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Energy storage: generators to be the biggest losers

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New report from HSBC says conventional generators will be the biggest losers from the upcoming energy storage boom, as both consumers and grid operators look to battery and other storage technologies.

Conventional electricity generators have already received a battering from the revolution inspired by rooftop solar. Most fossil fuel generators – particularly those in Europe and Australia, are struggling to make a profit.

But things are likely to get worse. The influx of battery storage is destined to further reduce demand from conventional generators.

A major new analysis from global investment bank HSBC – Energy Storage, Power to the People – says the boom days for the fossil fuel generation are over. “There is no prospect of any return to anywhere near the level of profitability seen in the latter part of the last decade in generation,” it writes.

The HSBC analysis looks at a range of storage technologies and how that will impact the conventional energy systems. Its major conclusion is that affordable battery storage will increase distributed generation – solar panels on household and business rooftops – and further reduce demand from the grid.

On top of that, grid operators are also likely to use large-scale battery storage to balance demand and supply and for smart grid enhancements. That’s more bad news for conventional power generators. Once again, it says, the revolution will be led by Germany, notwithstanding the major initiatives in California and China.

“The German energy transition encourages the retail customer to become a ‘pro-sumer’,” the HSBC analysis notes. And it says that domestic storage of solar-generated power is set to take off.

“We believe that in markets such as Germany, households who are in ideological agreement with the drive towards renewables, who wish to be more in control of their own power supply and consumption (ie less of a “consumer” and more of a “pro-sumer”), and who are aware that the financial commitment is long at 20 years, will be prepared to embrace the battery storage principle.”

And, as this graph shows, the combined cost of solar and storage is on the way to being lower than the residential price. Welcome to “storage parity”.

hsbc battery parity

But this is just the start, large-scale energy storage is on the horizon and conventional generation is at a disadvantage: the major utilities could lose out unless they leverage their client base and their level of integration by becoming full-service providers.

HSBC looks at the experience of RWE and E.ON, the two largest generation companies in Germany, which in the past 12 months have committed to joining, rather than fighting, the energy revolution in the country.

At least, that’s what they say, but the reality is that they have no choice. Unlike Australia, the German government shows no interest in slowing down its so-called “energiewende”. Sure, some of the market structures and incentives have been tinkered with, but the ambition remains the same, and there will be no bailout or handouts via “capacity” markets.

This is how the German grid operator sees the deployment of energy technologies over the next two decades. The amount of wind and solar will more than double out to 2035 – and nuclear will disappear, and production from black coal and lignite (brown coal) will fall dramatically.

hsbc germany power

HSBC notes that the German public will drive the growth of battery-based storage of solar, showing the way as the global solar market gains critical mass – just as it did with rooftop solar.

“The German government is, more than any other, promoting a localised system within which households (or collectives) actually own the generation.

“Given that (i) the unit size of 30% (and rising to 50% by 2025, we estimate) of German generation capacity is less than 10MW, the process of re-localisation of power production appears unstoppable.”

“Initially we expect that this will be small-scale in the form of household-based battery storage of solar-generated power, and, further ahead, large-scale conversion of hydro-power to green gas for storage in the gas network.”

Little wonder then, that RWE and E.ON have become heavily involved in distributed energy, regional smart grids, and focusing on energy efficiency and battery and other storage solutions.

They now offer storage devices to end-user household customers with solar, they are looking at compressed air energy storage, and RWE recently installed a CAES pilot plant, storing wind energy, with a capacity of 360MWh in Saxony.

According to RWE, the unit will be able to provide substitute capacity at short notice and replace up to 50 wind turbines of the type used in the region for up to four hours.

E.ON, meanwhile, has snapped up an energy services company, is investing in solar PV battery storage systems for homes, has a power-to-gas pilot unit at Falkenhagen, with 2MW capacity, that can produce 360M3 of hydrogen per hour (from wind energy).

It is also investing in a range of other battery storage technologies, including a modular 5MW “ multi-technology” medium voltage battery storage plant, is investing in 10 start-ups in EU and US. looking to “identify promising business models early in the process”, and is even invested in a ”smart energy real estate” concept development in Sweden.

The clear winners in this transition will be the storage developers themselves. The major question is which one.

HSBC looks at a couple, but Saft stands out simply because of the diversity of its projects.

Saft is leading a consortium to build a 9 MWp solar PV power plant incorporating a megawatt-scale Li-ion energy storage system on Réunion island, and in June it signed a contract with EDF to supply an initial energy storage system using a container of lithium-ion batteries to be installed on EDF R&D’s experimental “Concept Grid” in the south of Paris.

It has also delivered a 20 MW lithium‐ion Energy Storage System for E.ON on Pellworm Island, off the North Sea coast of Germany, and it was awarded a multi-million dollar contract by Kauai Island Utility Co-operative (KIUC) to provide a Li-ion Battery Energy Storage System (BESS) consisting of 8 containers (20MW) to stabilise the Kauai island electrical grid. Saft’s BESS will be deployed for use as part of a new 12 MW solar energy park under construction in Anahola.

   

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  • Chris Fraser

    I reckon some of this would interest our own centralised energy providers. The main reason grid operators would be deploying batteries is for stability – and fair enough – but the real future for generators would be storage to permit closing down some machines in the small hours. This process might even be worth some RECs, so it would be poetic to see them come crawling back to the RET.

  • Marg1

    This sounds great, I would like to get solar with storage capacity.

  • Henry WA

    The estimates for 2035 are actually very disappointing. Why should fossil fuels drop by 20% in the next 10 years and nuclear completely disappear, i.e. an effective reduction in total conventional fuels of 30% or more in that 10 year period, and then no reduction (or even an increase on one scenario) in the next 10 year period, 2025 to 2035. Similarly wind and solar increase by almost 100% in the next 10 years and then a mere 25% or so in the following 10 year period. These figures make no sense.

    • WR

      They are modelling a large increase in gas-generated power between 2025 and 2035. Part of this might be for climate reasons, but it also makes it easier to integrate solar and wind power if you have a lot of flexible supply from either gas or hydro to smooth out variability in the solar/wind supply.

      • Mike D

        I think Henry WA is right in noting that the numbers are disappointing, and I feel that the percent renewables in that report will be lower than what we will see. WR – Storage will be the flexible supply that will crush the model, and remove the need for most of those gas peaking plants.

        • Bob_Wallace

          I doubt storage will remove the need for most gas peakers. Long term storage is expensive, very expensive.

          What is more likely to happen is that we will need a lot of gas peakers but they will be run much less option.

          When Budischak, et al. ran an almost 100% renewables model for the largest US wholesale grid they found that there were about seven hours a year which were best served by gas peakers. It was cheaper to have those gas plants sitting idle for 99.99% of the time than to fill that need with storage sitting unused that much of the time.

          https://docs.google.com/file/d/1NrBZJejkUTRYJv5YE__kBFuecdDL2pDTvKLyBjfCPr_8yR7eCTDhLGm8oEPo/edit

          • Mike D

            Yes, there is a place for the peakers. It will be difficult under some circumstances to make anything from them running only ten or so hours per year.

            As noted in Budischak, hydro wins if it is available (they completely dismiss California as an oddity). I think they missed deep (underground) compressed air and have greatly missed their estimated solar PV cost at $2.84/watt in 2030.
            Their battery storage cost estimates ($192/KWH in 2030) are also much higher than I anticipate, as medium-long term storage of charged electrolyte for flow batteries is much lower than than Li-ion capacity, and Tesla is already near that price point.

          • Bob_Wallace

            I’ve been playing with a different approach to dealing with the infrequent periods when Budischak turned to NG peakers. The orange spikes in the graph below….

            I assume those are very hot summer afternoons when the heat has settled in for a few days, wind and solar output can’t keep up, and storage is largely depleted. Those weather events should be highly predictable a few days in advance.

            Suppose that rather than waiting until the last minute, after we’ve depleted storage and then fire up huge numbers of gas peakers that otherwise sit idle 364 days a year a smaller number of dispatchable plants were fired up at the beginning of the problematic period and they were run 24 hours a day until the crisis was past.

            Nights and mornings their output could be used to charge storage. Then, during the high demand afternoon hours, there would be stored power + available wind/solar + these 24 hour running plants.

            The result would be that a lot less dispatchable capacity would be needed. That dispatchable capacity could be CCNG plants (not a low CO2 option, but running only few days a year we probably could endure). Or combined cycle plants run on biogas. Or converted coal plants run on biomass.

            A fuel based solution seems the most likely at this point. Fuels are cheaply stored.

            Reducing the number of plants needed lowers capital investment as well as cuts the cost of keeping plants in standby condition.

    • NicholB

      Maybe the estimates are conservative because long term storage over seasons is still an unsolved problem. And that problem will only be solved when we get to it. So it is difficult to know how large that hurdle will ultimately be?

      • JonathanMaddox

        You’re pretty much correct. At present penetrations in Germany, wind and solar require no storage. Neither ever produces enough power instantaneously to meet 100% of domestic demand, though in fact together they do occasionally come quite close. Curtailments (when the transmission grid is saturated and cannot accept additional energy which might be supplied by wind or solar generation) are rare and local events.

        After both have doubled in capacity over the next ten years, the occasions on which the combined total of intermittent generation exceeds actual domestic demand will have become quite frequent. Curtailment will become a nationwide and everyday event. At this point, additional marginal intermittent generation which is correlated with the large existing installed base becomes a rather ineffective investment, unless storage is cheap.

        Storage is not cheap today and the modellers have avoided assuming that it will be cost-effective. Yet the opposite assumption, that storage will remain expensive, is rather conservative.

        While low-cost seasonal storage does not yet exist, techniques are in development for that purpose which show plenty of promise.

        One such is pumped heat storage. A pair of insulated containers are respectively heated and cooled by a specially designed heat pump. The difference in temperatures can later be used to regenerate electricity.

        http://www.economist.com/news/technology-quarterly/21603184-reversible-heat-pump-promises-cheap-way-store-renewable-energy

        Another is power-to-gas, where hydrogen or methane fuel is generated from excess clean grid power (using water and carbon dioxide as chemical feedstock) and injected into the existing natural gas storage and distribution system.
        http://www.energystoragejournal.com/wind-instrument-power-to-gas-technology/

  • Dimitar Mirchev

    Enough with that pessimism.

    Things will go even better 🙂

  • Giulio

    Can you post a link to the report please?

  • NicholB

    I wonder why the prediction for the reduction of the PV FiT seems to stall, at about 100 units(?). At which point will PV(+Storage) outperform the revenues from just a FiT if the power can also be sold on the electricity market? At that point it will become increasingly profitable to produce more than just for own usage.

  • Egga

    Car makers should get together to make a standard pluggable battery system. Imagine having 2 of these batteries; one at home and the other in your car. The one at home receives and feeds electricity to the household. When the car is home, the car battery performs the same function. Another advantage of a standard battery system is the ability to set up service stations with batteries and perform a 5 minute battery swap. Instead of buying the battery, you hire it, which can include the electricity cost.