The Rise of Energy Storage in Global Power Markets

The global energy system is shifting from generation-led to system-led, where storage is critical to reliability, flexibility, and scale. Batteries are at the center of this transition, evolving from a supporting technology into core infrastructure. 

This shift is driven by three forces: declining costs enabling wider adoption, rising electricity demand, particularly from data centers, outpacing supply, and geopolitical disruptions increasing price volatility and accelerating the move away from fossil fuels. 

As these dynamics converge, according to Bloomberg (2026), 2026 is set to be a breakout year, with battery installations projected to grow by ~30%, led by Europe, the Middle East, Africa, and Latin America.

To understand how this transition is unfolding, and where value is likely to be created, this article examines dimensions of the evolving battery landscape from market overview, demand drivers, to the outlook as batteries scale into a system-critical asset.

1.Market overview: growth drivers and value chain structure

1.1. Structural growth drivers: cost deflation and system-level demand  

According to Mordor Intelligence (2026), the global lithium-ion battery market is projected to grow from USD 113.6 billion in 2025 to USD 136.3 billion in 2026, reaching USD 366.8 billion by 2031, representing a 21.9% CAGR and reflecting strong structural growth driven by electrification, renewable integration, and rising demand for energy storage. This growth is underpinned by a broader structural transformation of energy systems, driven by the combined forces of electrification, renewable integration, and increasing demand for system flexibility. 

Global Lithium-ion Battery Market Growth Outlook (2025–2031) - Source: Mordor Intelligence 

In Europe, Bloomberg (2026) finds that peak-to-trough electricity price differentials have more than doubled over the past decade, strengthening the economic value of flexibility resources such as energy storage. As volatility increases, battery systems are increasingly required not only for arbitrage, but also for grid balancing and capacity provision, leading regulators and investors to treat storage as core infrastructure within modern power systems. 

This shift in system needs is directly reshaping demand composition. Electric vehicles now account for more than 70% of global lithium-ion demand, with around one in four new cars sold globally being electric. At the same time, battery energy storage systems (BESS) represent over 15% of demand but are growing faster in percentage terms than EVs, reflecting their rising role in electricity system flexibility. Over the past decade, this has resulted in a structural reallocation of demand away from portable electronics, which have declined from nearly 50% of total battery demand in 2015 to below 5% in 2025, replaced by transport electrification and grid-scale applications. 

As deployment scales, battery technologies have also experienced sustained cost deflation, reinforcing their adoption. BloombergNEF’s Levelized Cost of Electricity 2026 report shows that the global benchmark cost of four-hour battery storage fell 27% year-on-year in 2025 to $78/MWh, a record low since tracking began in 2009. This decline reflects a combination of learning effects from rapid deployment, intensified manufacturing competition, lower battery pack prices, improved system design, and overcapacity in EV-linked supply chains. Falling costs have in turn accelerated deployment of co-located solar and storage projects, which reached an average cost of $57/MWh in 2025, further strengthening the competitiveness of renewables against fossil-fuel-based generation. 

Global benchmark levelized cost of electricity, 2020 – 2026 – Source: BloombergNEF 

This relationship between deployment and cost creates a reinforcing feedback loop: rising system volatility increases storage demand, higher deployment drives cost reductions, and lower costs further accelerate adoption.  

Additional structural pressures are reinforcing this cycle. Rapid electricity demand growth from data centres, particularly in the United States, is projected at around 10–15% CAGR in selected hubs, increasing the need for flexible capacity. At the same time, geopolitical tensions, particularly in the Middle East, have increased fossil fuel price volatility, further improving the relative economics of storage-based systems. Against this backdrop, Bloomberg (2026) projects global battery installations to grow by approximately 30–35% in 2026, led by Europe, the Middle East, Africa, and Latin America, with additional upside risk if energy market volatility persists. 

 

1.2. BESS value chain: manufacturing-led profit pools

The battery energy storage system (BESS) value chain can be divided into three main segments: upstream manufacturing, midstream system integration, and downstream project development and commercialization. 

Value chain breakdown of battery energy storage systems – Source: McKinsey 

Upstream, manufacturers produce battery cells, modules, and packs, as well as key balance-of-system components such as inverters, thermal management systems, and housing. This segment is highly capital-intensive and captures around 50% of the total industry profit pool, driven by economies of scale and cost efficiency. 

Midstream, system integrators combine these components into fully functional storage systems. Their role includes system design, engineering, and the development of energy management software that optimizes performance across use cases such as arbitrage, grid balancing, and capacity provision. This segment accounts for approximately 25–30% of industry profits and is increasingly differentiated by software capabilities and system optimization rather than hardware alone. 

Downstream, project developers and commercial players focus on customer acquisition, financing, installation, and commissioning of BESS projects. Although this segment captures a smaller share of the profit pool, around 10–20%, it plays a critical role in enabling deployment and scaling across markets. 

2. BESS market evolution: From lithium-ion scale to multi-technology competition 

The battery storage market is evolving from a lithium-ion–dominated model toward a multi-chemistry landscape, reflecting differing requirements across duration, cost, and grid applications. Lithium-ion, particularly lithium iron phosphate (LFP), remains the dominant technology in battery energy storage systems (BESS), supported by established manufacturing capacity, EV-linked supply chains, and a cycle life of approximately 4,000–8,000 cycles. Its performance characteristics align with current grid applications, which are typically concentrated in the 2–4 hour duration range. 

However, lithium-ion systems are primarily designed for short-duration cycling, where value is derived from frequent charge–discharge operations. As electricity systems incorporate higher shares of variable renewable energy, demand for longer-duration storage is increasing. In addition, lithium-ion batteries rely on critical minerals such as lithium, contributing to supply chain concentration and exposure to price fluctuations. 

Alternative chemistries are being developed to address these constraints. Sodium-ion batteries are among the most commercially advanced, offering potential cost reductions of up to 20% compared to LFP at scale, along with improved thermal stability and the use of more abundant raw materials. These systems have lower energy density (approximately 120–160 Wh/kg compared to 170–190 Wh/kg for LFP) and shorter cycle life (around 2,000–4,000 cycles).  

Contemporary Amperex Technology Co. Ltd. (CATL), founded in 2011 and currently the world’s largest EV battery producer, has invested heavily in sodium-ion technology as part of its portfolio diversification strategy. Chongqing Changan Automobile Co., a major state-owned automaker and joint venture partner of Ford, has conducted sodium-ion vehicle testing under low-temperature conditions (around -30°C) in Inner Mongolia, demonstrating operational feasibility. Early commercial deployment is expected in both mobility and stationary storage applications. 

In parallel, long-duration energy storage (LDES) technologies are being developed to support multi-day storage requirements. These include flow batteries, metal-air systems, and thermal or mechanical storage solutions, which prioritise lower cost per unit of stored energy over higher energy density. 

Form Energy Inc., a US-based startup founded in 2017, is developing iron-air battery systems capable of discharge durations of up to approximately 100 hours. The company’s approach is based on low-cost materials such as iron and targets system costs significantly below lithium-ion. Form Energy has raised approximately $900 million from investors including Breakthrough Energy Ventures and is progressing toward commercial deployment through utility partnerships in the United States, including projects with Georgia Power, Great River Energy, and Xcel Energy. 

Alongside developments in battery chemistry, system performance increasingly depends on integration and control technologies. Energy management systems (EMS), battery management systems (BMS), and optimisation software enable participation in multiple value streams, including arbitrage, capacity markets, and grid services. These components play a key role in determining system efficiency, operational lifespan, and revenue generation. 

3. Outlook: Multi-technology growth amid duration and supply constraints 

Building on current market and technology dynamics, the battery sector is entering a more mature phase as a core component of energy infrastructure.  

Looking ahead, lithium-ion will remain the baseline for short-duration storage, supported by scale and established supply chains. However, incremental growth is expected from sodium-ion in cost-sensitive segments and long-duration solutions supporting renewable-heavy grids, reflecting increasing demand beyond the typical 2–4 hour duration range. 

At the same time, the sector is becoming more geopolitically concentrated. Battery production is dominated by Asia, with China, Korea, and Japan leading manufacturing. China accounts for over 70–80% of global lithium-ion battery cell production, alongside a dominant position across key upstream materials. This creates a structural tension between the growing strategic importance of storage and the concentration of its supply chains, particularly as countries seek to strengthen energy security. 

Overall, the market is evolving into a multi-technology system shaped by both demand expansion and supply constraints. Competitiveness will increasingly depend on the ability to deliver cost-efficient, duration-appropriate, and scalable storage solutions across diverse grid and market conditions. 

References:  

Bloomberg. (2023). This cheap battery can power green energy transition. https://www.bloomberg.com/news/features/2023-03-30/this-cheap-battery-can-power-green-energy-transition 

Bloomberg. (2026). Lithium rival sodium is making a battery breakthrough for EVs, energy storage. https://www.bloomberg.com/news/articles/2026-04-21/lithium-rival-sodium-is-making-a-battery-breakthrough-for-evs-energy-storage 

Bloomberg. (2026). US can compete with China on batteries for long-duration energy storage. https://www.bloomberg.com/news/articles/2026-04-21/us-can-compete-with-china-on-batteries-for-long-duration-energy-storage 

Bloomberg. (2026). Where experts see batteries growing in 2026.  https://www.bloomberg.com/news/newsletters/2026-04-20/where-experts-see-batteries-growing-in-2026  

BloombergNEF. (2026). Battery storage costs hit record lows as costs of other clean power technologies increased. http://about.bnef.com/insights/clean-energy/battery-storage-costs-hit-record-lows-as-costs-of-other-clean-power-technologies-increased-bloombergnef  

International Energy Agency. (2026). Global battery markets are growing strongly – and so are the supply risks. https://www.iea.org/commentaries/global-battery-markets-are-growing-strongly-and-so-are-the-supply-risks 

McKinsey & Company. (2023). Enabling renewable energy with battery energy storage systems. https://www.mckinsey.com/industries/automotive-and-assembly/our-insights/enabling-renewable-energy-with-battery-energy-storage-systems 

Mordor Intelligence Research & Advisory. (2026 , February). Lithium-ion Battery Market Size & Share Analysis - Growth Trends and Forecast (2026 - 2031). Mordor Intelligence. Retrieved April 25, 2026, from https://www.mordorintelligence.com/industry-reports/lithium-ion-battery-market