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

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.

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.