Soaking Up the Sun: Battery Investment, Renewable Energy, and Market Equilibrium

Renewable energy and battery storage are seen as complementary technologies that can together facilitate reductions in carbon emissions. We develop and estimate a framework to calculate the equilibrium effects of large-scale battery storage. Using data from California, we find that the first storage unit breaks even by 2024 without subsidies when the renewable energy share reaches 50%. Equilibrium effects are important: the first 5,000 MWh of storage capacity would reduce wholesale electricity prices by 5.6%, but an increase from 25,000 to 50,000 MWh would only reduce these prices by 2.6%. Large-scale batteries will reduce revenues to both dispatchable generators and renewable energy sources. The equilibrium effects lead battery adoption to be virtually non-existent until 2030, without a storage mandate or subsidy. A 30% capital cost subsidy—such as the one in the U.S. Inflation Reduction Act—achieves 5,000 MWh of battery capacity by 2024, similar to the level required under California’s storage mandate.