ENERGY WATCH #4 - November 29, 2018
A combination of spectacular events and decreasing costs has ensured batteries are now a permanent feature in the power and transport sectors. The global battery storage pipeline hit 10.4GW in the first quarter of 2018 thanks to the range of roles the technology can play – not just in providing back-up capacity but also storage, both at utility scale and behind the meter , as well as in EVs. It is this versatility that makes businesses based on batteries so bankable.
Power generation and back up
Coal- and gas-fired power stations are increasingly being priced out of the market by wind and solar projects, but they are also finding that many of the more arcane parts of the power generation system are being undercut by battery storage, which is one of the key energy sector success stories of 2018.
Fossil fuel proponents used to say that they were necessary because only they could provide dispatchable power – the ability to respond to grid requests to increase or reduce output depending on demand, and flexibility – the ability to switch on and off in response to grid shortfalls and surpluses. The old argument being that wind and solar are intermittent sources of generation.
But the role for batteries has evolved to suit this environment. By coupling intermittent technologies with batteries enables them to smooth power output and shift supply that is not needed to peak times, and even on their own, batteries are increasingly cost-effective and able to compete on price with open-cycle gas plants in providing peak power.
Underpinning the transition
Bloomberg New Energy Finance reported in March that the price of batteries had fallen 79% since 2010, and in the summer it said that the battery boom will enable the world to get half of its electricity from renewable energy by 2050.
Prices will continue to tumble as the storage market develops in line with the electric vehicle market, and the market is set to see $620 billion of investment by 2040, it said in November, when it increased its forecast from the $548 billion of investment by 2050 it predicted in June.
Logan Goldie-Scot, head of energy storage at BNEF, added: “We see energy storage growing to a point where it is equivalent to 7% of the total installed power capacity globally in 2040. The majority of storage capacity will be utility-scale until the mid-2030s, when behind the meter applications overtake.” Battery storage is becoming increasingly important as we move to a renewables-based infrastructure. And while the biggest markets are currently Australia, the UK, the US and China, batteries have potential in every market – the development of the market has been boosted not just by the increased focus on electric vehicle charging but also on storage’s role in providing energy access in remote regions where a hybrid distributed energy system combining renewable energy, storage and maybe diesel generators is cheaper than extending the grid network.
Batteries’ big breaks
Even a couple of years ago, the widespread use of batteries was seen as something that would not happen until the middle of the next decade. Two key events transformed sentiment on the sector. The first was the explosion at the Aliso Canyon gas storage facility in California, the largest emission of gas into the atmosphere ever – or more accurately what happened afterwards.
AES Energy Storage built what was then the world’s largest battery storage facility within six months, with Tesla and Greensmith also building facilities to replace the capacity lost in the blaze. “I was stunned at the ability of batteries and the battery industry’s ability to meet our needs,” said Michael Picker, president of the California Public Utilities Commission. “This was something I didn’t expect to see until 2020. Here it is in 2017, and it’s already in the ground.”
“I was stunned at the ability of batteries and the battery industry’s ability to meet our needs,” Michael Picker, president of the California Public Utilities Commission
Ravi Manghani, senior analyst at GTM Research, added: “By coming on-line in a matter of months from a policy resolution, and a matter of few weeks from finalized procurement, the industry has gained tremendous credibility for ‘coming to the rescue’ of the grid in such a short period.”
This success was backed up by a typically brash move from Elon Musk, Tesla founder and chairman. After South Australia suffered a series of blackouts as a result of a huge storm bringing down power lines, he offered to install a back-up power system within 100 days, or it would be free. The system took 60 days to install and it has been running ever since. And while, according to Digital Journal, Australia’s Resources Minister Matt Canavan supposedly dismissed the big battery as “the Kim Kardashian of the energy world: it’s famous for being famous [but] doesn’t do very much”, the Australian Energy Market Operator told the ABC that “its ability to respond very, very quickly to the different types of conditions that we see on the power system has been very encouraging for us.”
These two incidents illustrated battery storage’s ability to deploy quickly and cheaply, and work reliably, leading to a sea change in views of what battery storage is capable of.
Car manufacturers driving demand
The market for electric vehicle batteries is no less thriving. BIS Research predicts that the global electric vehicles battery market will be worth $93.94 billion by 2026 as the number of electric vehicles on the market increases.
New battery cell production capacity is being added all over the world – the market is currently dominated by the Asian trio of China, South Korea and Japan, but several facilities are being planned in Europe, including Northvolt, which is building a plant in Sweden, while companies including Varta, BASF, VW and Ford are looking at setting up manufacturing plants in Germany.
The two markets reinforce each other, as well, with end of life vehicle batteries capable of providing a further five years or more of service in stationary applications. So as the EV market expands, it will further reduce the price of stationary storage.
Challenges
The main challenges for the sector are that the chemistry of Lithium-ion batteries means they are approaching the limits of the efficiency improvements they can make, and the fact that 70% of the cobalt used in them comes from the Democratic Republic of Congo, where there are issues over child labour and working conditions.
Regulators need to catch up
Batteries are now part of the mainstream of the energy markets, but the market is still in its infancy. The potential is huge, given the range of applications to which batteries can be applied and the global reach of the technology. Energy Storage Networks highlights four key markets to watch:
- Solar-plus-storage co-location projects currently account for more than 40% of the total utility-side-of-meter pipeline, highlighting the future potential of this market.
- Behind-the-meter, which will comprise more than half of annual installations, from 2023 onward.
- Battery energy storage is challenging gas-fired peaker plants to meet California’s capacity needs, leading to a significant increase in the outlook for large-scale energy storage in that state.
- New energy storage deployment targets, and the inclusion of storage in integrated resource planning across the US, will drive future market growth across multiple states.
However, because power markets around the world are so regulated, for the sector to fulfil its true potential, it will need regulation to catch up with technological possibilities.
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Mike Scott is a freelance journalist who has written for the Financial Times, Forbes, Bloomberg and a range of other titles. He specialises in writing about energy, investment and business.
