A framework limiting global temperature rise was first outlined by Yale economist William Nordhaus in his 1975 paper “Can we control carbon dioxide”. The significance of this concept has since been stressed by the Intergovernmental Panel on Climate Change (IPPC) and the 2015 Paris United Nations Framework Convention on Climate Change.
However, even with forecasts of the world’s electricity generation comprising 50% renewables by 2050 and the $548 billion to be invested in battery storage, Bloomberg New Energy Finance believe we are on the course of missing the established target of global emissions. This target would have ensured the level of atmospheric CO2 concentration to remain below 450ppm, the point at which we limit global temperature rise to 2 degrees Celsius. Surpassing this is argued by some to increase risks and even cause catastrophic impacts to our planet; giving rise to the more stringent 2015 Paris Agreement goal of limiting global temperature rise to 1.5 degrees Celsius.
Variable renewable energy (VRE) comprising 50% of total generation is expected to be balanced in part by a surge in storage technology with respect to grid power and quality. This includes battery applications for electronic goods and electric vehicles – the latter representing 9% of total electricity demand by this time - as well as grid and behind-the-meter storage applications. Battery storage costs have seen a 79% decrease since 2010, with a projected further 67% decrease by 2030. Adding solar PV cost reductions of 71% and wind cost reductions of 58% helps to paint this new normal where we move from a plant mix of two thirds fossil fuel generation to two thirds renewables by 2050.
The argument is that cheaper batteries can make wind and solar generation more dispatchable. They can store excess energy production during the day, in the case of solar for example, and shift time of use for when it is required in evening peaks. This dynamic squeezes out coal and large gas fired combined cycle generation, with gas peakers picking up on some of the required flexibility to balance VRE in Stanley grid-style generator-centric balancing.
Flexibility comes in many forms. Examples of this include demand side management schemes where consumers opt into programs to reduce their demand at times of system peaks; EV charging schemes offering the ability to shift charging times outside of peak; conventional balancing, performed by flexible gas fired peaker generation; hydro schemes; the hydrogen economy, and other forms of power-to-fuel-to-power conversion technologies, amongst others.
So, in the race for battery storage and what seems like a safe pairing with VRE we will likely end up with a plethora of technologies inside and outside the grid. New technologies will be driven by climate change, consumer demand, government policies and grid regulation. Some notable progress includes the US Federal Energy Regulation Commission (FERC) finalising a rule, allowing energy storage to compete alongside generators and other resources in wholesale power markets offering capacity, energy and ancillary services on an equal footing.
Gathering interest in the distributed energy space
Given the hybridisation of applications of combining battery storage with other forms of generation – both at utility and distributed scale - it is worth highlighting capital movements in the distributed energy space more generally.
Many of the recent acquisitions by European energy companies have been to purchase companies specialising in this space; perhaps to act as a platform to secure a customer base that may benefit from future packaged sales of product and service outside of their core business. Even the large oil majors, such as Total and Shell are venturing into new energy in recent times. Notable deals have included Enel’s $300 million purchase of the demand response company, EnerNOC, Centrica’s $81.4 million purchase of Restore, a demand response aggregator, and Ormat’s $35 million for Viridity Energy – energy storage combined with market access.
Energy storage transactions include Wartsila buying Greensmith, Aggreko buying Younicos, and Trane buying thermal energy storage player, Calmac last year. There is also General Electric’s launch of battery integration for gas fired turbines and power plants, and the formation of Fluence, the energy storage joint venture between Siemens and AES increasing their geographic footprint and product and service applications range.
The costs of energy storage
Battery pack costs have declined from $1000/kWh in 2010 to $230/kWh in 2016. However, McKinsey’s analysis interestingly notes that it is the balance of system costs that have declined at a faster learning rate in the recent past – comprising cost reductions in inverters, wiring, containers, climate control, and other hardware. The soft costs of development and procurement reduce as standardisation helps to optimise execution. Engineering, procurement and construction costs also fall. The technology basis, duration, power, and energy density characteristics of a battery also play a role in pricing.
The value streams of energy storage
Key value streams for energy storage in the utility and electricity market include wholesale energy arbitrage, frequency regulation, renewables smoothing, and local capacity. Some of the higher return projects will be driven by the delay or reducing the requirement of expensive distribution or transmission network upgrades where networks are under constraint.
For commercial and industrial customers, business models may be driven by reducing demand charges, increasing self-consumption of renewable energy and for power backup and reliability reasons. According to McKinsey, the value streams are forecast to increase in the near term. Battery storage tends to transition from one function to another, so the “stacking of services” tends to be in series, rather than in parallel stacks.
An example of one of the more interesting models concerns datacentres and other high intensity – high reliability electricity users. These users are beginning to utilise the sunk investment of battery storage (essential backup/ reliability) to access arbitrage and ancillary service markets, earning secondary income streams where markets allow. The coupling of battery storage with other forms of generation, for example in island microgrids or industrial and commercial self-generation schemes is also a growing theme. In these cases, vendors now offer some standard products and service platforms as well as ability to control across the system, with respect to both user and market signals; an application popular with distributed energy resource players and aggregators.
Behind-the-meter battery storage models arise with net energy metering schemes and offer prosumers an ability to self-generate or export back to the grid. Battery storage rule-sets provide a passive set and forget capability for doing so, phone apps enable more active user control in this process.
To a large extent, the revenues may be treated as a series of future option value streams. Any economic underpinning delaying or avoiding expensive capital network reinforcement and upgrades tends to help simplify and promote a positive financial investment decision. Battery storage will likely be one of many ways to provide balance to VRE.
Constraints of energy storage
Given some 70% of the rechargeable battery market is expected to be comprised of lithium ion by 2025 it is worthwhile to highlight some of the constraints. For Li-ion battery storage, a limitation concerns the resiliency and socio-economics around raw material supply; in particular cobalt, graphite and lithium. 65% of cobalt is mined in the Democratic Republic of Congo which is deeply politically unstable, and graphite and lithium pricing is sensitive to supply and demand. This reinforces a requirement for a more abundant range of raw materials and choices for the battery manufacturing process in order to meet demand.
Other typical constraints for battery storage include the total number of charge/ discharge cycles over battery life – in addressing the balancing services market, frequent charging and discharging may degrade a battery more quickly. Batteries degrade in performance over time so there needs to be either potential oversizing upfront or a “replanting” strategy towards terminal life. The minimum reserve capacity in some battery technologies may also limit the potential of full 100% charge/ discharge cycles.
The duration of battery storage can also be a constraint for applications; both in particularly short and in longer duration market requirements. Where heating, ventilation and cooling is required this presents a parasitic load and impact to round trip efficiency. These battery storage limitations all point to a need for an ecosystem comprising a diverse set of energy storage technologies and both an appropriate system design that is flexible and intelligent enough to maximise the benefits in an appropriate regulatory framework.
In conclusion, a diverse range of energy storage is required as part of an ecosystem of solutions helping to balance VRE. We will likely see consolidation in the energy storage space over time. As prices commoditise, it will be “system thinking” companies that can best articulate and deliver sustainable value. These are the companies with optimised soft costs, higher operational efficiency and who are also able to combine these with other flexible technologies in smart ecosystems to deliver optimised outcomes for consumers.
The Faraday Grid doubles VRE hosting capacity of the power grid and simultaneously addresses the energy trilemma in a manner that is agnostic to supply and demand. The independent value articulation of a full Faraday Grid effect by Greenhill Investment Bank is estimated to be worth over GBP2 billion to UK plc in relation to the historic electricity market outcome of 2017. This considers positively impacting transmission network use of system charges, fast reserve, short term operating reserve (STOR), footroom, constraints, reactive power, frequency response, distribution use of system charging, renewables curtailment, transmission and distribution loss, reduction of CO2, and capacity market. The Faraday Grid may help accelerate a better outcome to any reference global temperature rise targets. The adoption of the Faraday Grid on a global basis provides a platform to enable a diverse range of energy storage and VRE; and ultimately helps the economy, the environment and enable consumer choice.
 VRE – power production is variable when the wind does/ does not blow or the sun does/ does not shine/ or solar PV is impacted by cloud cover
 BNEF “Batteries boom enables world to get half electricity from wind and solar by 2050” June 2018
 BNEF New Energy Outlook
 Bloomberg, Batteries set to compete against generators in power markets, February 2018
 Greentech Media, “Was 2017 the year global energy giants went all in on the distributed energy revolution?” December 2017
 McKinsey, Battery storage: the next disruptive technology in the power sector, June 2017
 McKinsey, The new rules of competition in energy storage, June 2018
 McKinsey, Battery storage: the next disruptive technology in the power sector, June 2017
 Visual Capitalist, The critical ingredients needed to fuel the battery boom, 2016
 Round trip efficiency refers to the ratio of energy saved by a type of storage technology relative to the energy retrievable from this storage.