Will this be a breakout year for grid-scale battery energy storage?
Our electric power grids continue to evolve and transform at a rapid pace. Resource mixes are changing, business models are evolving, and new grid enabling technologies are advancing quickly. Perhaps no technology has received as much attention over the past year as battery energy storage. Costs continue to plummet and new project announcements are an almost daily occurrence. But is it enough? With all of the enthusiasm across the industry, it is tough to distinguish whether energy storage is an economic tool for renewable integration or an over-hyped trend.
I’m remaining cautiously optimistic. It’s not a question of if energy storage will have its breakout, but a matter of when. Here are five trends to watch for clues as to whether 2019 will be the year of storage.
1. Niche applications are paying off today
Even with declining costs, battery energy storage is still a relatively expensive technology, on the verge, but not quite at grid-parity in most regions with other resources. There are however niche applications where the storage applications make sense today. Think island or remote grids with high renewable penetration. Recent battery projects have been developed in South Australia, Kauai, Barbados, and proposed in Hawaii.
These projects make a lot of sense; there is a premium value of reserves and no (or limited) interconnections to neighboring grids for balancing. While these projects may be economic, the market is relatively small, and the same value proposition isn’t found in larger grids. Developers will have to work hard to find specific opportunities to deploy battery storage where there is real value today.
2. Storage as a peaker replacement could be a huge opportunity
For battery storage to breakout of niche applications, the largest potential market is for firm capacity (i.e. peaker replacement). The recent announced battery storage project in California represents the largest peaker replacement to date. If batteries can compete with conventional gas turbine technology, it will unlock a huge potential market to replace capacity that is seldom used, but necessary for reliability.
However, this use case is not as straightforward as it sounds. Recent research (1,2,3) suggests that the ability for battery storage to provide firm capacity required for reliability diminishes as storage deployment increases. This could lead to saturation and require storage duration beyond the generally accepted 4-hour size. In addition, even if storage becomes competitive with new gas peaking generation, the demand in North America is somewhat limited. Gas peakers are struggling to find a market themselves and battery prices will have to drop much further to compete with existing infrastructure.
3. “Distributility” sizing is best
Somewhat like solar PV, battery storage has a Goldilocks size that makes sense. Behind-the-meter applications are costly because they do not have economies of scale and depend on demand charge avoidance and rate structures to stay in place. However, the technology is fairly modular, so it does not require projects in the hundreds of MWs to achieve economies of scale. This means projects in the 5-20 MW range can be competitive. This allows them to be deployed at the seam between transmission and distribution systems, crucial for non-wire alternatives solving both grid and distributions constraints. The challenge will be figuring out how to interface between the local distribution utility and the bulk transmission system operator (ISO/RTO).
4. Hybrids will continue to dominate
Most storage development to date has been in hybrid applications; a battery coupled with a solar plant, wind plant, or even gas peaker. While there is often little technical justification for locating batteries at large renewable generation sites that are far from loads, I believe this trend will continue because hybrid projects afford other benefits like tax benefits (investment tax credit), simplified procurement (financing, PPAs, regulatory process, etc.) and simplified sitting. The recent FERC 845 ruling will accelerate this trend further.
5. Long-duration storage is still needed
Much of the declining costs and recent deployment of energy storage has been specific to lithium-ion battery technology. This provides a great storage resource for relatively short duration (less than 8 hours). Technological advances have largely missed longer duration. For very high renewable penetration grids, there will be a need for longer duration energy shifting, including both storage and demand response. Renewable resources can vary by week, month, and season. Excluding large hydro reservoirs, there is no way to store energy at that duration. Bill Gates and others have recognized this limitation and have made calls for more research. If we want to break our dependence on fossil fuels, this challenge still needs to be solved.
2019 will undoubtedly be another big year for battery energy storage in the power industry. However, the potential growth is not straightforward. As the technology evolves, so to will the use cases and markets. Stay tuned and let us know what you think the future will look like.