Energy Storage Market Outlook Q3 2026

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BESS market update and outlook 

In the first half of 2026, just under 31 GWh/10.3 GW of battery energy storage systems (BESS) entered operation across the utility-scale and behind-the-meter (BTM) markets, a y-o-y increase of 23% (GWh). The utility-scale market continued to underpin growth with 26 GWh/8.1 GW installed, with ten states bringing more than 500 MWh of new capacity online. 

In Q2, the U.S. added an all-time record of 20.2 GWh/ 6.7 GW. Of that, 18 GWh came from the utility space, largely supported by seven gigawatt-scale projects. In the BTM space, residential storage added 657 MWh and commercial and industrial (C&I) added 1.8 GWh. 

The Federal Energy Regulatory Commission (FERC) issued show cause orders under Section 206 to all six major U.S. Regional Transmission Organizations and Independent System Operators (RTOs/ISOs). The directive requires regional operators to justify or reform their existing rules concerning large-load interconnection tariffs within 60 days. This edition covers the directive, along with the responses that have been issued to date. 

The full Energy Storage Market Outlook report covers analysis of large load legislative updates, inverter supply chains, system pricing dynamics and developments in alternative chemistries within the manufacturing spotlight. 

Quarterly market snapshot – Utility-scale & behind the meter

Q2 2026 saw BESS deployments of 20 GWh, up 11% compared to Q2 2025. The utility-scale market alone added 18.0 GWh of capacity, with Arizona, California, Utah, and Texas each deploying over 2.5 GWh. Across the quarter, seven gigawatt-scale projects came online – four in Arizona, two in California and one in Utah.

Residential BESS still faces headwinds

Residential BESS deployments in Q2 2026 remained under pressure, with 657 MWh of additions, a 27% decrease y-o-y. This sharper decrease is indicative of both the decrease in installations as a result of the removal of 25D, but also the surge in installations last year as capacity was pulled forward ahead of the incentive change.

The removal of 25D, while damaging in the short term, does not eliminate the underlying case for residential storage. Higher electricity costs, changes to net-metering, increased outage concerns, and increased support from states through virtual power plants and demand response schemes should help to support the industry in the long term. Increased backlash towards data center growth may also incentivize residential BESS, as private ratepayers look to shift risk away from increased electricity costs as a result of large load growth.

C&I to be driven by data centers

U.S. C&I BESS demand continues to be shaped by the rapid expansion of data centers and the growing difficulty of securing sufficient grid capacity. As a result, “bring your own generation” is becoming an increasingly important development theme, with developers combining BESS with on-site or co-located solar and wind generation to increase energy independence, manage intermittency, and reduce exposure to grid constraints. Batteries can shift renewable output, manage rapid changes in data center demand, and provide short-duration backup, while high-power uninterruptible power supply (UPS) systems continue to address power quality requirements within facilities. Natural gas generation is also being paired with storage in some hybrid configurations where dispatchable capacity is required, to provide rapid ramping for integration of NG generators or while permanent grid connections are being developed. However, these facilities have opened up data center developers to increased criticism and pushback due to environmental impact.

BESS manufacturing & technology trends

This quarter’s manufacturing spotlight focuses on Tesla’s manufacturing footprint in the U.S. and the shipping of its first Megapack units built with domestically produced LFP cells. The company also brought its third Megafactory online in Texas, which will carry a nameplate capacity of 50 GWh per year for Megapacks.

Elsewhere, planned North America BESS manufacturing capacity now exceeds 250 GWh, with LGES set to be the largest player with 44 GWh of nameplate capacity planned by the end of 2026. LGES aims to increase capacity to over 100 GWh by the end of the decade.

In July, L-H Battery Company Inc., the joint venture of LGES and Honda Motor Co., announced the production of its first battery cells produced at its recently completed manufacturing facility in Jeffersonville, Ohio. The facility, originally built to serve the EV market, is now producing cells for LGES’s stationary energy storage system product offerings.

Samsung SDI announced plans to begin production of its prismatic LFP battery cells in the U.S. in October 2026, with the company currently undergoing quality validation.

Key policy updates

The U.S. policy landscape for BESS since the start of 2026 has been a balancing act between domestic manufacturing ambitions, immediate grid needs, and energy security. Though there remains no final guidance regarding the precise methodology for Material Assistance Cost Ratio (MACR) calculations, we have seen a plethora of announcements from states to codify the importance of energy storage by announcing targets and incentive structures. Given the expected load growth across U.S. grids being driven by industries such as AI, we expect more of these announcements in future.

• January: Illinois enacted the Clean and Reliable Grid Affordability (CRGA) Act, which aims to deploy 3 GW of energy storage by 2030.
  • January-August: China Section 301 tariff increase, IEEPA ruled unlawful, subsequent Section 122 tariffs (now expired) and new Section 301 investigations
  • From January 1, 2026, China’s Section 301 tariff on non-EV lithium-ion batteries rose from 7.5% to 25%, stacking on the existing 23.4% base. In February, the Supreme Court ruled IEEPA tariffs unlawful, triggering reimbursements; a 10% Section 122 tariff followed for 150 days. Two new Section 301 investigations (forced labor, excess capacity) launched in March. In July, Section 122 tariffs expired as the forced-labor Section 301 action took effect (10–12.5%); the excess-capacity probe remains ongoing.
• March: Nebraska advanced bill LB1010 establishing a clearer framework through which energy storage development can take place.
• April: Virginia passed procurement requirements of over 20 GW for utilities, including strong mandates for long-duration and distributed storage.
• June: FERC issued orders directing all six RTOs to justify or reform large-load interconnection tariffs – data centers specifically, but with direct implications for co-located/hybrid storage.
• July: FCC announced a ban on foreign-made inverters. The ban only pertains to future models of inverters. Previously-approved models will be permitted, as well as those that meet domestic content requirements.