Navigant Research Blog

U.S. Energy Mix Shifts toward Renewables, Natural Gas

— April 20, 2015

The U.S. Energy Information Administration (EIA) has released figures for scheduled additions and retirements of generation resources in the United States during 2015. According to the EIA, the United States is expected to add 9.8 GW of wind, 6.3 GW of natural gas power plants, and 2.2 GW of solar—all of which make up 91% of the total 20 GW that is expected to come online this year. No coal plants are scheduled to come online this year, and 12.9 GW of coal and 1.98 GW of natural gas will be retired. Not only does this signal a shift in the U.S. energy mix, but it also indicates that there is a great deal of investment in wind, gas, solar, and even nuclear in the U.S. market. That said, 12 GW of this capacity is variable and will require some type of firming or integration. Often, this balancing is executed by gas power plants, which are more flexible than nuclear plants, for example.

Sources: U.S. Energy Information Administration, Electric Power Monthly
Note: Other renewables include hydroelectric, biomass/wood, and geothermal.

Overall, a healthy amount of capacity is slated to come online in the United States, thanks to market signals such as the Production and Investment Tax Credits. That said, what can we expect to happen in response to the difference between generation and load if the market is not encouraging investment in generation assets?

Shrinking in Texas

I learned at the ERCOT Market Summit that Texas is in a tenuous position with a current reserve margin of 15.7% in 2015 that is expected to shrink to 7.3% by 2024. The reserve margin is a reflection of a grid’s ability to cope with unpredictable but foreseeable events—such as a generator tripping offline or a sudden spike in load. These are not uncommon occurrences, but forecasting them is impossible; hence, the margin.

In Texas, the shrinking reserve margin is a function of power plant retirements and an increase in overall load. In addition, Texas is one of the most deregulated energy markets in the world. This means that it is very unlikely that the state would employ any type of market intervention, such as a mandate or a subsidy, to encourage investment. Instead, it is up the market to adapt in order to embolden the right participant behavior. So far, as evidenced by the shrinking margin, the market is not sending the right signals to encourage investment in power plants.

Markets designers in deregulated markets already looking ahead. Texas has decided against a capacity market and is instead developing reserve products for short-, medium-, and long-term reserves. These products are unlikely to offer the lucrative and consistent returns natural gas power plant developers are looking for, but they should open the door for alternative technologies, including storage.

 

Energy Storage Leaders Stumbled, Then Survived

— March 20, 2015

At a time when the major electric industry players were either unwilling or not nimble enough to develop energy storage systems integration expertise, four growing energy storage players with four distinct technologies took a risk to develop this expertise. Over the last few years, each of these companies failed financially and was subsequently acquired, in some cases more than once. In nearly every case, private equity firms stepped in, seeing an opportunity to invest in a maturing technology company with specialized expertise in the market.

Citing Tesla founder Elon Musk’s determination to build a massive Gigafactory to manufacture batteries for his vehicles, E Source Senior Fellow Jay Stein has argued that company failures like these indicate the shortcomings of the overall market. This is a logical fallacy.

Number of Deployed Systems Market Share by Top 10 System Integrators, Excluding Pumped Storage and CAES, World Markets: 1Q 2015

(Source: Navigant Research)

Detours Behind

The chart above is derived from Navigant Research’s Energy Storage Tracker 1Q 15, a global database of energy storage installations that includes 808 projects. This specific graph charts the top 10 systems integrators of energy storage in terms of number of systems deployed globally. Four of the 10 market leaders for systems integration have gone bankrupt and been acquired in the past several years. NEC Energy Solutions, formerly A123 Energy Solutions, was acquired following a bankruptcy filing, and the grid business was subsequently spun off and sold to NEC Corporation for approximately $100 million in 2014. Beacon Power was acquired by a private equity firm following a bankruptcy filing in 2012, and Xtreme Power (now Younicos Inc.) was acquired by Younicos AG in 2014, also after filing for bankruptcy.

All three firms were focused on a core grid storage technology (lithium ion batteries, flywheels, and advanced lead-acid batteries, respectively), but all spent a great deal of resources in the earlier days of the market learning how to integrate complete systems. Ultimately, all three firms developed this expertise, and NEC Energy Solutions and Younicos repositioned themselves as systems integration companies, offering software, controls, and integration expertise as opposed to pure-play battery suppliers. Beacon Power is a market leader in flywheels and flywheel systems integration and has developed a modular flywheel product with built-in power electronics for simpler integration and installation.

Managers, Not Markets

Finally, Coda Energy repositioned itself as an energy storage integration firm in 2013 after filing for bankruptcy. The company rebranded and shifted its product offering to target stationary energy storage using a battery management system, battery thermal management, and a sophisticated power source controller.

Together, these four companies account for 21% of the global market share for the top 10 systems integrators (although part of this market share is attributed to Younicos AG). These companies and others like them are challenging incumbents such as ABB and S&C Electric, demonstrating that their earlier stumbles arose out of flawed management and/or strategy, not failed markets or futile technologies.

Equating a management failure with a market failure ignores the value of the technology. Whether the Gigafactory will be Musk’s Waterloo or Austerlitz has less to do with the technology and much more to do with Tesla’s strategy and execution—and Musk has proven he can accomplish both in the automotive and the financial services worlds.

 

Islands Sail into Energy Storage

— March 3, 2015

Saddled with the highest electricity rates in the world (and threatened by climate change more than almost any other communities), many islands and isolated grids have opted to integrate wind and solar to replace expensive, imported diesel fuel. One challenge for these systems is that they do not have the benefit of calling upon neighboring systems to balance their wind and solar against load–leading to instability and insecurity of supply.

As a result, many remote grids are adjusting their technical requirements for connecting intermittent resources like wind or solar to the grid, requiring that these resources be firmed. In late 2013, for instance, Puerto Rico adjusted its technical requirements for connecting wind and solar assets to the Puerto Rican grid. This isn’t a direct requirement for energy storage specifically, but is a good fit for storage.

The Flywheel Option

Other island markets are betting on storage more directly. Aruba has committed to an aggressive plan to become 100% renewable by 2020 and has signed agreements with BYD and Temporal Power, as well as a power purchase agreement with Hydrostor in order to achieve its energy goals.

The typical applications in these markets are wind, solar, and diesel hybrids. In previous years, the most common technology for remote, isolated grid storage was advanced batteries. This was partly a function of availability and technology fit. Very few other storage technologies are modular–underground compressed air and traditional pumped storage require specific geologies–and few vendors were targeting the space. Moreover, the working assumption in terms of technology fit has been that a longer-duration storage system is more valuable than a short-duration storage system. Several flywheel vendors are disproving this assumption, however.

ABB’s Powercorp, for example, uses flywheel technology in remote microgrids, such as the BHP Billiton nickel mine in Western Australia and the Coral Bay community in Northwestern Australia. These are remote diesel-led systems.

Way Up North

Beacon Power has commissioned a demonstration project in St. Paul, Alaska, combining an existing plant, which includes a 225-kW wind turbine and 300 kW of diesel generators, with a 160-kW flywheel system. In this scenario, the flywheel system will enable the host utility to further improve wind utilization and deliver fuel savings of up to 30% over existing (pre-flywheel) consumption levels.

While it is still the case that some amount of long-duration storage is necessary in order to achieve very high renewables penetration on an isolated grid, flywheels are demonstrating that significant diesel savings can be achieved with as little as 30 minutes or less of storage.

 

Innovative Energy Storage Technologies Gain Ground

— October 18, 2014

According to the Navigant Research Energy Storage Tracker 3Q14, the 2007 to 2013 period has seen the commercialization of a number of key technologies in energy storage, including several advanced battery chemistries, flywheels, and power-to-gas.

The Energy Storage Tracker is a database of energy storage projects that tracks announcements and deployments of energy storage across a range of technologies in an effort to identify industry trends.  The chart below shows the deployed power capacity for six advanced storage technologies in utility-scale applications.  There was a peak in installed capacity across most of these technologies in 2011 and 2012 in response to stimulus funding under the American Recovery and Reinvestment Act.  The purpose of this funding was to jump-start the energy storage market, and while 2013 was a slow year for most battery technologies, preliminary 2014 data (not shown) indicates improved numbers over 2013 levels.  In contrast to advanced batteries, flywheels and power-to-gas saw an uptick in deployed capacity from 2012 to 2013.

Utility-Scale Energy Storage Power Capacity by Technology, World Markets: 2007-2013

(Source: Navigant Research)

Playing Catch-Up

Although no single technology is a clear winner in the global stationary energy storage market, lithium ion (Li-ion) has arguably established itself as a key frontrunner going forward.  Over the past 13 years, sodium sulfur (NaS) batteries, manufactured solely by Japanese power infrastructure giant NGK, have established themselves as the clear leader in terms of installed power capacity in the stationary energy storage space, with 243.7 MW from 2007 to 2013.  However, publicly announced deployments are typically large orders in the tens of MWs, which results in peaks and troughs in NGK’s market activity.

Li-ion sits in second during the same time period, with 231.9 MW aggregated over all its subchemistries.  In 2013, Li-ion had the highest number of MW installed and managed to keep output steady with 2012.  Of this 231.9 MW, lithium iron phosphate (manufactured by A123 Systems, now NEC Energy Solutions and BYD) accounts for at least 114.8 MW, lithium titanate (manufactured by Altairnano and Toshiba) accounts for at least 10.6 MW, and lithium manganese spinel (manufactured by Samsung SDI and LG Chem) accounts for at least 16 MW.

Peaks and Valleys

Other technologies that have seen significant deployments from 2007 to 2013 include advanced lead-acid batteries (71.4 MW), the vast majority provided by Xtreme Power (now a part of Younicos).   More than 58 MW worth of advanced flow batteries were deployed, primarily by ZBB and Premium Power, during the same time period.  In addition, 50.9 MW worth of flywheels were deployed, with 45 MW of that capacity coming from Beacon Power (though 4 MW of Beacon’s installations have since been decommissioned).   Lastly, 11.1 MW of power-to-gas storage capacity was deployed between 2007 and 2013, primarily by ETOGAS and Hydrogenics.

In the early period of commercialization, it’s not unexpected to see strong years and weak years for technology deployment.  Li-ion is maturing and is showing signs of being a fully commercial technology, similar to NaS batteries.  Advanced lead-acid, flywheels, and flow batteries will continue to grow, but in some cases will be limited due to the small number of suppliers in the market.  Power-to-gas is in the very early stages of commercialization, and it will likely see growth and decline in deployed capacity in the demonstration stages before commercializing, similar to Li-ion.

 

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