DNV GL

Going forward, 2019-2020 will look like the year that energy storage took off. Energy storage has already been growing rapidly, with many notable projects of increasingly larger size. In 2014-2015, a project that was considered large was rated at a few megawatt-hours. Energy storage is rated in both power (MW) and energy (MWh), where the MWh rating is the MW rating multiplied by the number of hours it can discharge. Today, project ratings over 100 MWh are common. Fluence has a project scheduled in Long Beach rated at 100 MW/400 MWh. Vistra energy has a proposal for a project in the US rated at 300 MW / 1200 MWh to go online in 2020. And they keep getting bigger.

   Anyone in the energy business should be looking hard at energy storage and trying to figure out whether they can use it at their existing interconnections or if they can add it to their project pipeline  

It used to be that long duration storage was only achievable with flow batteries or pumped hydro. However California’s resource adequacy market requires a minimum of 4-hour duration and most of the contracts are met with Li-ion batteries. Recently, FERC Order 841 required that all independent system operators (ISOs) within the US propose an “energy storage participation model” with implementation by the end of 2019. This order will create markets for energy storage across the US. The payment structure and requirements for duration are yet to be settled, however many ISOs are requiring four or more hours of storage. PJM’s requirement is perhaps the most astounding: up to 10 hours of duration, representing a total potential market of up to 210 GWh. In New York, the governor set a target for 1500 MW of energy storage by 2025 and 3000 MW by 2030. Between all of the upcoming markets and policies, there are 225 plus GWh of energy storage opportunities across the US when the duration requirements are accounted for.

Meanwhile, the energy landscape is changing. In PJM’s base residual auctions up to three years out, renewables are price makers and are undercutting the cost of energy of coal, nuclear, and even gas. At record low gas prices, gas plants can’t compete. This change happened rapidly and unexpectedly. In the mid-2000s gas plants were built all over the US and comprise the majority of new electricity generation capacity over the last decade. Yet within that same decade, renewables overtook gas-powered generation as the cheapest energy available. In CAISO, this has created more volatility. CAISO’s 2017 report on the market clearly stated that as gas plants retire, capacity has reduced and led to higher price spikes in energy and ancillary markets. Most of the new capacity in CAISO is solar, which introduces more volatility. CAISO has stated directly that faster-ramping resources will be needed going forward.

All of these market factors imply the growth of more energy storage. Standalone energy storage can already be built and financed in projects like California’s resource adequacy contracts or PJM’s frequency regulation market. Just as a merchant gas generator boom occurred, surely there will be a boom of merchant generation with storage. Adding storage to solar, wind, or even gas plants creates new flexible ways to dispatch those plants at opportune times. With AC energy storage costs approaching 200 dollars per kWh and lower, it is only a matter of time before energy storage will be a part of any energy project going forward. There once was a time when data storage was expensive; now there are multiple redundancies in data storage because it is cheap and ensures data reliability. Cheap, redundant energy storage in the future grid will ensure reliability.

To summarize, a market sized above 225 giga watt-hours has opened or is opening in the US within 2019. If a turnkey energy storage project can be built for 500-600 dollars per kWh including all balance of plant and development costs, this represents up to a 135B dollars market. Anyone in the energy business should be looking hard at energy storage and trying to figure out whether they can use it at their existing interconnections or if they can add it to their project pipeline. The energy storage projects of today will be the necessary foundations of resiliency that the future, more volatile grid will require.

There is one final point to make concerning the overlap of the grid with electric transportation, and what this means for stationary storage. Automotive battery demand has traditionally been about 10x larger than stationary storage battery demand, and stationary storage benefits from automotive scales and cost reductions. Ten years ago, Chevrolet released the Volt plug-in hybrid with its LG Chem Li-ion batteries and a remarkable 30 plus mile electric range. A decade later, it is possible to buy a Tesla for 40,000 dollars that has more than 220 miles of electric-only range with a proven profit margin of up to 30 percent. And every automaker has an EV of similar specifications to be released within a year. This rapid acceleration of EV adoption not only assures that battery costs will continue to decline and improve in quality and energy density, but it also assures that the electricity markets will become even more volatile. In 2008, the US peaked in petroleum use with about 40 quadrillion BTU for the transportation sector. If every vehicle on the road was replaced by EVs, this represents a displacement of 40 quadrillion BTU – or about 11,722 TWh annually - to the electricity sector. A charging station with 10 kiosks delivering 50 kWh each in 30 minutes is a 1 MW load. This peaky, intermittent, and unpredictable load will require the existing 1 TW of electricity generation to be supplemented by another 1.3 TW if it were expected to meet the peak transportation demand. However, there is a positive alternative: with storage, much of this load can be distributed across the peaks and valleys of daily demand faster and cheaper than building more wires and generators. There is also an obvious opportunity to place storage behind EV charging stations to buffer the load directly.

With these strong market drivers, the energy storage market is a guaranteed growth sector.