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Introduction

Energy storage is changing the paradigm on how we generate, distribute and use energy and it’s not unreasonable to suggest that the last few years have been a breakout for the technology. Often talked about in vague or unnecessarily technical terms, investors have struggled to get a handle on what this “game-changer” of an innovation means for the energy landscape.

The electric grid is based on 100-year old technology that is inflexible and in need of considerable upgrades. Energy storage touches every part of the electric system an, in doing so, changes the paradigm and provides value to every stakeholder.

The market for these technologies is on course to almost double in the next 5 years, and investment in batteries, compressed air, molten salt, flywheels and other advanced technologies is set to explode. In the US alone, energy storage capacity in 2015 grew 243 percent – eclipsing the previous two years combined – and the investments in storage reached $365m. The emergence of new energy storage start-ups like Stem and Green Charge Networks – not to mention household names like Tesla and GE – has given observers good reason to feel optimistic.

BNEF - Energy Storage Market Growth
BNEF – Market Growth

The changing market

If successful, improvements in energy storage technology could render petrol tanks redundant, and the benefits could extend to every part of the value chain. Already, the utilities sector is partway through its biggest change in a century, and so  too are the capital markets that serve it. The complexity of renewables also mean energy companies can ill afford to ignore enabling technologies like storage that not only facilitate renewables penetration, but also give way to a more decentralised system of distribution.

According to EY’s Renewable Energy Country Attractiveness Index, utilities must redefine – and immediately – their business propositions if they’re to survive in a more decentralised landscape and serve this emerging class of producer-consumers.

Utilities and grid operators in particular, support energy storage as a more cost-effective and flexible solution for non-traditional energy technologies.

At the distributed scale, energy storage allows the more effective load control and reliability benefits, creating a more responsive and resilient grid. Because it provides value at every scale, energy storage is a critical facet of a smarter grid, and its flexibility accelerates the deployment of clean technologies like wind and solar.

The decline in battery prices and the emergence of government incentives to support energy storage systems also mean utilities and energy companies more generally are ploughing investment into such technologies. In short, the challenges that energy storage solutions are seeking to address is one of intermittency, and the ability to store energy in times of plenty and supply it in times of scarcity is a crucial part of the renewables equation.

Energy storage can create a more efficient and flexible grid, and drive renewables growth in two major ways, First, consistent output makes it easier to interconnect renewables, and second, energy storage reduces the need among utilities firms for capital-intensive investments in inefficient systems.

Texas Energy Storage Distributed on Grid-Benefits and Costs for ERCOT

Batteries are not currently deconstructing centralised systems of electricity generation although this isn’t to say the development of these technologies is an less revolutionary. Changing the paradigm on how we generate, distribute and use energy would be a better description, although questions remain as to whether these technologies can generate consistent returns.

The market for energy storage

In 2014, Tesla unveiled Tesla Energy which it described as “a suite of batteries for homes, business and utilities fostering a clean energy ecosystem and helping to wean the world off fossil fuels“.  Some, however, saw the gamble on residential-level installations as short-sighted on. For starters, 87 percent of the energy storage capacity was bought by utilities companies, and the number of commercial and industrial owners equates to just one percent.

The advent of energy storage technology, particularly on the commercial and residential front, will take time. According to Moody’s, incremental improvements to existing battery technologies mean costs have fallen somewhere in the region of 50 percent over the last seven years. Additionally, reports show that advances in storage technology offer no sign of abating in the next five years, to the point where they could displace gas-fired capacity.

Growth in Energy Storage
Growth in batteries

Frost & Sullivan’s data shows the global market for utility-scale, grid connected batteries amounted to $460m in 2014 and is forecast to reach $8.3bn before 2025. While the monetary worth of the home storage market is significantly lower, its growth is rising fast. Lux research indicate that almost 14,000 battery units were installed in the opening months of 2015 – more than twice the amount for the entirety of 2014 – and Tesla alone expected to install 29,000 units in 2016.

Storage technology

Surely the energy storage technology that features most heavily on investor’s radars is the lithium-ion battery, which without doubt receives the largest share of investment and will likely remain dominant for at least the next few years. The ability to power consumer electronics and electric cars for longer has created a significant lead ahead of competing technologies. However, the drawback is that they don’t come cheap.

In terms of technology, right now the US energy storage market is dominated by lithium-ion batteries, which can provide both short and medium duration services effectively. Lithium-ion batteries have undergone a massive cost reduction in the past few years driven by the computer and automotive industries.

Molten salt, lead-acid and flow batteries are likewise giving utility companies reason to invest. Panasonic, Samsung, Tesla, GE, and a string of major companies are clamouring for a slice of the pie and their investments are ushering in many of the most impressive developments.

Conclusion

Energy storage is not any one technology, it is a way to apply technology. Whether utilised for generation, distribution, or even load, the ability to store energy is inherently valuable in that it allows utilities to focus on new alternatives.

When you can storage energy, it changes the way that you plan the system, impacting every facet of integrated resource planning.

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