California’s Battery Storage Market: 2019 Overview and Emerging Forecast
Introduction
In 2019, California’s energy landscape is undergoing a profound transformation. As the state continues its aggressive push toward renewable energy, battery energy storage systems (BESS) are emerging as a critical component in ensuring grid reliability, integrating intermittent resources, and meeting ambitious climate goals. While still in its early stages compared to traditional generation assets, the battery storage market in California is rapidly gaining momentum—driven by policy mandates, technological innovation, and growing investor interest.
This essay provides a snapshot of California’s battery storage market as of 2019, examining its current status, key drivers, challenges, and projected growth trajectory through the next decade.
The State of Battery Storage in California (2019)
As of mid-2019, California has installed approximately 500 MW of battery storage capacity, with the majority concentrated in utility-scale projects. The California Independent System Operator (CAISO) has begun integrating battery resources into its grid operations, and several pilot programs are underway to test their performance in real-world conditions.
While this capacity is modest compared to the state’s overall energy demand, it represents a significant leap from just a few years prior. The market is transitioning from demonstration-scale projects to commercially viable deployments, with dozens of new installations planned or under construction.
Key Drivers of Market Growth
The rapid emergence of California’s battery storage market in 2019 is not happening in isolation—it’s being propelled by a powerful convergence of policy, technology, and market dynamics. At the heart of this momentum is the state’s unwavering commitment to clean energy. California’s Renewable Portfolio Standard (RPS), which mandates that 60% of electricity come from renewable sources by 2030 and 100% from carbon-free sources by 2045, has created a clear and urgent need for energy storage. As solar and wind generation expand across the grid, batteries are becoming essential tools for managing variability and ensuring that renewable energy can be dispatched when it’s needed most.
Legislative action has also played a pivotal role. Assembly Bill 2514, passed in 2013, directed the California Public Utilities Commission (CPUC) to establish procurement targets for energy storage. This led to a landmark mandate requiring investor-owned utilities to procure 1,325 MW of storage by 2020—a move that catalyzed early market development and signaled long-term policy support. These targets have not only driven utility-scale deployments but have also encouraged innovation in commercial and residential applications.
Incentive programs have further accelerated adoption. The Self-Generation Incentive Program (SGIP), originally designed to support distributed generation, was expanded to include battery storage and restructured to prioritize installations in high fire-risk zones and for medically vulnerable populations. This shift reflects a growing recognition of storage as a resilience asset, particularly in the face of climate-driven disruptions such as wildfires and Public Safety Power Shutoffs (PSPS). As communities seek ways to maintain power during emergencies, batteries are increasingly seen as lifelines.
Beyond policy, market forces are shaping the trajectory of storage deployment. The cost of lithium-ion batteries has plummeted—falling nearly 85% between 2010 and 2018—making storage more accessible and financially viable. At the same time, new business models are emerging that allow batteries to participate in wholesale energy markets, provide ancillary services, and earn capacity payments. Companies are developing sophisticated software platforms to optimize battery dispatch, enabling systems to respond dynamically to price signals and grid needs.
Finally, the broader societal shift toward electrification—of transportation, buildings, and industry—is creating new demand for flexible, distributed energy resources. As electric vehicles become more common and building codes evolve to support all-electric construction, the need for localized storage will grow. Batteries will not only support the grid but also empower consumers to manage their energy use, reduce costs, and increase independence.
Together, these drivers form a robust foundation for California’s battery storage market. They reflect a blend of top-down policy leadership and bottom-up innovation, creating a dynamic environment where storage is no longer a niche technology but a central pillar of the state’s energy future.
Market Segmentation
As California’s battery storage market begins to scale in 2019, its structure is taking shape across three distinct segments: utility-scale, commercial and industrial (C&I), and residential. Each segment serves a unique purpose within the broader energy ecosystem and reflects different drivers, technologies, and investment profiles.
The most visible and rapidly growing segment is utility-scale storage, which consists of large battery installations often co-located with solar or wind farms. These systems are designed to provide grid-level services such as frequency regulation, voltage support, and peak shaving. They are increasingly being used to replace traditional peaker plants, offering cleaner and more flexible alternatives for managing demand surges. Projects like the AES Alamitos Energy Center and Tesla’s deployments in Southern California exemplify the scale and ambition of this segment. Utility-scale storage is also where most of the early investment capital is flowing, given its ability to participate in wholesale markets and secure long-term contracts with load-serving entities.
The commercial and industrial (C&I) segment is also gaining traction, particularly among businesses seeking to reduce energy costs and improve reliability. In California, where demand charges can account for a significant portion of a commercial electricity bill, batteries offer a compelling solution. By discharging during peak periods, these systems help flatten load profiles and avoid costly spikes. Companies like Stem and AMS are pioneering AI-driven platforms that optimize battery dispatch and enable C&I customers to participate in demand response programs. While these systems are smaller than their utility-scale counterparts, they are strategically located and increasingly integrated into broader energy management strategies.
Meanwhile, the residential storage market is emerging as a response to both economic and resilience concerns. Homeowners are pairing batteries with rooftop solar to maximize self-consumption and maintain power during outages—especially in areas affected by wildfire-related Public Safety Power Shutoffs (PSPS). Products like the Tesla Powerwall, LG Chem RESU, and Sonnen eco are becoming household names, offering sleek, user-friendly solutions for energy independence. Although the residential segment represents a smaller share of total installed capacity, its growth is being accelerated by state incentives like the Self-Generation Incentive Program (SGIP), which prioritizes installations in high-risk and medically vulnerable communities.
Together, these three segments form a dynamic and complementary market landscape. Utility-scale projects anchor the grid, C&I systems optimize business operations, and residential batteries empower individuals. As California continues to refine its energy policies and market structures, each segment will play a vital role in shaping the future of energy storage—offering diverse opportunities for innovation, investment, and impact.
Investment Landscape in 2019
Battery storage is attracting significant investment interest in California. Venture capital is flowing into software platforms, hardware innovation, and project development. Utilities are issuing requests for offers (RFOs) for storage capacity, and independent power producers are bundling storage with solar in power purchase agreements (PPAs).
While the market is still maturing, early investors are betting on long-term returns driven by:
Declining battery costs (lithium-ion prices fell ~85% from 2010 to 2018)
Expanding revenue streams (energy arbitrage, capacity payments, ancillary services)
Policy certainty and public support for clean energy infrastructure
Challenges and Risks
Despite its promising trajectory, California’s battery storage market in 2019 faces a number of challenges that could temper its growth and complicate deployment. Chief among these is the issue of high upfront costs. While the price of lithium-ion batteries has declined significantly over the past decade, battery systems—especially those designed for grid-scale applications—remain capital-intensive. Developers and customers alike must navigate complex financing structures, and in many cases, rely on incentives or long-term contracts to make projects economically viable.
Another major hurdle is regulatory complexity. California’s energy ecosystem is governed by multiple agencies, including the California Public Utilities Commission (CPUC), the California Energy Commission (CEC), and the California Independent System Operator (CAISO). Each has its own set of rules, timelines, and approval processes. For battery developers, this means navigating a fragmented landscape of interconnection requirements, market participation rules, and permitting procedures. These regulatory layers can slow down project timelines and introduce uncertainty into investment decisions.
Technology maturity also presents a risk. While lithium-ion batteries dominate the market, questions remain about their long-term performance, degradation rates, and safety—particularly in high-temperature or fire-prone environments. Alternative technologies such as flow batteries, thermal storage, and compressed air systems are being explored, but few have reached commercial scale. As the market grows, ensuring reliability and safety across diverse operating conditions will be critical.
In addition, the market faces revenue uncertainty. Battery storage systems generate income through participation in energy markets, ancillary services, and capacity payments. However, these revenue streams can be volatile. Prices for services like frequency regulation and energy arbitrage fluctuate based on market conditions and competition. Without stable, long-term contracts, developers may struggle to secure financing or guarantee returns. This is especially true for standalone battery projects that are not paired with renewable generation or grid services.
Finally, supply chain constraints are beginning to emerge as a concern. With global demand for batteries rising—driven by electric vehicles, consumer electronics, and stationary storage—California developers may face competition for key components, longer lead times, and price volatility. Ensuring access to reliable, ethically sourced materials will be essential for maintaining project momentum and public trust.
Forecast Through 2030
Looking ahead to 2030, California’s battery storage market is expected to undergo a dramatic expansion, both in scale and sophistication. From the modest 500 MW installed as of 2019, state agencies and market analysts project that California will need to deploy approximately 6,000 MW of battery storage capacity over the next decade to meet its clean energy and reliability goals. This growth will be driven by a confluence of factors: the continued retirement of fossil fuel generation, the rapid electrification of transportation and buildings, and the increasing penetration of solar and wind resources across the grid.
As renewable energy becomes the dominant source of electricity in California, battery storage will play an indispensable role in balancing supply and demand. The ability to store excess solar generation during midday and discharge it during evening peaks will be essential for maintaining grid stability and avoiding curtailment. Moreover, as climate-related disruptions such as wildfires and heatwaves become more frequent, battery systems will be increasingly valued for their ability to provide backup power and support microgrid resilience in vulnerable communities.
Investment in battery storage is expected to accelerate, with capital flowing from infrastructure funds, green bonds, and public-private partnerships. The passage of federal incentives—such as the Investment Tax Credit for storage paired with solar—will further enhance the financial viability of new projects. Developers will increasingly bundle battery systems with renewable generation in hybrid configurations, offering utilities and grid operators flexible, dispatchable resources that can meet multiple needs.
Technological innovation will also shape the market’s evolution. While lithium-ion batteries currently dominate, alternative chemistries such as flow batteries, thermal storage, and compressed air systems are being explored for long-duration applications. By 2030, California’s storage portfolio may include a diverse mix of technologies tailored to specific use cases—from fast-response grid services to multi-day backup for critical infrastructure.
Operationally, the market will shift toward more sophisticated dispatch strategies, leveraging artificial intelligence and predictive analytics to optimize battery performance across multiple value streams. Virtual power plants (VPPs), which aggregate distributed storage assets into coordinated fleets, will become more common, allowing residential and commercial systems to participate in wholesale markets and demand response programs.
In summary, California’s battery storage market is poised for exponential growth through 2030, transforming from a niche technology into a foundational element of the state’s energy system. With strong policy support, advancing technology, and increasing investor confidence, battery storage will enable California to achieve deeper decarbonization, enhance grid reliability, and empower communities with resilient, clean energy solutions.
Conclusion
In 2019, California’s battery storage market is at a pivotal moment. With strong policy support, technological momentum, and growing investor confidence, the sector is poised for exponential growth. While challenges remain—particularly around cost, regulation, and market design—the fundamentals are strong.
Battery storage is no longer a niche technology. It’s becoming a central pillar of California’s clean energy future, enabling deeper renewable integration, enhancing grid reliability, and empowering communities with resilient power solutions. For developers, investors, and policymakers, the next decade offers a rare opportunity to shape a market that will define the energy systems of tomorrow.
