes on U.S. power grids, with installed capacity growing nearly thirteenfold from a year ago to 463 MW in the second quarter, according to S&P Global Market Intelligence data.

That result marks the fourth consecutive quarter of more than 350 MW of nonhydroelectric energy storage additions, the vast majority of which are lithium-ion batteries capable of storing energy for one to four hours. It was also the nascent technology's best quarter to date and a further sign of its mainstream adoption among U.S. utilities.

"Battery energy storage is gathering momentum due to a combination of rapidly declining costs and renewable energy growth," said Alex Cook, senior power-sector analyst at S&P Global Market Intelligence.

Soaking up the sun

Of the 26 large-scale projects that connected to grids in the second quarter, 17 are coupled with solar farms, fueled by lucrative federal tax credits that apply to storage assets when batteries charge on solar. The largest is NextEra Energy Inc.'s 230-MW/920-MWh McCoy Battery Storage Project, under contract with Southern California Edison Co., or SCE. It is part of a massive solar-plus-storage complex in eastern Riverside County, Calif.

NextEra also commissioned its Wilmot Energy Center in Tucson, Ariz., in the second quarter. The 100-MW solar farm with 30 MW of battery storage sells power to Tucson Electric Power Co.

By the end of the June, NextEra had signed agreements to deliver 1,346 MW of two- to four-hour energy storage in 2021 and 2022 through its competitive generation arm, NextEra Energy Resources LLC, followed by another 1,464 MW of such storage resources scheduled to begin operations in 2023 and 2024, according to a recent presentation to investment analysts.

"There's a lot of interest in new storage opportunities, not just with our customers but even from a regulatory standpoint in certain jurisdictions where storage could be particularly helpful given certain dynamics in various markets," NextEra Energy Inc. CFO Rebecca Kujawa said July 23 on a call with analysts. Concerns about the impacts of extreme weather on the power system, especially in the western United States, are "only going to drive more storage opportunity," added John Ketchum, president and CEO of NextEra Energy Resources.

The biggest of the stand-alone storage stations entering service in the second quarter is the 100-MW/400-MWh Ventura Energy Storage project in Oxnard, Calif. Majority owned by Capital Dynamics AG, the facility is underpinned by a 20-year agreement with SCE and is part of the Edison International utility subsidiary's commitment to keeping the lights on in a transmission-constrained area of its service territory without relying on new natural gas-fired generation.

'Something's got to give'

Tesla Inc., which supplied the battery systems for Ventura Energy Storage, tripled its deployments in the second quarter. But the company was unable to meet all of its potential demand because of insufficient lithium-ion battery cell supplies, CEO Elon Musk told analysts during a July 26 earnings call.

"Please make as many [cells] as you possibly can and supply them to us," Musk said, referencing conversations with third-party cell suppliers. "We have a significant unmet demand in stationary storage." When shortages arise, Tesla is prone to "throttle down" its production of energy storage products to prioritize cells for Tesla's primary electric vehicle business, Musk added. "Something's got to give, basically," he said.

Project development activity is especially hot in the Southwest, currently the global epicenter of energy storage. In California and Texas, developers, grid operators and utilities are looking to batteries to help integrate large fleets of variable renewable energy into power system operations and to assist with overall grid reliability during periods of peak demand.

In the Golden State, the California ISO was eyeing as much as 2,000 MW of battery storage by August 1. By the end of June, 1,589 MW was connected to its system and another 4,878 MW was planned to enter service through 2025, S&P Global Market Intelligence data shows. In Texas, just 284 MW of energy storage was online entering the third quarter, but more than 6,000 MW was planned through 2025. Those planned additions do not reflect the broader, more speculative volumes under study in interconnection queues of CAISO and the Electric Reliability Council Of Texas Inc.

Significant amounts of large-scale nonhydro storage are also planned in the near term in Nevada, Arizona, New York, Utah, Hawaii and New Mexico.

In total, known developers are behind roughly 22.8 GW of energy storage resources planned to start up between 2021 and 2023, according to S&P Global Market Intelligence data. Cook expects only "roughly half" of that to come online in that time frame — a forecast based on projects under construction, underpinned by power purchase agreements or needed for grid reliability.