rss
48

Morgan Stanley: Battery storage to grow four times quicker than market thinks

Print Friendly

Leading investment bank Morgan Stanley believes the Australian energy market is seriously underestimating the grow of solar and battery storage, and says the technology will be installed at rates four times quicker than the incumbent energy industry expects.

In a new detailed report, Asia Insight: Solar and batteries, Morgan Stanley expects the market for battery storage to grow from about 2,000 Australian homes now to one million by 2020. But its “high case” suggests the take-up could be double that – up to 2 million homes by 2020.

morgan stanley base case

“We think most incumbent utilities downplay the earnings risks from solar and battery take-up, and the market has not yet priced in the retail and wholesale market effects,” the company analysts write in their report.

The findings of Morgan Stanley are almost diametrically opposed to most in the industry – the incumbent utilities and regulators included. It admits itself that its estimates are by far the most aggressive on the “street” (meaning investment banks).

Last week, the Australian Energy Market Operator predicted 6.6GWh of battery storage in Australia by 2035. That’s the figure that Morgan Stanley says will be reached by 2020, although AEMO’s trajectory corresponds with Morgan Stanley’s “low uptake” scenario.

Most utilities still downplay battery storage as a “medium term” opportunity, saying the “payback” would not occur for another five years at least. Some say 10 years. One state regulator even refused to consider battery storage in its current regulatory approval because it didn’t think the technology “had arrived”.

morgan stanley surveyMorgan Stanley last year released a ground breaking report that provided one of the most optimistic outlooks for battery storage in Australia, which is considered to be a testing ground for the world because of its high electricity prices, excellent sunshine, and its high number of solar households.

That is one reason why the likes of Tesla, Enphase, and Redflow are using Australia as the launch-pad for their global products, and numerous other battery storage and software developers are targeting the country, including Samsung, Panasonic, Sonnen, Ecoult, Reposit, and Redback.

Morgan Stanley said then that it thought 2.4 million households would adopt battery storage. It says that after another year of assessing real world products, costs, tariffs (and tariff directions), business models, and another of its commissioned surveys on consumer behaviour, its belief has been reinforced.

This is despite the fact that its survey (right) points to a slight decrease in the number of people interested in battery storage. But it puts that down to a lack of knowledge about battery storage costs.

Morgan Stanley believes that the solar market will remain strong, that electricity tariffs will remain high and that consumers will be attracted to the battery storage technology.

Battery storage installation costs, Morgan Stanley believes, are likely to fall by 40 per cent within two years, and changing business models and tariffs mean that these could be revenue positive by that time. (We go into this in more detail in this article here).

That 40 per cent fall is likely to trigger the start of the “mainstream” market in 2018, a “tipping point” for the market that is expected to double the following year as costs fall further, more retrofits on existing solar systems occur and as consumers start to access payments for network services.

The potential for these network services, such as dealing with peak demand and avoiding network upgrades, are already being recognised by numerous trials being undertaken in Queensland, Victoria, South Australia, and Western Australia.

That market will grow further with further cost reductions, more network service payments, the rollout of retailer control business models and financing securitisation, meaning the easy access to cheap finance. NSW and Victoria will be the biggest markets.

The impact on incumbent utilities could be significant, because as more households adopt solar and battery storage, that takes away from demand from the grid.

Morgan Stanley believes that the impact on retail earnings for Origin and AGL could grow to $50-90 million in fiscal 2020, as households use less electricity from the grid. Wholesale prices will also remain flat as battery storage flattens load shapes, meaning less peak pricing.

The bank congratulates AGL and Origin for their “New Energy” strategies which focus on providing solar and battery storage to their customers. It says they are targeting the “easy adopter” market – customers who want to adopt new technologies, but who want a trusted retail brand to provide a professional sales experience, and stand behind the installation.

But it says this strategy is more about reducing customer retention costs than creating earnings growth, which is why it  has only modestly trimmed its earnings reduction impact from last year. T

It has even downgraded AGL Energy on the basis of its forecasts – to underweight from equal weight, citing flat demand, the growth of battery storage and new entrants, and more renewables as key factors. It says while AGL and Origin are pushing into solar and storage, it will not be enough to hold revenues, only reigning in customer retention costs.

“Rooftop solar (with or without batteries) is a direct substitute for grid power, and we think the industry response is at best a defence strategy, not a driver of earnings growth,” the analysts write.

“Put simply, the retailer might gain ~A$400/customer from sales, financing and reduced cost-to-retain, but lose ~A$400/customer per annum in lost grid energy sales.

“We think the impact of solar and batteries will play out in a slow and steady fashion over time until reaching a tipping point in the next few years, showing up as unexpected drops in electricity demand (e.g., hollowed out load duration cures) and lower average wholesale electricity prices and caps (which reflect volatility).”

What could go wrong with the Morgan Stanley estimates?

Part of it could be technical issues and installation problems, an issue widely recognised by the industry who fear that lack of standards, and the entry into the market of “cowboys” and cheap and low quality gear could cause problems. One “thermal runaway” event (otherwise known as a fire), could affect public confidence and interest.

It notes also that cost savings could be eroded because of a slow response by pricing regulators, and policy regulators may also be slow in introducing a a number of rule changes needed to facilitate some of the battery applications.  

  • MaxG

    I see batteries strong on the hype curve, but do not see the growth in actual implementation. Once the people have to part with the money, they will quickly discover that the ROI is simply not there.
    Also, the announced / estimated / reported reduction in battery cost will not happen short-term either. While demand can reduce the prices, it usually follows that higher demand will equal higher prices… for Australia, even if the battery price remains the same, the exchange rate in recent times has made batteries more expensive than compared to a year ago.
    As an example: I paid $500 for a 3.2V 400Ah battery one year ago; the same cell is now $700.

    • DevMac

      In regards to supply versus demand, it seems you could be right. Tesla’s “Gigafactory” was seemingly built to supply a high estimation of demand but, by the looks of this article even the high estimation of demand may not be enough.

      It’d be interesting to know the battery production capacities (current and scheduled) for other battery manufacturers. Telsa may have secured a large segment of the future market by going big early.

      P.S. RoI gets slightly shorter with the power price increases from AGL and Origin (for South Australia anyway).

      • Brunel

        People do not realise that cells from the gigafactory can be put in anything from laptops to drones to electric toothbrushes.

        Hell, power tools, electric shavers, electric lawn mowers, etc.

        And if the cells from Nevada are the cheapest – why would not gadget makers use those cells instead of more costly cells from Japan?

      • Ian

        Demand depends on cost, and by the look of things Tesla may be getting its costs right for the EV market in the USA , not that helps us here in Australia, but.

    • Brunel

      What metal is in your new 400Ah battery? Lead?

      • solarguy

        At that price and voltage, it would be Li-Ion.

        • juxx0r

          No, lithium iron phosphate.

          • solarguy

            I meant Li-Ion chemistry batteries not being specific as to which, OK

          • juxx0r

            li-ion is higher voltage.

      • MaxG

        LiFePO4

    • nakedChimp

      And one wonders how the exchange rate is going to develop in the future?
      No one will buy the coal. Tourism will take a hit if nature does it’s part. What’s left? Cattle? Some agriculture.. well, better hope that doesn’t get into trouble either then while it’s still outdoors.

      • MaxG

        Well, cattle is no big deal; it was something like 150,000 head are exported to the US, and 150,000 head are imported form the US…. called free trade scam… or was it scheme? :))

    • Tom

      Once aluminium graphine batteries get sorted out demand will explode! They will be cheap, quick to recharge, and last thousands of cycles.

      • john

        Graphine does show promise.
        The research going on has to lead to a product that is compelling in price and performance.

      • MaxG

        It is like saying: wait until the NLP works for its constituency rather than for corporations… I digress, what I mean, I am hearing people say this for year: wait until X, wait until Y, etc. I decided to take the plunge when I thought it was the right time, that was 2 years ago. I am reaping the benefits now, do not care where the energy industry is going, and know I have my freedom for 20years to come!

        • Tom

          I applaud you and envy you MaxG, but in reality you are still an early adopter. It was not meant as a criticism.

          What I mean is that when aluminium graphine gets going good and proper, electric cars will be normal, electric home storage will be normal, and within a decade or so the fossil fuel industry will be wiped out, along with the Middle East and the rest of OPEC (as well as a large part of our own economy).

          If we’re not ready for it as a nation, then we’ll be importing the new economy from overseas and will have nothing to replace our old economy with.

  • trackdaze

    Ironically I see the biggest risk to home battery storage being the electric car.

    This will be a good problem to have.

    • Brunel

      How so?

      EV batteries can only do 1000 cycles.

      While home batteries can do 5000 cycles.

      • trackdaze

        Depends on Depth of discharge for one.

        • Brunel

          You did not say how so.

          Maybe you do not know that EV batteries contain different metals to grid storage batteries.

          • Carl Raymond S

            I took it to mean that cars would compete with storage for the gigafactory’s output.
            Also that a powerwall will see a traditional home through the night, but no chance if there is a car to charge as well.
            Gigafactory 2 to the rescue, and kudos to employers offering at work charging.

          • Brunel

            Yeah, we can recharge EVs using public Superchargers – which is why “free” supercharging is so wrong.

          • Mike Dill

            If I charge a battery to 100% and discharge to 0% it will die after a very few cycles. If I only charge a Li battery to 80%, and only discharge to 20%, it will last many thousand of cycles. How we use the battery is a major determinant of how long it will last.
            Most car batteries are designed for lower top end charge and faster discharge rates, while stationary batteries are designed for a higher charge and slower discharge. Understanding this allows you to use either type, but not as efficiently.

          • trackdaze

            Thanks for reminding me about the chemistries. Phevs are close. Maybe thats why the 12kwhr Mitsubishi outlander is available with vehichle to home in japan. Nissan too with its 24-30kwhr leaf are doing much the same and even propose second lifing old leaf batteries because they have more than enough grunt to power a house.

            As i said v2g is a risk to home storage market.

          • Ian

            Brunel, could you expand an this comment that EV batteries use different metals to grid storage. I thought both were essentially lithium batteries and with very similar performance characteristics. The only difference being the aggressive usage by a motor vehicle shortens the battery life considerably compared with the more sedate home battery usage, but you may be able to enlighten us more about the differences in lithium batteries used in these two applications

          • MM

            Li-ion describes a wide range of battery chemistry and my understanding is that one of the biggest factors determining the various performance parameters is the type of metal used for the cathode and anode. Lithium only makes up a small percentage of the battery.

      • solarguy

        It depends on the depth of discharge how many cycles.

    • Lightfoot

      Excess solar will charge both, but where is the wisdom in running your nighttime house load off your transport battery? You imply the EV battery has the capacity for that, and that simply isnt so. You would be reducing the limited distance they can travel even further.

      Household battery storage is growing, and will grow faster in coming years. That is a fact all RE readers are aware of.

      The main non technical barrier to rapid adoption of household battery storage is cost. Other barriers include consumer awareness, reliability, and limited capacity.
      This is a rapidly changing world, and an exciting time to be alive.

      • trackdaze

        A 30+kw ev battery will have sufficient reserve to moderately discharge during peak grid load and either recharge off peak or the next day either at home or where you work, park or shop some will allow you to do that for free.

        Thanks

      • solarguy

        Correct!

      • Ian

        What is driving home battery storage in Australia? From what I have read, it’s people’s annoyance with high utility tariffs and low FiT. The value in the battery offerings is at this time not really economic but more emotional perhaps. Installed home lithium batteries have come in at over $1000/ KWH. Wholesale car batteries in America are quoted at about $150/KWH . The Tesla Model S with at least 60 KWH is slated to cost US$33000: $500/ KWH plus a nice car thrown in!

        I think that overseas battery manufacturers are targeting Australia as a ” market leader” because they think we are easy prey. They can flog expensive home batteries to us whilst they ramp up manufacturing for their own domestic (And more discerning) EV market. We are willing to pay for their factory development costs because we are so eager to give the rude finger to our utilities.

        • Ray Edwards

          True. Just installed a 4.5 KwH battery system with 4.2 Kw solar geberation capacity. Did it as a response to a massive quarterly electricity bill. I paid cash for it, but I expect that cost to be recouped within 6 years maximum. I know costs will come down, but I think I have value for money already.

        • Miles Harding

          Like the logic of the car!

          There is at least one person in WA using their (spare) converted EV as a battery on wheels. This is something that works extremely well, resulting in a completely off-grid household except for about one or two weeks per year when the grid is used in place of a generator.

          I think we are ‘easy prey’ because our utilities have been intent of defending their outdated business models, although this is showing signs of cracking. The high (ripoff?) retail battery price is something I expect to see dissolve within a year or two. The margins on batteries are set to follow solar panels as the number of installers explodes.

    • Ian

      The EV will be the enabling technology for home battery storage. Demand for lithium batteries ( and of course any better batteries that might be developed) by the EV industry will be huge and manufacturing capacity for batteries will increase rapidly to meet that demand. The home battery storage industry will just tag along.

  • wmh

    60% of home energy usage is heating so why not store that energy as heat? Hot water costs $2 for 1000 litres which stores 50kWh. How much would that cost as batteries?

    • MaxG

      Why we will put a 1,000l storage tank into the new house 🙂

      • nakedChimp

        1000L is good for 2-3 days worth of showering and washing.
        If you want to heat the first rule (as with any other RE theme) safe, safe, safe.. get good insulation, get good windows and doors, get a good HVAC that can recoup 80% heat/cold from the exhaust air and you should have a minimum requirement for heating/cooling left.

        • MaxG

          At present we have 200l; it “fails” after 2 days ‘no sun’. Hence, 1,000l will last us ten days. We are building a passive house in QLD. Total heating/cooling requirement = 2kWh for the whole house on the worst days :)) double-glazed, highly insulated (e.g. R8 in ceiling), etc.

          • neroden

            Australia’s mild climate makes it very easy to go off-grid. Harder where I live in the northeastern US — it’s those -25C Januaries which get us.

          • MaxG

            Agree, however, remember the Nordic countries and their super-insulated houses… you may be 2-3kW/h more per day to go through it, however, the sun shies less, or not at all… 🙁

          • nakedChimp

            Sorry, had this over the thumb rule from back in Germany (52 deg North of the Equator) were we had an 800L hot water reservoir.

    • solarguy

      How did arrive at $2/1000 litres and 50kwh, at what temperature. Plus how would you heat the water for that cost?

    • john

      I have used solar hot water from 1995 and usually have to turn on the element only for a few hours during the day for a maximum of 3 times a year.
      Usually after a heavy rain event the next day being sunny the panels supply the power.

    • wmh

      Thank you for all your replies. I am glad that there has been some serious consideration of this overlooked method of energy storage which could open the way to extensive energy independence for energy users in the cooler parts of Australia.

      The figure of merit, 50kWh per 1000 liters (1 cubic meter or 1 m^3) was calculated as follows.
      [1] Storage operating temperature range of 90 C max to 45 C min. The maximum temperature is set by the boiling point of water and the maximum temperature setting of the available tempering valves in Australia. Operation below boiling point allows an unpressurised tank (open to the atmosphere) and the possibility of home construction. A tempering valve allows the piping and radiators in a space heating application to operate at a safe temperature without reducing system efficiency in any way and is also required in a domestic hot water system for the same reason.The minimum temperature of 45 C is set by the need for a temperature differential between the radiator and the desired room temperature to drive heat transfer from radiators (hence limiting the physical size required) and the minimum usable temperature for domestic hot water.
      [2] Specific heat of water is 1 calorie per gram per degree C which translates to 1.16 kWh/m^3 per degree. For a temperature range of 45 to 90 C, multiply 1.16 by (90 – 45) = 52.3 kWh/m^3 and round this down to 50 kWh/m^3. Actually if space heating at a room temperature of 20 C is the only use then the factor (90 – 45) becomes (90 – 20) giving in excess of 81 kWh/m^3.

      Of course, one should endeavour to insulate one’s ceiling, walls and floor as well as possible as a first step, to avoid the need for heating energy in the first place. With a well orientated house on a sunny day this may avoid the need for any space heating until late at night. However, winter typically brings a few periods of up to a week of cold sunless weather which will overwhelm most people’s storage provision (particularly if only batteries) so in practice, complete electricity and gas grid independence is some way off yet.

      The cost of running a hot water energy storage system is the incremental cost of solar energy (free!) plus the small cost of the electricity to run whatever pumps are required to move the water from the storage to the end use (which could again be solar energy and come from a small quantity of batteries). The capital cost of any heating system is the purchase price plus the fractional cost of replacing the system at end of life plus the opportunity cost of alternative uses for the money. All this cost must be compared to the cost of paying for another form of heating, calculated in a similar manner.

      It is a mistake to believe that one should seal up one’s living spaces completely. You need a complete change of air in occupied rooms about every three hours. Regenerative HVAC ventilation systems to allow scavenging the heat content of stale air are currently a bit expensive and take up considerable space so it may be cheaper and easier to simply discard this energy content. Nevertheless, home-made air to air heat exchangers are definitely possible and economical. Heat exchangers to cool incoming air in summer are also possible but you will loose considerable energy condensing the water vapour which the newly cooled air cannot hold.

  • Ian

    The barrier to battery uptake is one of confidence. Technical hurdles are present but, the likes of Tesla, and Nissan have shown what can be done with EV. Batteries are expensive because there is not enough manufacturing capacity. There’s not enough manufacturing capacity because the demand does not warrant it. Chicken and egg. It’s like a children’s game. The consumer side says give us cheap batteries and we will buy them. The manufacturers say buy our batteries and we will make them cheaper. Impasse. Tesla may be changing all that. As soon as Musk’s factory is built and producing quantities of batteries at a economically viable rate, then the flood gates will open.

    Considering the cost of his gigafactory – $5 billion and the anticipated production capacity – 35GWH per year . – lithium batteries will be made very cheaply indeed. ( if he were to write off the cost of the factory in 1 year the capital component to each KWH would be $142 clearly such a factory could be depreciated over a number of years so the capital cost to produce each battery would be much less, probably closer to $10/KWH)

    Already German motor companies such as Daimler and VW are considering their own ‘gigafactories’, you can be sure the Chinese and Koreans won’t miss a trick either.

    Manufacturing batteries for EV is the sweet-spot: each vehicle requires 30 to 90 KWH. House- hold batteries are piddly little 6KWH affairs and will be produced as a side line to transportation batteries.

    The potential market for EV batteries is staggering: 65 million passenger vehicles produced in 2015 in the world . The demand for EV is set to accelerate massively judging from the socio-political changes occurring in Europe such as Norway, Netherlands and Germany.

    As said, the story of EV is the story of home battery storage.

    • Mike Dill

      While the prices are still to high as you have noted, My guess is that I will have one day of supply installed by 2020, given a price of $100/kWh. While this is more than I will need, it will allow me to weather some of the outages that happen.

  • Tom

    What I’ve come to realise about the power gird is that things are a bit backwards.

    What I used to think was that storage solutions are required to enable the installed capacity of renewable energy to grow.

    What is actually happening is that renewable energy will grow anyway, and storage (or other) solutions need to be found, and will be found, to adapt to its growth.

    A prime example is South Australia, where the huge installation of wind capacity has in no small way led to the demise of Port Augusta (coal fired) power station. Only Torrens Island (gas powered), can provide the rapid changes in power output required to balance the variable output from wind. This is not storage, but it is a solution that has occurred in reverse order (solutions adapting to renewables, rather than renewables waiting for solutions before they expand.)

    Every time renewable energy generation capacity is installed, it is not going away. If a wind tower becomes old and faulty it will be repaired, not bulldozed. Old and faulty rooftop solar systems are going to be repaired or the panel replaced – they’re not going to be thrown in the bin and the roof repainted.

    Renewable capacity is going to steadily grow and grow, and solutions are going to be put in place to cope with this – not the other way around.

  • onesecond

    We can sure need quicker.