Energy Outlook 2025: Energy Storage

Energy storage is rapidly emerging as a vital component of the global energy landscape, driven by the increasing integration of renewable energy sources and the need for grid stability. As the world transitions towards cleaner energy systems, innovative storage solutions are gaining prominence, enabling more efficient use of renewable resources. 

This growing market encompasses a range of technologies, including batteries, pumped hydro, and thermal storage, each playing a crucial role in enhancing energy resilience. With significant investments and advancements anticipated in the coming years, energy storage is poised to reshape how energy is generated, stored, and consumed across Europe and the world. 

Driven by factors such as declining costs, the increasing supply of renewable energy, and strong government support, the global energy storage market is poised for significant growth in 2025. 

Will we see a dramatic increase in the rate of growth because of COP29? 

We expect to see the global energy storage market continue to grow at a rapid pace in 2025. The increasing integration of renewable energy sources, the need for grid stability and government incentives will all contribute to this. 

At the end of 2024, the Energy Storage and Grids Pledge of COP29 aimed to increase global energy storage capacity six times above 2022 levels, reaching 1,500 GW by 2030. A lack of energy storage solutions and the need for upgraded grids was raised by participants as a constraint on their ability to increase the share of renewable energy in their power generation. To enhance energy grids, endorsers will also commit to considerably scaling up investments in grids as part of global efforts to add or refurbish more than 80 million kilometres by 2040. 

By 2030, the global energy storage market is projected to grow at a compound annual growth rate (CAGR) of 21%, with annual energy storage additions expected to reach 137 GW (442 GWh), and we expect that the COP29 Energy Storage and Grids pledge will increase this rate of growth further.

China will remain a global leader in the energy storage market as they continue to make significant investments in grid-connected batteries, mainly driven by strong government targets, including having at least 40GW of battery storage installed by the end of 2025. Furthermore, if the price of lithium-ion batteries in China continue to drop in 2025, this will support battery energy storage systems becoming more profitable. 

In the United States, the 2022 introduction of the Inflation Reduction Act included an investment tax credit for stand-alone storage. Since then we have seen huge growth in the sector in the US, and we expect to see this to continue into 2025, with several large-scale battery storage projects set to complete in 2025. However, the election of Donald Trump has brought the future of the Inflation Reduction Act into uncertainty as he has pledged to rescind unspent funding. 

Last year, we shared the European Commission’s series of recommendations on energy storage, which includes policy actions to achieve greater deployment of storage in the EU (list of recommendations here). The EU’s commitment to expanding renewable energy capacity is driving demand for storage systems to balance intermittent sources like wind and solar and the need to stabilize a continuously expanding grid. The European Commission has also pledged significant funding for energy storage projects through programs like the Horizon Europe fund, which allocates extensive sums to support sustainable energy infrastructure. These investments will spur growth across member states, with particular momentum in countries like Germany and Spain, where renewable energy targets are aggressive and demand for storage solutions is high. 

Significant investment is also occurring in the UK, where work is set to begin on the world’s first commercial liquid air energy storage project in 2025, in addition to a number of BESS, pumped hydro storage, hydrogen storage and flywheel systems over the coming years. The Government has committed to continued growth in the energy storage market, having identified savings of up to £10 billion per year and 24,000 jobs by 2050, which will allow the market to carry strong momentum into 2025 as the UK looks to align with COP29 targets.

Will the decline in battery costs continue despite increased costs for raw materials? 

Grid-scale battery storage must grow significantly to support Net Zero emissions by 2050. We expect to see battery storage prices continue to decline in 2025, even as raw material prices rise, due to the oversupply of battery production. 

The rapid growth of battery manufacturing, particularly in China and Europe, has outpaced demand, which is exerting downward pressure on pricing. Technological advancements, such as improved manufacturing processes and better economies of scale, are also driving these cost reductions. 

Despite the decline in the cost of batteries, market disruption has led to rising costs for key minerals used in battery production, particularly lithium, cobalt, and nickel, due to supply constraints. We expect to see manufacturers innovate to reduce the volume of battery minerals needed to get back on track to meet Net Zero targets. 

The European Commission has established the European Battery Alliance (EBA), which aims to create a competitive and sustainable battery value chain in Europe. Through this initiative, the EU is focusing on increasing domestic production capacity to reduce dependency on external suppliers and mitigate cost volatility associated with raw material imports. Additionally, the EU’s Battery Directive, which mandates stricter recycling regulations, will help offset raw material shortages and contribute to overall cost reductions. 

We expect to see the continued price decline make energy storage systems more affordable and accelerate the adoption across residential, commercial and utility-scale applications. 

Will any alternatives to lithium-ion batteries become competitive and scalable? 

Alternatives to lithium-ion batteries are likely to gain traction in 2025, driven by the need for lower costs and improved performance. Technologies such as sodium-ion batteries, lithium-sulphur batteries, solid-state batteries, and flow batteries are emerging as viable competitors, offering advantages in terms of safety, longevity, and cost. 

For example, sodium-ion batteries, which rely on more abundant materials than lithium, are expected to see commercial adoption due to their lower production costs and better safety profiles. Flow batteries, which use liquid electrolytes, are also becoming popular for large-scale, long-duration energy storage, particularly in grid applications. These innovations are critical as they provide diversified options for energy storage, reducing dependency on any single technology or material. 

In Europe, the EU's Strategic Action Plan on Batteries is promoting the development of innovative, non-lithium technologies to ensure Europe remains a leader in the global battery market. By diversifying energy storage technologies, the EU is safeguarding against supply chain risks and promoting more sustainable solutions. 

Meanwhile, in the US, the Department of Energy opened applications in September 2024 for up to $100 million in funding to support pilot-scale energy-storage projects utilising non-lithium technologies for long-duration systems. We are therefore likely to see some of this funding allocated and projects announced during 2025. 

China also launched the world’s largest sodium-ion BESS in 2024 which indicates that the country is trying to diversify from lithium-ion technology; something which we will continue to see in 2025. Beyond batteries, China is further developing a number of non-battery storage projects including the world’s largest flywheel energy storage project (30 MW) which was connected to the grid in 2024. It would seem likely that China will continue developing new systems for energy storage in 2025.

What incentives and regulations will make an impact on the market? 

Government support for energy storage is continuing to intensify, particularly within the EU. This regulatory environment, paired with direct funding mechanisms, ensures that energy storage will remain a central pillar of the EU's energy transition strategy in 2025, and governments will continue to provide the financial and legislative backing needed to expand storage capacity across the region. For example, the Spanish government approved an update to their National Integrated Energy and Climate Plan in September 2024 which has increased their installed energy storage capacity targets to 22.5 GW by 2030. 

In the UK, increased regulatory certainty as a result of the Energy Act 2023, alongside a recently confirmed cap-and-floor scheme and number of initiatives from the national grid, including the Connections Action Plan which promises to reduce connection bottlenecks, will assist the market in growing in 2025 as investor certainty increases. 

As mentioned above, the US is also seeing significant continued investment through project development schemes and the Inflation Reduction Act. This latter piece of legislation will be crucial to the future of the US energy storage market and therefore the state of this framework under Donald Trump will need to be closely monitored during 2025 as energy storage developers and investors may be spooked by the President’s stance on clean energy. 

To learn more about the regulations and revenue opportunities of energy storage projects across Finland, France, Germany, Italy, Morocco, Poland, Singapore, Spain and the UK, please read our Unlocking Energy Storage report.

Powering the Future: Recommendations from the IEA and IRENA 

Global incentives for energy storage have gained significant momentum as international organisations recognise its critical role in the transition to renewable energy and achieving climate goals. The IEA emphasises the need for scalable energy storage solutions to enhance grid reliability and support the integration of variable renewable energy sources. 

The IEA are monitoring grid-scale storage and have come to the conclusion that, although progress is being made, the projected increase in grid-scale storage capacity is currently falling short of the Net Zero Scenario targets and therefore requires more substantial efforts. In this context, the IEA has published recommendations to enhance the development of energy storage, including considering storage in long-range energy planning and incentivising its deployment, revising the status of storage regulatory frameworks, adjusting market designs to better reward flexibility and targeting policies to incentivise battery recycling. The COP29 Energy Storage and Grids Pledge to increase storage capacity to 1,500 GW by 2030 is taken from the IEA’s Net Zero Scenario, so we expect to see these recommendations put into action by governments around the world in order to meet this target.

Also of interest to investors and developers of storage projects, IRENA has published the Electricity Storage Valuation Framework report, which outlines a method to assess storage value and establish favourable investment conditions for solar and wind integration. This will promote revenue stacking, allowing projects to capitalise on multiple revenue streams, and outlines a “fivephase” method which offers a better approach to valuation in order to increase market certainty for energy storage investors. The aim is to further promote the integration of renewables into the wider energy system which will stimulate energy storage growth in turn. Additionally, IRENA has conducted a study on electricity storage costs and markets projected through 2030, with a particular focus on battery storage. IRENA also released an Innovation Outlook on Thermal Energy Storage, further supporting advancements in this critical area. 

A strong outlook for 2025 

In summary, the energy storage market in 2025 will be shaped by technological advancements, cost reductions, and strong government policy. The COP29 commitment to increase global energy storage capacity six times above 2022 levels, reaching 1,500 gigawatts by 2030, will require governments to further incentivise and regulate the energy storage market in the coming year.

Government initiatives, funding, and legislation will play a critical role in accelerating the adoption of energy storage systems, ensuring they are not only affordable but also environmentally sustainable. The combined impact of these factors will cement energy storage as a key component of the global energy transition.