Decentralised energy storage looks likely to become more prevalent in the coming years as the energy transition ramps up and technologies begin to mature. What is less certain, however, is how to make the myriad solutions to the energy storage conundrum commercially viable.
From relatively well-established technologies such as pumped hydro storage and lithium-ion batteries, to newer, less tested ones, such as Swiss company Energy Vaults’ concrete stacking system, the range of options is growing exponentially. As Patrick Clerens, secretary general of the European Association for Storage of Energy (EASE) recently told Engerati, storage capacity in Europe is expected to reach 5.5GWh by next year, while the European Commission has predicted that the global battery market alone could be worth €250bn by 2025.
The demand is clearly there, given the intermittency of renewables, but making money from that demand is another thing entirely. Commercial, technological and regulatory barriers abound and will need to be overcome if the predictions about the growth of the market are to come true.
“I’d be a little cautious of buying into the line that storage will be built in vast quantities in all countries,” warns Ben Irons, co-founder and director of Habitat Energy, a company that trades and optimises battery storage in wholesale markets.
“For sure, a lot of storage will get built, but only where there’s a commercial motivation. In some countries and for some business models we’re seeing this happen already – in many cases it is contracted revenue for ancillary services for the system operator, in other cases it’s co-located with renewables or standalone merchant storage. But every country and every market is different. This emergence of low-cost batteries or renewables build-out does not on its own imply that storage will follow.”
Irons says that anyone looking to enter the market should look very closely at the local market conditions and develop a detailed investment case. By way of illustration, he adds that in Germany for example, there are plenty of renewables, but such an overhang of under-utilised coal and gas plants that the wholesale price volatility is not sufficient for merchant storage to enter.
So where do the opportunities present themselves? Which players and which technologies are best placed to take advantage? And what barriers must still be overcome?
When it comes to commercial viability, the most obvious place to start is price. Here, lithium-ion batteries seem to be the clear frontrunner. According to Bloomberg New Energy Finance, lithium-ion prices have fallen 85% this decade, from $1,160/kWh in 2010 to $176/kWh last year.
But lithium-ion also has an advantage when it comes to use cases as well.
“A key advantage for the technology is its flexibility to be designed to provide many different applications,” explains Alex Eller, a senior research analyst at consultancy Navigant Research. “Early lithium-ion projects provided frequency regulation and other short duration, high power services. Many new lithium-ion projects are built to discharge at full capacity for four hours or longer to shift solar generation from midday into the evening peak periods.”
One drawback for lithium-ion is that it is relatively carbon intensive. Although reports on the extent of its carbon footprint vary, the reliance on rare earth metals means that there could be constraints on how low that price can go. That’s particularly true given the potential escalation of the trade war between the US and China, and the possibility of political pressure being applied to manufacturers from governments looking to decarbonise.
That said, the current supremacy of lithium-ion poses a different challenge for competitors.
“Because it [lithium-ion] is so pervasive, the problem is how can you get the more efficient chemistry to scale,” says Simon Daniel, one of the co-founders of Moixa, a British start-up that develops intelligent battery products.
“You need billions and billions of pounds of investment to create the factory capability to compete against the store base of lithium global manufacture. It’s a tremendous barrier for anyone to get something to scale against that incumbent.
“Batteries were £1,000/kWh 10 years ago, now they’re £100/kWh. That’s a tenfold difference in profit, so you’d need that price curve if you’re a new technology.
“When lithium-ion was invented, it took 10 years before it was scalable. If you invent something today in the lab, you are 10-30 years away from scale market because of the economics of going in.”
Moixa, which among other services provides distributed storage for distribution networks, end consumers and the grid, was one of four companies backed by the UK’s Department for Energy and Climate Change (DECC; now Department for Business, Energy & Industrial Strategy (BEIS)) to develop storage demonstration projects following a competition in 2015.
Moixa’s aggregator model, while not strictly speaking an alternative technology to battery storage, does show how new applications of existing technologies can make them more commercially viable.
In Japan, for example, the company’s GridShare AI platform is being used in 80MWh of batteries spread among 8,000 homes. The software Moixa installs both reduces household bills and aggregates spare capacity to deliver back to the grid when necessary.
“If there’s a blackout like the recent one in the UK, in Tokyo we could deal with some of that by pressing a button,” explains Daniel. “In ten years’ time we could have 1GWh so if the rules allow me to get paid properly to press a button at the right time, that could be quite useful.”
The other winning bidders from DECC’s 2015 competition show the range of technologies jostling for space alongside lithium-ion. They were: Redt’s vanadium flow battery project, which targeted 40kWh units worldwide; a 5MW/15MWh liquid air energy storage (LAES) plant developed by Highview and Viridor, which was opened last year; and a modular battery storage solution using recycled batteries from electric vehicles (EVs).
EV as a storage asset
The growth of EV use is certainly going to be a major factor in which technologies gain traction in the market. Their ability to feed power back to the grid could be transformative as they begin to replace conventional vehicles.
“We have seen prices for batteries for EVs going down by over 80% in the last few years,” comments Hélène Lavray, senior advisor for renewables and environment at trade body Eurelectric.
“We’re not at price parity compared to conventional cars but we’re getting there. That will be an important part of the storage story and we are working hard to make sure that all these EV batteries can play a smart role in the future energy system.”
Lavray adds that other members are looking at alternatives to batteries, such as pumped hydro, but once again the economics could prove to be a problem.
“There are some economic barriers to that,” she elaborates. “Upfront investment is quite important to it.
“In general, there are problems in certain countries with double taxation. Electricity is taxed at consumption level. Thus the electricity that is used for the charge of storage is exposed to tax as well as when electricity is extracted from the storage device to the grid.”
Whatever the particular storage technology, the problem of how to generate sufficient returns to attract the investors necessary to build scale is pervasive. The size of that problem is different in different markets, as Habitat Energy’s Irons explains.
“If you’re thinking about the merchant arbitrage business model, what you need first and foremost is some volatility in power market prices as what you’re trying to do is buy power when it’s cheap and sell when it’s expensive. So if those prices aren’t moving substantially and frequently during a typical day then your ability to generate an attractive return on your investment is going to be limited.
“On that dimension, generally mainland Europe does not offer as much volatility as the UK or Ireland because it’s such a big blob of supply and demand. There’s more time zones, weather systems and interconnection within the continent and so more opportunity to smooth out prices. For storage, that’s a bad thing.”
Indeed, with the exception of the UK and Ireland – and the Benelux countries – Irons argues that “in a lot of Europe, battery storage isn’t really investible on a merchant basis at the moment”, with Italy and Iberia being possible exceptions because of the development of a merchant solar market.
There is also the problem of regulation, with regimes varying from country to country across Europe, but most still more suitable to a world relying on pre-transition sources of power.
“The key challenges in markets around the world are regulatory rules and structures which do not recognise the unique characteristics and benefits of energy storage,” says Eller. “Most market for energy and ancillary services have been designed only for fossil fuel power plants. For the energy storage market to reach its full potential, regulatory reforms are required that will enable new markets and grid service products that are designed for the advantages energy storage can provide.”
Eurelectric’s Lavray agrees with this assessment, noting how the European Commission is currently awaiting delivery of its member states’ national energy and climate plans.
“In terms of storage, [draft] plans are quite disappointing,” she comments. “It will be important that member states and the commission ensure there is the regulatory framework at national level to incentivize storage, whatever type of storage. In many countries they are not doing that much at the moment."
However, there is a clear need in some member states for regulation to start playing catch up, as the energy transition starts to take hold, storage capacity increases and the decarbonization agenda grows ever more important.
In Germany, for example, the double taxation mentioned by Lavray is a major problem. Here, storage facilities are treated as consumers when drawing electricity but as generators when they provide it back to the grid. Since energy consumption is subject to a number of levies, energy from storage facilities can prove more expensive. A similar situation is at play in France.
And yet in both countries, there is a pressing need for a revision of these regulations. In Germany, government policy has set a target of 60% of all energy to be generated from renewable sources by 2030, while it has also begun decarbonizing its transport system. Both of these require the greater flexibility that comes from increased storage capacity.
In France, meanwhile, several of Europe’s largest energy players are ramping up their storage plans. EDF has declared its aim of becoming Europe’s leader in the sector by 2035, while a consortium of its rivals – including Total Direct Energie and Enel – is developing vehicle to grid technology using second-life EV batteries. Renault has also launched its Advanced Battery Storage project, a 70MW second-life battery facility.
And while the regulatory framework struggles to keep up, systems operators’ efforts to smooth out lumps in the flexibility market make it even harder – on a commercial level – for storage developers (and their investors) to achieve viability.
“This is the paradox,” conclude Irons. “The system needs some scarcity and price volatility before these flexible assets get built. And yet the regulators and system operators are trying to achieve the opposite – they want things to be smooth and stable with lots of spare capacity. But in that case, there is no motivation to build flexible assets unless other incentives are introduced.”
The storage market is almost certainly set to grow and diversify – and may do so very quickly. But it is far from guaranteed that all those players bringing new technologies to market will flourish.