Energy storage costs to halve, market set to boom: study

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Report predicts fundamental changes to Australia’s electricity industry from energy storage – if the interests of the incumbents can be overcome.

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A new study released by the Clean Energy Council points to the huge role that energy storage can play in the evolving power markets, but points to the huge barriers – mostly the interests of incumbent utilities – that stand in its way.

The report prepared by consulting group MarchMent Hill, entitled Energy Storage in Australia – Commercial Opportunities, Barriers and Policy Options, predicts the market for energy storage technologies could grow to more than 3,300MW by 2030. (See graph at bottom of article).

It suggests that the use of storage is inevitable, and that it will have a fundamental impact on the electricity industry – which has been designed on the principal that energy cannot be stored. All that now changes.

The report canvasses a range of technologies – from lithium-ion and other types of batteries, to pumped hydro systems, “smart hot water” devices and technologies such as compressed-air and flywheels – that could be used by utilities to balance the grid as the penetration of renewables grows, better meet peak demand, strengthen regional and off-grid areas, and facilitate the growing use of electric vehicles; and used by commercial and residential customers to optimise the output and the economics of their own renewable generation, such as rooftop solar.

The cost of storage is predicted to fall sharply, as this graph below suggests.

Screen Shot 2013-01-31 at 9.46.01 AM

The report estimates that the average cost could drop by more than half by the end of the decade under the most optimistic scenario – possibly to just above $300/kW. Under its baseline scenario, it is expected to fall to $550/kW. This seems a little conservative, given the recent UBS report that noted a 40 per cent reduction in costs in the last two years and predicted a compound reduction of 10 per cent a year in the decade to come. The industry itself has aimed for around $250/kW, although a report from Lux Consulting also predicted around $500/kW – depending on the extent of mass production.

The MarchMent Hill report, however, highlighted that the impediments to storage lay not just in the integration of a range of technical issues, but also the threat to the economic models of many of the incumbents. This needs to be addressed by providing different incentives.

“The financial incentives of electricity distributors are not necessarily aligned with the interests of their customers, in situations where energy storage could be advantageous,” it notes. “Despite the seeming unsustainability of the historical approach to meeting peak demand network businesses are still more heavily incentivised to continue on this capital expansion trajectory, than to find alternatives.

Their income, to a large extent, is determined by the amount of capital they accumulate in their regulated asset base. Their incentive is not necessarily for least-cost alternatives to building their regulated asset base, and there is no retrospective test applied by the regulator to determine whether they could have met the grid’s needs more efficiently.

It also says retailers are unlikely to have the incentive to deploy storage, even if it could insulate them from peak prices. “Most retailers are already covered by financial hedges, or physical hedges in the form of a wholly- or partly-owned generation portfolio. These hedges represent a more developed market, and likely a cheaper option, than storage-based hedges.”

It suggests a range of policy and technical measures. The most notable of these is the commitment to the renewable energy target, removing diesel fuel subsidies, and encouraging appropriate price signals. And, to address “cultural issues”, it suggests engaging with the AER and ERA to establish a practice of requiring a “burden of proof” from network operators when they are arguing against storage in favour of network expansion.

“Australia needs to start planning in earnest now for the integration of large quantities of storage into the electricity market,” it writes.”While the use of storage may not become widespread until towards the end of the decade, the speed of change and reform in the energy system is typically very slow. “

Interestingly though, it suggests that Australia should focus on regulatory rules and technical issues, rather than R&D investment. “Australia is too small a market to enable R&D investment in, and competitive production of these materials,” it says. That will come to a big disappointment to the likes of RedFlow and other battery storage developers.

Screen Shot 2013-01-31 at 9.47.23 AM

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10 Comments
  1. Tim Buckley 6 years ago

    Bloomberg NEF this month released an analysis concluding that lithium-ion electric vehicle battery prices have fallen 40% since 2010; following a similar deflationary trajectory to that seen over the last decade in lithium ion batteries for consumer applications – refer link:
    http://energy.gov/sites/prod/files/BNEF_2013-01-19%20Washington%20DC%20Energy%20All%20Stars.pdf
    These advances are being driven by the dramatic benefits of economies of scale in manufacturing. The acceleration in this cost-down trend has been spurred along by the huge applied research and development funding push from the Obama Administration through the Department of Energy grants program as part of the stimulus package announced in 2009.
    Companies like Johnson Controls, SAFT Group of France and Telsa Motors have each invested hundreds of millions of dollars in recent years to drive this advanced battery technology breakthrough. The huge success of Apple in the consumer electronics market has likewise contributed to the momentum in innovation to drive both cost and weight reductions, and counter safety hazards.
    Battery technologies have not changed materially in the last century. However, like the Clean Energy Council, we at Arkx believe energy storage coupled with distributed rooftop solar will be absolutely transformational to world energy and transportation markets this decade. The massive deflationary trends in wind and solar, and LED lighting and now battery storage costs will increasingly undermine the profitability of fossil fuel incumbents.
    We note that RWE, one of Germany’s leading utilities, last week stated it is fundamentally changing its business model away from energy generation (currently 40% of revenues, forecast to drop to 20%) to a strategy focused more on selling energy services in light of the changing German energy landscape. Rather than buying NSW’s aging coal generators, Origin should follow RWE’s lead in promoting energy efficiency services.

  2. Sunoba 6 years ago

    I agree the price of electricity storage will fall rapidly, with major effects on the business models of incumbent utilities.

    Still, I find it strange that the article makes no mention of solar thermal power, which offers the advantage of thermal storage (thus improving the Capacity Factor of the power block). Solar thermal power also offers hybridisation, a form of storage based on chemical fuels, thus giving the opportunity to generate power in extended cloudy periods.

    Was the MarchMent Hill report only concerned with storage of electricity?

  3. David 6 years ago

    The measure you have quoted, $/kW is almost meaningless. The quantity that matters with storage is $/kWh. You store energy not power. The cost that really matters is how much energy you can store (efficiently). On that measure, battery systems do not come within cooee of pumped hydro and the costs for this have not changed materially in a hundred years.

    • Horst 6 years ago

      There’s usually not enough space on a quarter acre block to install two dams separated by a great height, so not a solution for everyone.

  4. David 6 years ago

    By the way, the NEM already has in excess of 2000 MW of “storage”.

  5. Adam Nelson 6 years ago

    $/kW? Power (kW) is an instantaneous measurement and thus impossible to store.
    Energy (kWh) is a measurement of instantaneous power multiplied by the length of time that the power is delivered for and thus is storable. The units should be $/kWh.
    While it is easy to make a typo, the fact that the graph in the report makes this mistake as well as Renew Economy’s article about the report leaves me wondering about the entire report.

    • Brad 6 years ago

      I presume they mean kWh.

      I suppose that since the report is about economics we don’t have to worry that they don’t know their power from their energy!

      • Adam Nelson 6 years ago

        Since my last comment I have noticed a Clean Energy Council press release using kW as the units for energy storage.
        Perhaps the convention is to use the power that can be delivered from storage on a 24/7, 365 days per year basis?
        Can anyone clarify this?

    • Peter Smith 6 years ago

      Yes, this needs to be corrected, otherwise the whole article is a nonsense. If the MarchMent Hill report uses the same units, one wonders what is the value of the report.

      • Giles Parkinson 6 years ago

        report has both, but it is not as much of a nonsense as you suggest. kW is usually capacity, and kWh the output, but in the case of battery the kWh actually applies to capacity, so you can see why it is interchanged. Agree there should be a standard that everyone understands.

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