Energy storage could be the bridge that eases the transition to renewables

Energy storage is fast finding favour among savvy investors, and looks like it could revolutionise the energy landscape

Electric cars use advanced batteries, which hold a huge charge for a long period of time

According to the Energy Storage Association’s Executive Director Matt Roberts: “Energy storage is changing the paradigm on how we generate, distribute and use energy.” As bold a statement as this is, it’s not unreasonable to suggest that 2015 was a breakout year for the technology. Talked about often in vague or unnecessarily technical terms, investors have struggled to get a firm handle on what this ‘game-changer’ of an innovation means for the energy landscape.

Sayani Roy, Technavio Research Analyst and joint author of the Global Advanced Energy Storage Systems Market 2016-2020 report, stresses the technology “has gained immense prominence” in recent times, and, after decades spent as an energy asset for the future, its time has finally come.

“The electric grid”, said Roberts, “is based on 100-year old technology that is inflexible and in need of considerable upgrades.” Energy storage, he said, “touches every part of the electric system and, 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 half-decade, and investment in thermal energy storage, 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 investments in storage reached $365m. The emergence of new energy storage start-ups like Stem and Green Charge Networks – not to mention household names Tesla and GE – has given observers good reason to feel optimistic.

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 gathering competitiveness and 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. “The decoupling of supply and demand that arises from the flexibility offered by such solutions, combined with a more empowered consumer”, according to the company’s Global Power and Utilities Corporate Finance Leader Ben Warren, “should increasingly force the energy sector to ask what is required, why, when and by whom when constructing the investment for new projects.”

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 more effective load control and reliability benefits, creating a more responsive and resilient grid”, said Roberts. “Because it provides value at every scale, energy storage is a critical facet of a smarter grid, and its flexibility accelerates our 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 challenge 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.

Roberts stressed that 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.

Storage is not deconstructing centralised systems of electricity generation, although this isn’t to say the development of these technologies is any 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.

Tesla energy
Tesla last year unveiled Tesla Energy, “a suite of batteries for homes, business and utilities fostering a clean energy ecosystem and helping wean the world off fossil fuels”. Some, however, saw the gamble on residential-level installations as a short-sighted one. For starters, 87 percent of the energy storage capacity installed in last year’s second quarter was bought up 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 in the last five years. Lazard’s report shows advances in storage technology offer no signs of abating in the next five years, to the point where they could displace gas-fired capacity.

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

Surely the energy storage technology that features most heavily on investors’ 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”, said Brett Simon, an energy storage analyst with GTM. “Lithium-ion batteries have undergone a massive cost reduction in the past few years, driven in part by the consumer electronics industry and the automotive industry.”

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.

As Roberts attests: “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. “Think of pickling, canning and refrigeration – all different food storage ‘technologies’ ideal for different applications. Their collective impact on our food supply chain is an apt analogy for how cost-effective, reliable energy storage changes the grid. When you can store energy, it changes the way that you plan the system, impacting every facet of integrated resource planning.”

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