The Future of Utility-Scale Electrical Storage

By Mike V.

This post will discuss the future of utility-scale electrical storage, but first some updates on solar power which was discussed earlier in the class.  There is good reason to dwell on technological and financial progress of such topics, as all the corporate sustainability issues discussed in class ultimately have a cost hurdle.  If all costs to switch to more sustainable practices were eliminated, this class would have no reason to repeat next year.

In late September, several companies announced the construction of a 70 MWp solar plant in Chile, Project Salvador, that is unsubsidized and will sell into the local spot market.  This marks a milestone for the industry showing that costs have dropped to a truly competitive level (in one location with one consortium’s forecasts of future electricity prices).  There is debt financing from the US government through OPIC, which some may say invalidates the unsubsidized claim, but this is hardly the only interest rate where the US government is actively intervening.  Figures from the press releases indicate a total cost of $200 M USD with annual output of 200 GWh.  Back of the envelope numbers suggest an ongoing electricity price of over $100 USD / MWh to generate a healthy return on capital which seems high.  More importantly, several private entities are deploying significant cash to build and operate this like a typical merchant power plant.

Consultants’ estimates for 2014 solar volumes are being released which are typically constructed on a country basis.  Global forecasts currently show an acceleration in volume growth from the past three years to over 40 GW.  This is impressive as growth rates should naturally slow from a higher base.  This proves price elasticity for the product.  Industry revenues may not grow much with lower prices, but volumes are.

Utility-scale electricity storage is currently at the most exciting time for observers where imagination and economic hypothesizing can run wild.  The broad history is that years after research money was poured into fuel cells and automotive batteries, many chemical recipes and mechanical structures were prepared for energy storage.  Utility-scale electricity storage became inviting with none of the space, weight, temperature, fluids, etc. constraints of automotive batteries.  Cost trumps everything, and many startups and corporates are currently competing.  Electrical power grids globally have effectively zero storage.  Rather than forecast market size and winning technologies, I will make several forecasts with more confidence.

Most investors today will lose 100% of their money.  Like the dozens of search engines and car batteries of the past, only a few will survive the technological race.  There’s a loose case that performance demands vary widely here allowing more narrow winners, but that case was made in every technology race.

Costs need to get near $50 / kWh for the market to develop.  Or risk the folly of US ethanol.  Quick math:  easiest buy and sell is nighttime-daytime that has about a 3c / kWh difference.  Over one year that’s $10 / kWh, and a five year pre-tax payback demands an upfront cost of $50 / kWh.

Wind is probably the biggest winner.  Wind generally has the biggest issues with scheduling and misalignment with high electricity price times (during high air-conditioning demand).

Customer base will be varied.  End electricity users could have as much benefit as generators in choosing times to charge-discharge power.

Financial traders probably the biggest losers.  With stabilization of prices from stabilization of supply, there is simply less value creation in being a financial intermediary in the energy markets.

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One Response to “The Future of Utility-Scale Electrical Storage”

  1. Interesting perspective on storage. I would propose that we need a new and different pricing structure to incorporate utility scale storage (batteries) onto the grid. The value proposition of batteries is beyond just the deployment of intermittent power, such as wind. The value proposition should incorporate ancillary services, such as grid stability (ramp-up/ramp-down) that are incurred with the use of any power plant, not solely renewables (though wind ramps up/down most frequently).

    Further, batteries provide reserve capacity that can be deployed on demand. Think of this as a peaker plant at your disposal. Additionally, batteries provide the ability to reduce market inefficiencies by allowing power plants to produce at full capacity compared to partial capacity levels. One could argue that the “marginal cost” of the MWh produced to bring the capacity level to an optimal level is very minimal. The issue then becomes, how do you charge the firm who is storing the power, at a price that is representative of this marginal cost.

    Finally, on the technology side, not only do we need to bring the price curve down, but we need to find a way to improve efficiency. Storing power from off-peak to on-peak periods will result in a 60-70% yield, meaning 30-40% of the electrons are lost. This is very costly for an operator of a battery as they will need to buy up to 50% more power than they can actually sell. Technology needs to follow so that we reduce this massive inefficiency and only need to produce a quantity of power that we can actually sell later.

    Here is a white paper that details many of the issues I outlined above: http://www.apcmedia.com/salestools/DBOY-77FNCT/DBOY-77FNCT_R2_EN.pdf

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