Is energy storage the magic bullet for renewables?
Renewable energy is a serious rival to fossil fuels —but only when the sun shines and the wind blows. To take the industry to the next level, companies are now investing heavily in storage technologies, from huge battery arrays to high-tech flywheels, that allow them to literally save surplus energy for a rainy day.
A sign of the surging interest in the sector: total U.S. energy storage deployments rose sixfold between the first and second quarters of 2015, according to a new report, with 40.7 megawatts of new energy storage capacity added in Q2. Improving battery technologies are a significant part of the reason for that uptick, and the sector received a big PR boost when Tesla Motors (NASDAQ:TSLA) unveiled its Powerwall domestic battery systems, which began shipping to customers last week. Still, utility-scale deployments are where the action is really at: large-scale installations accounted for 87 percent of the Q2 energy-storage increase, with Powerwall-sized deployments accounting for only 1 percent of new capacity.
Battery prices remain relatively high, but that could change: a report for the Australian Renewable Energy Agency suggests that battery prices will fall by up to 60 percent over the next five years, potentially triggering a boom in battery deployments. “The rapid uptake of solar PV provides a useful analogy to what could occur in the energy storage market,”the report notes. Another report, from Navigant Research, predicts that strong demand in Asia, the U.S. and Europe will drive battery-sector revenues from $221.8 million in 2014 to $17.8 billion in 2023.
And there’s more to energy storage than just batteries. Pumped-storage hydropower, in which surplus energy is used to pump water uphill, where it can later be used to power turbines, remains about 20 times cheaper per kilowatt of storage than battery systems, according to a Citigroup report. Pumped storage is a proven technology, with 40 projects providing about 20,000 gigawatts of storage capacity in the U.S. alone. Still, the need to build large dams could give batteries an edge over pumped storage as prices fall. “If storage battery costs can be reduced to below $230/kWh, we believe demand for storage batteries as grid surplus storage infrastructure could expand,”the Citigroup report states.
Compressed-air storage systems, which pump air into pressurized caverns, have many of the same advantages as pumped-storage hydropower, but are far less widely used. One of the world’s few operating facilities, a 110-megawatt Alabama plant run by the PowerSouth co-op, has been running successfully for more than two decades, and utilities including FirstEnergy (NYSE:FE), PG&E (NYSE:PCG) and PSE&G are all making significant investments in compressed-air projects. LightSail Energy, a startup whose backers include Total (NYSE:TOT), meanwhile, is developing above-ground compressed-air technologies with a wide range of potential applications.
Flywheels are also an effective energy-storage system for specialized applications: the British Navy is experimenting with flywheels to power laser weapon systems, for instance. The technology’s ability to rapidly capture and release relatively small amounts of energy has also seen flywheels deployed in utility settings: Ireland’s SchwungradEnergie is currently building Europe’s first grid-connected flywheel system, while Beacon Power is developing a combined flywheel-battery storage system for use by remote Alaskan utilities.
Ultimately, experts envision a blend of storage technologies feeding into various points of the electricity supply pipeline, ranging from distributed, domestic-scale storage to colossal, centralized systems. “There’s going to be a mix between energy storage that’s grid connected, energy storage that’s customer connected, and energy storage that will be generation connected,”says Fred Redell, managing director of Abengoa, which uses molten-salt thermal energy storage at its solar farms.
One key factor that could shape the industry’s growth: the degree to which politicians throw their weight behind energy-storage initiatives. California passed the country’s first energy storage directive in 2013, requiring utilities to jointly purchase 1325 megawatts of storage by 2020. Oregon this summer implemented a similar, though less ambitious, measure, and at least eight other states have introduced legislation to encourage energy storage. Federal legislation to create a storage mandate for utilities was introduced in May, but is currently languishing in a Senate committee.
Investment in the sector is choppy, and driven mostly by early-to-mid-stage financing deals, according to a CB Insights report. “Tesla has put a spotlight on the industry and we may see more dollars enter the sector,”the report states. There aren’t many pure energy-storage plays for equity investors, but several ETFs have energy-storage exposure. BlackRock BGF New Energy (MERNEWA:LX) includes energy storage —chiefly hydrogen and flywheel technologies —as one of its key focuses. Invesco’s PowerShares WilderHill Progressive Energy Portfolio (NYSEARCA:PUW) also tracks a basket of storage companies, while First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRID) includes storage exposure as part of a focus on smart-grid technologies.
Despite limited opportunities for equity investors, the sector is worth watching, since continuing advances are all but inevitable, writes McKinsey analyst Scott Nyquist. Storage is the renewable-energy business’s magic bullet, he argues: the game-changer that will allow clean energy to break fossil fuel’s stranglehold on baseload generation. “Investment…is growing. Costs are falling. Technologies are proliferating. And people want it,”he writes. “There is one word that sums up the likely consequence of those trends: progress.”
Companies to watch
* Invenergy was single-handedly responsible for the bulk of America’s Q2 energy storage deployment, adding 31.5 megawatts to the country’s capacity with a new utility-scale project in Illinois. The company now has 65 megawatts of storage in operation or under construction.
* Panasonic (OTCMKTS:PCRFY) is challenging Tesla Motors in the small-scale storage sector by marketing standalone battery packs in Europe. That could create tension between the two firms, given that Panasonic also currently manufactures Tesla’s Model S batteries.
* SunEdison (NYSE:SUNE) is making a big play in the energy storage sector: in March, it acquired Solar Grid Storage, along with a 100-megawatt pipeline of new projects. The company also struck a deal to buy batteries from Imergy Power Systems for use in India.
Ben Whitford is the U.S. correspondent for The Ecologist. He has written for the Guardian, Newsweek, Mother Jones, Slate, and many other publications.