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U.S. Energy Storage Monitor: 2016 Year in Review and Q1 2017 Executive Summary

March 2017 (Energy Storage Association and GTM Research)

U.S. Q4 2016 Deployments in Megawatts Up 25% Over Previous Year; 2016 Deployments Down 3% vs. 2015

• The U.S. deployed 140.8 MW of energy storage in Q4 2016, a 7.5 -fold increase from the 18.6 MW deployed in Q3 2016 and up 25% fro m Q4 2015, marking a record quarter in megawatt terms. Overall, 2016 was down 3% in total MW deployed compared to 2015.

• Behind-the-meter deployments decreased 41% from Q3 2016, which was a particularly strong quarter for the non-residential market. The residential market held roughly flat, falling only 4% quarter-over-quarter. In contrast, the non-residential segment fell 44% in Q4 2016, after three straight quarters of growth (Q1 -Q3 2016). Year-over-year, the behind-the-meter segment fell 31%, though this masks a slight increase in the residential segment. This decline is mostly attributable to a drop in Califor nia’s non-residential market.

• Overall, behind-the-meter deployments accounted for 6% of the total market in MW terms in Q4 2016. Notably, Q3 2016 was a historically slow quarter for the utility -scale segment, leading to a record market share of 76% for the behind-the-meter market in MW terms in Q3 2016

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U.S. Q4 2016 Deployments in Megawatt-Hours Up 230% Over Previous Year; 2016 Deployments Up 100% vs. 2015

• The U.S. deployed 229.9 megawatt-hours of energy storage in Q4 2016, increasing more than sixfold from Q3 2016 and 230% from Q4 2015 and marking a record quarter in MWh terms. In MWh terms, 2016 deployments grew 100% over 2015.

• The behind-the-meter segment (non-residential and residential deployments) accounted for 7% of total MWh deployed. The front-of-the-meter segment was bolstered by a number of 4-hour duration projects.

• The behind-the-meter segment saw over 10 MWh deployed for the seventh straight quarter, while every quarter in 2016 saw over 16 MWh deployed behind the meter, exhibiting some consistency in contrast to the more cyclical front-of-the-meter market over the past several years. Overall, the behind-the-meter market in 2016 grew 15% in MWh terms over 2015.

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Top Energy Storage Markets, 2016

• California was the largest utility-scale market in 2016, dethroning PJM (excl. NJ), which held the position the year prior. California surged ahead in Q4 2016, entirely as a result of expedited deployments from the Aliso Canyon procurement. PJM (excl. NJ) dropped to third place, with a market only one-tenth the size of its 2015 deployments.

• California remained the largest non-residential market in 2016, growing 18% over 2015. The Self-Generation Incentive Program (SGIP) and high electricity prices continue to drive California’s non-residential market, which was almost 24 times the size of the next largest market, New Jersey. Behind-the-meter energy storage procurements will aid California in retaining its dominance of the U.S. non-residential segment over the next few years.

• The residential market saw increased diversity in 2016, as storage system vendors began deploying projects in increasing quantities beyond the strongholds of Arizona, California and Hawaii, causing the category “Other Markets” to lead in 2016. However, these individual markets are quite small. California remained the largest single-state market in 2016, a position it is unlikely to relinquish in the near future given a combination of the SGIP and shifts to new net-energy metering rules including time-of-use rates.

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Lithium-Ion Technology Continues the Trend of More Than 95% Market Share

• Lithium-ion batteries dominated the energy storage market for the ninth straight quarter, representing 98.4% of the market in Q4 2016, up from 96.9% in Q3 2016. For the entirety of 2016, lithium-ion batteries held a market share of ~97% or greater, driven in large part by massive declines in lithium-ion battery prices and growing acceptance of the technology’s bankability, leading to lithium-ion batteries’ implementation in the majority of large utility-scale projects throughout the year. This trend is expected to continue, as numerous megawatt-scale procurements were awarded in 2016 to developers implementing lithium-ion technology; these projects are expected to come on-line over the next three to five years.

• Lead-acidcameinsecondforQ4 2016with1.6%marketshare.

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Front-of-the-Meter Policy and Market Developments, Q1 2017…Behind-the-Meter Policy and Market Developments, Q1 2017…

5 Trends In Store for 2017

For multiple reasons, 2016 was a watershed year for energy storage in terms of megawatt-hours of storage deployments. Now the industry is gearing up for 2017 against the backdrop of a new residential administration. In many ways, 2017 will be a similarly critical year for energy policy and market changes. As the new Trump administration fills out its energy and environment teams, the process will be a source of immense anxiety for the energy community. At the time of the writing this report, Scott Pruitt had been confirmed to lead U.S. EPA, while the nomination of Gov. Rick Perry for U.S. DOE had gone through confirmation hearings, but hadn’t yet been voted on by the Senate. Without full staffing of the two most relevant federal agencies, and in the absence of detailed White house energy agenda, it is still premature to speculate about which federal policies directly (or indirectly) will impact energy storage markets. Moves by the DOE and the EPA, as well as actions taken by the Congress and the executive branch, will be the central theme this year. Beyond the more prominent activities at these agencies that may dominate the news cycles, there are several other federal, state and regional energy storage trends to watch (arguably more closely) in2017. These are:

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• The Future of the Federal Energy Regulatory Commission (FERC) Storage NOPR

• California’s Aliso Canyon Energy Storage Performance

• State Storage Mandates: Massachusetts and Oregon Setting Targets and Second Round of Procurement in California

• Increasing Role of Energy Storage in Resource Planning and Utility Procurement

• Dispatchable Solar and Microgrids

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U.S. Energy Storage Annual Deployments Will Reach 2.6 GW by 2022

• GTM Research expects the U.S. energy storage market to grow from 221 MW in 2016 to roughly 2.6 GW in 2022, almost 12 times the size of the 2016 market

• The behind-the-meter segments will grow from a 20% share in 2016 to 52% of the annual storage market in 2022.

• California will further its dominance as the biggest storage market over the next five years, while markets like Hawaii, Massachusetts, New York and Texas will vie for the second spot. Falling costs will result in better economics for storage as a capacity resource and will help boost adoption in wholesale markets and across vertically integrated and distribution utilities.

Energy Storage Will Be a $3.3 Billion Market in the U.S. by 2022

• By 2022, the U.S. energy storage market is expected to be worth $3.3 billion, a ten fold increase from 2016. Cumulative 2017-2022 storage market revenues will be over $11 billion.

• Revenues in 2016 ended up slightly higher than the previous year, as system prices have continued to be pushed down aggressively, and the overall deployments in megawatts were down 3%. Also, the typically higher priced residential segment, despite its mainstream buzz, only brought in about 4% of storage market revenues in 2016.

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