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Data Centers Propel US BESS Market Towards Record Growth
The US battery energy storage system (BESS) market is poised for robust growth, primarily fueled by the rapid expansion of data centers. Wood Mackenzie forecasts over 50% growth in installed megawatt capacity over the next five years. This surge is driven by decreasing costs and the demand for swift, reliable energy solutions for utilities and residential applications, despite recent quarterly installation declines in certain segments.
The US battery energy storage system (BESS) market is poised for significant growth, primarily driven by the rapid expansion of data centers. According to a recent report by market research firm Wood Mackenzie, installed energy storage capacity in megawatt terms is projected to grow by over 50% in the next five years. This positive outlook is attributed to decreasing costs, which are accelerating the adoption of storage systems in new regions and for diverse applications.
In the second quarter of 2026, record installations of 5.4 GW/18.9 GWh were achieved, although installed power capacity (MW) saw a 7% year-over-year decline. The growth in megawatt-hours (MWh) was predominantly fueled by extended-duration utility-scale and residential BESS systems. Utility-scale projects reached 4.7 GW/17.6 GWh in Q2, representing an 8% decline in MW capacity from the previous year, as major markets approach saturation. Wood Mackenzie's figures are slightly lower than those reported by a rival report, the US Energy Storage Market Outlook (ESMO), which indicated 6.7 GW/20.2 GWh for the same period.
The outlook for different segments varies. Utility-scale storage is expected to expand at an average annual rate of 8% over the next five years, driven by the need to balance increasing loads and renewable generation. A long-duration energy storage (LDES) project in California, designed for 8-hour duration, exemplifies this trend. The commercial and industrial (CCI) segment is forecast to grow by 27% between 2026 and 2031, with deployment spreading beyond California into emerging markets such as Maryland and Texas. Massachusetts recently allocated $40 million in funding to 36 BESS projects to support this growth.
Residential storage is projected to decline by 4% in 2026 before resuming growth from 2027 through 2031, averaging 9% annual expansion. The Q2 2026 decline was attributed to tax credit phase-outs, consumer uncertainty, and difficulties navigating the third-party-ownership shift. California, Texas, Puerto Rico, Arizona, and Illinois were the top five markets, representing 88% of installed capacity in Q2, though all five experienced quarter-over-quarter declines. Virtual power plants (VPPs) are playing an increasing role, with initiatives from companies like Sunrun and Tesla in California, and FranklinWH Energy Storage in Texas and Puerto Rico.
Data center buildout is a significant driver for the BESS market, as storage can provide needed capacity faster, cheaper, and more reliably than gas alone. Over 130 GW/534 GWh of utility-scale BESS is expected to be deployed between 2026 and 2031, with total cumulative installations reaching 207 GW/715 GWh by 2031. Growth is anticipated to accelerate from 2028, spurred by the scaling up of domestic cell manufacturing, accelerated renewable installations, and state-level incentives. Even if data center construction were to slow, BESS is expected to be less disproportionately impacted than gas generation, according to Raafe Khan of Camelot Energy Group. This article is based on information from Energy-Storage.News.
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