Greater reliance on solar and wind energy is placing strain on electricity grids because the supply fluctuates as sunshine and weather vary. There is thus increasing interest in energy storage - harnessing electrical energy for use later. And as mass-production of electric vehicles drives down battery costs, battery-powered energy storage is poised to transform power markets.
Currently, the most abundant energy-storage technology is pumped hydro – using off-peak power to fill high-level reservoirs whose water is released to generate hydro-electricity in peak periods. But this requires suitable geography and is limited to large scale, long-duration applications.
Electro-chemical storage based on lithium-ion batteries is now the fastest growing storage technology and fixed-location battery storage is forecast by the International Renewable Energy Agency to grow from 2GW worldwide now to around 175GW by 2030.
Energy can be stored on the grid, but also at an individual consumer’s home or business. However, government support for storage has so far been slow globally. Just four markets – the US, Korea, Japan and Germany – account for over 75% of lithium-ion battery energy storage. These markets are driven by supportive policies, keen early-adopter consumers and very high residential power prices.
Energy storage is potentially many years from full cost competitiveness, and until then it risks remaining a solution at the margin for utilities, rather than the game-changer for electrical systems.
Yet, battery costs are expected to fall dramatically because of large-scale electric-vehicle production, ultimately making energy storage commercial. Lithium-ion battery-pack prices fell 24% in 2017 and new capacity should drive costs even lower.
High demand and a slow response from suppliers will put pressure on prices of raw materials prices, but battery manufacturers seem confident that technology advances and economies of scale will offset rising costs.
We therefore see a bright future for storage. Unlike power generation, storage is flexible in its ability to stack value streams and change the way power is dispatched to serve different needs over the course of a year – or even an hour.
Storage can thus provide a number of services for the grid, allowing revenues to stack up quickly. This makes the economic case for storage compelling, even if the sums are complex because the returns of an individual project depend on the specific mix of potential applications monetised.
Storage can provide an ideal buffer to smooth local power grids. Yet adding storage to renewables can be expensive. The average cost of a ‘storage adder’ for onshore wind would roughly double the lifetime cost of the system and storage-adder costs for solar are even higher. However, as battery system costs fall, so should storage-adder costs.
The disruptive promise of batteries is attracting interest from many quarters. Utilities are including storage into their business models but power-equipment manufacturers have joined battery suppliers and car companies in including it as a strategic option. Storage is also becoming an area of diversification for oil majors.
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The following analyst(s), economist(s), or strategist(s) who is(are) primarily responsible for this report, including any analyst(s) whose name(s) appear(s) as author of an individual section or sections of the report and any analyst(s) named as the covering analyst(s) of a subsidiary company in a sum-of-the-parts valuation certifies(y) that the opinion(s) on the subject security(ies) or issuer(s), any views or forecasts expressed in the section(s) of which such individual(s) is(are) named as author(s), and any other views or forecasts expressed herein, including any views expressed on the back page of the research report, accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Sean McLoughlin
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