April 14, 2020
COVID-19 and the U.S. Energy Storage Industry: Market Conditions, Revenues, and Employment
While always challenging to keep up with an innovating and growing industry, the importance of staying informed about market conditions is amplified in times of severe economic and social stress. The COVID-19 crisis gripping the nation and the world has affected the U.S. economy in unprecedented ways, causing millions to suffer impacts on health, family, and financial condition. While mindful of the human dimension of the pandemic’s impact, we at ESA believe that energy storage can play a significant role in fostering clean energy, affordability, and resilience, and thereby provide a foundation for sustainable economic recovery. Understanding the pandemic’s effect on the storage industry now will help minimize the damage and shape the industry’s rebound to come.
To that end, ESA conducted an initial survey of energy storage companies in mid-March that showed that a significant slowdown in business had already taken hold at the onset of the coronavirus pandemic. These findings prompted a second survey held April 2-11, in which ESA requested information on the type of businesses (i.e., manufacturers of systems or components; implementers such as developers, installers and competitive generation owners; providers of services such as finance, legal and insurance firms; grid operators and utilities, and myriad other related firms), the extent of revenue and employment reductions expected for the second quarter of 2020 and the primary causes of such reductions.
The online survey received 101 responses across a broad range of companies engaged in the energy storage industry. Nearly half of the responses came from implementers of energy storage systems. About a quarter came from manufacturers of storage systems or components, while the remainder represented a mix of organizations operating grids or providing a range of related goods and services.
When asked about their revenue expectations for the second quarter, 63 percent of respondents expected lower than initially forecast revenues, consistent with the March survey results. One third of respondents expected revenues lower by 20 percent or more, with 11 percent of respondents forecasting revenue declines of 50 percent or more. Additional analysis reveals that manufacturers expect even sharper declines, with 75 percent expecting revenue reductions, 29 percent expecting reductions from 20 percent to 50 percent, and one in five (21 percent) manufacturing firms expecting revenues to fall by 50 percent or more in the upcoming quarter.
Expectations for workforce employment suggest that firms are doing their best to temper immediate layoffs with an eye on the potential for expansion in the second half of the year. Only 25 percent of survey respondents indicated that they have already reduced their workforce or expect to reduce their workforce in the second quarter, with most of those employment reductions at or below 20 percent of a firm’s workforce. Of course, if the slowdown persists or expands into the second half of the year, employment figures would likely fall further from these projected levels. The pattern of workforce expectations of manufacturers and implementers also diverge, with fewer manufacturers (17 percent) than implementers (28 percent) expecting layoffs in the second quarter, but manufacturers expecting much sharper reductions where they do occur. Of those manufacturers who expect to reduce their workforce in the second quarter, 75 percent anticipate cutbacks of 50 percent or more, while only 8 percent of the implementers who predict layoffs expect those to be 50 percent or larger.
The primary reasons cited for revenue shortfalls or employment decline were (respondents could select more than one reason):
- Delay or cancellation of existing projects by customers (cited by 56 percent of respondents);
- Difficulty obtaining equipment, supplies or logistical delays (cited by 54 percent of respondents); and
- Delays in obtaining approvals or permits (cited by 46 percent of respondents).
These top three reasons were consistent between implementers and manufacturers, but in the case of the latter, approvals and permits were less important while lack of customer demand was also cited as a significant factor of concern.
Despite these unnerving responses from our industry, or perhaps because of them, we know that our work at ESA is more important than ever. In the short term, our industry, like many others, has been disrupted. In the longer term, however, we expect to see the energy storage industry continue its rapid growth trajectory. As an industry, we have 80 GW of front-of-the-meter projects announced or proposed to regulators in the pipeline. Governor Ralph Northam of Virginia just signed into law the largest-ever state energy storage target at 3,100 MW by 2035. By keeping abreast of developments in real time, ESA will continue to accelerate markets, connect our members (even if it’s a virtual connection) and educate stakeholders about role of energy storage in creating a resilient, efficient, sustainable and affordable grid.