Japanese company NEC is about to gradually phase out its grid-level energy storage business. According to reports, the COVID-19 pandemic has put a major dent in NEC’s sales plans, leading the company to terminate the operations of its NEC Energy Solutions business unit.

In particular, NEC Energy Solutions is primarily focused on developing and manufacturing battery energy storage systems used for electrical grids, backup power, and lead-acid battery replacements. Its business encompasses energy storage applications from small-scale industrial batteries to utility-scale electrical grids. With the current rise of renewable energy comes enormous demand for energy storage systems capable of stabilizing electrical grids and reduce the volatility in electricity generation associated with renewable energy’s high dependence on weather conditions. One would therefore expect the energy storage industry to see its best days right now.

However, an internal memo acquired by BloombergNEF indicates that NEC Energy Solutions will initiate an “orderly wind down” in the future. Though it will no longer look for new businesses, NEC Energy Solutions will complete all ongoing projects before terminating operations.

In reality, Japan-based NEC Corporation made the decision to sell its NEC Energy Solutions department very early on, though its plans were subsequently thwarted by poor market conditions and the COVID-19 pandemic. Since it was nearly impossible for NEC to find a suitable buyer, the company instead decided to wind down operations in an orderly manner.

Japan-based NEC made the decision to sell its energy storage department as early as 2017, when it sold its 100% subsidiary NEC Energy Devices, which produced and manufactured lithium-ion batteries. NEC’s former subsidiary is now wholly owned by China-based Envision Group.

With regards to this, Logan Goldie-Scot, head of clean-power research at BloombergNEF, states that in spite NEC’s relatively small scale in the global large-scale battery industry, its decision to exit the market is still noteworthy. Did NEC face an insurmountable challenge, or is the entire industry in the gutter? If NEC is leaving the market preemptively because it foresaw the latter, then that raises a whole host of questions regarding the future.

According to a spokesperson from NEC’s Tokyo headquarters, NEC Energy Solutions has remained unprofitable since its inception in 2014. Despite continuous growth in the battery market, hypercompetitive prices, which in part drove out NEC, are expected to persist well into the future. NEC’s contracts stipulate that its U.S. subsidiary will continue its battery maintenance operations until March 2030.

At the moment, corporate reorganization veteran Mark Lymbery has taken up the mantle of CEO at NEC Energy Solutions, which Steve Fludder recently vacated.