For investors, there are interesting opportunities in today’s transition to renewable energy. Today we will discuss two emerging technologies: battery storage and carbon capture and storage (CCS).
Industry observers expect that the global market for batteries may double from 2021 to 2025—growing at a 23% compound annual growth rate (CAGR).1 We believe there may be upside risk to those projections.
Demand for carbon capture technology was expected to grow globally even before President Biden’s recent announcement that the U.S. would halve its carbon emissions by 2030—which targets a pace for decarbonization over the next 10 years that’s four times faster than in the last 15 years. Carbon capture technologies extract carbon dioxide (CO2) emissions and can store them underground or reuse them to create new (and lower-emitting) products.2
Batteries allow us to more comprehensively replace traditional energy sources (fossil fuels) with renewable energy sources, such as wind and sun, which the world has in abundance. Over the coming decade we expect to see more cars and buildings migrate to renewable energy, since the costs of battery technology continue to drop and batteries supply power to more facets of our lives.3
Because of dramatically declining battery costs, the average price for an electric vehicle (EV) in the U.S. may reach price parity with conventional gas-powered car around 2024. 4 That moment could mark the start of a higher demand for EVs.
Today in the U.S., EVs are less than 2% of total new passenger car sales. Industry observers say that percentage should grow to 7% by 2025 and 23% by 2030. EVs are expected to reach 20% of new car sales in China and 13% in Europe by 2025.5 If the U.S. is able to catch up to the EU’s trajectory, as Biden has proposed, we’d expect a 43% upside to today’s estimates for global EV battery revenue projections through 2025.
While EVs are helping to drive the increase in battery demand, the demand for stationary batteries is also expected to nearly triple between 2021 and 2025—and quintuple by 2030. 6
Battery storage is key to making the power produced by wind and solar, which is intermittent, more consistent by storing it for later use. The share of wind and solar within the U.S. electricity grid is poised to rise from 13% today to 27% by 2030. Adding batteries to the mix can help make renewable electricity “dispatchable;” it can be stored and sent on demand to the power grid operators according to market needs. 7, 8
Another sign of the anticipated need for battery storage is in the residential solar market, which is forecast to grow an average 12% per year through 2025. Currently, only 4% of solar panels installed are paired with battery storage, but we expect that to rise to 27% by 2030.9
That growth is expected to be spurred by improving “payback periods” for solar-plus-storage and changing weather patterns. Currently, the time it takes for homeowners to recover the cost of going solar is 10 years in California and 25 years in Texas. The decreasing cost of the relevant technologies is expected to shorten the payback time. Residential solar panel prices have fallen 80% since 2010, and battery prices are expected to continue to fall over the next decade. 10 Both of these factors should continue to shorten the payback period, incentivizing more consumers to adopt residential solar-plus-storage systems. But even if payback periods stay static, the increasing frequency of extreme weather events may motivate homeowners to make the switch, as hurricanes, polar vortexes, and wildfires can disrupt power grid operations, leaving homeowners without energy access.11
Anticipated EV growth by 2025
The battery industry is expected to expand rapidly
While still in the early stages of development, and with limited investment opportunities for broad-market participants, investors may want to keep an eye on carbon capture technologies. There is a growing understanding of society’s need for large-scale carbon capture utilization and storage (CCS) for its potential as a transition technology while we phase out of traditional hydrocarbons, as well as a permanent part of our energy future to reuse carbon dioxide commercially. With governments setting ambitious timelines for decarbonization, their support for CCS technologies has increased.
Carbon capture technologies work by capturing CO2 from the facilities themselves or from the air around them. They can transport compressed CO2 by ship or pipeline. There are two possible destinations:
- Storage—in underground geological formations, such oil & gas reservoirs
- Reuse—compressed CO2 can be used to help create synthetic fuels and other chemicals. These fuels, along with hydrogen, are among a limited number of low-carbon options being investigated that might be used for long-distance transport, such as aviation.
As one use case, CCS technologies can help the industrial sector to achieve “net-zero emissions” (i.e. they release no CO2 pollutants into the atmosphere). CCS can also be used to capture CO2 from one process to be made into another fuel or chemical for another process. For example, some large clothing and furniture companies use technology involving the use of pressurized CO2 to dye textiles, replacing the traditional chemicals needed for most dyeing processes. The CO2 used in the process is captured and reused, allowing the entire process to be a near close loop system.
Today, only about 20 commercial CCS projects operate worldwide. But over the last three years, there have been announcements of plans for at least another 30 new commercial facilities, which would double the level of CO2 captured globally.
President Biden’s climate plan proposes spending $180 billion in new research and development funding for new critical technologies and scientific innovation. That includes $15 billion that will go both to researching renewable energy and carbon capture and sequestration, and to investing in 10 new facilities to implement carbon-capture retrofits for large steel, cement and chemical production facilities.
Biden’s proposal also seeks to accelerate responsible carbon capture deployment and ensure permanent storage by expanding and reforming the popular Internal Revenue Code Section 45Q tax credit for carbon capture, reuse and sequestration facilities.12 The proposed amendments to the 45Q tax credit would increase the projects that qualify for the tax credit and increase the value of the tax credit based on the amount of captured CO2.
To achieve net-zero goals, carbon capture technologies may be necessary. Heavy industries that produce cement, steel and chemicals cannot be easily electrified or run on renewables. Currently, these industries account for 20% of CO2 emissions globally. 13 Even by 2050, it’s expected that the vast majority (77%) of the industrial sector’s total energy consumption will be petroleum and natural gas energy. 14
However, investors should be aware of the barriers that remain for widespread adoption of CCS, including project cost overruns, the underlying technologies’ energy and resource requirements, and a lack of supporting infrastructure. Overcoming the hurdles to fuel industry growth will require not only additional fiscal support but also more R&D, low-cost financing and scaling of operations--all of which will help create a more commercially viable solution. 15
The case for climate-focused technologies is enhanced by proposed government action to decarbonize our planet. Nations around the globe feel the sense of urgency. Despite Paris Agreement pledges, at the current pace cumulative worldwide CO2 emissions are set to break the global emission budget by the mid-2030s.16 This means governments will be pressed to do more and to encourage the private sector to participate.
We believe that investing in climate solutions, clean energy and sustainable investments has the potential for growth and may produce enhanced returns over the long-term.
Find your investment opportunities
There are many exciting new technologies with promises to transform markets and provide sustainable investing returns. How do you separate the wheat from the chaff?
We carefully examine a full range of ways to access these opportunities to help you select the best opportunity for you. Contact your J.P. Morgan team to learn about sustainable investing strategies that can help you take advantage of these growth opportunities.
1 Bloomberg New Energy Finance, May 2020.
3 For example, the cost of lithium-ion battery already has fallen from $219 per kilowatt hour of energy (Kwh) to $132 Kwh. It’s projected to fall below $100 Kwh by 2024.
4 Bloomberg New Energy Finance, May 2020.
5 Bloomberg New Energy Finance, May 2020.
6 Bloomberg New energy Finance, November 2020.
7 Bloomberg New Energy Finance, as of November 2020.
8 Like costs of EV batteries, the costs of large-scale utility batteries are falling: In the next 10 years, stand-alone batteries may outcompete gas plants in Asia Pacific. But that point likely won’t come before 2040 in the U.S., where cheap gas is abundant.
9 U.S. Energy Department, Office of Energy Efficiency & Renewable Energy. As of March 2019.
10 BNEF, December 2020.
11 Payback is the annual savings in electricity cost to pay back the initial cost of installment.
12 The tax credit was introduced in 2018 and provides a credit of $50 per ton for CO2 that is permanently stored and $35 per ton for CO2 used in EOR or other beneficial uses, for 12 years from the commencement of operation of the project. Source: International Energy Agency, CCUS in Clean Energy Transitions, IEA, Paris. 2020.
13 International Energy Agency, The challenge of reaching zero emissions in heavy industry. September 2020.
14 S. Energy Information Administration, Annual Energy Outlook 2021. Data as of February 2021.
16 Global Carbon Project, December 2020.