Navigant Research Blog

Is Consolidation Good for the Energy Storage Industry?

— August 5, 2016

Batteries 2New deployments of energy storage in 2015 broke records with more than 1,653.5 MW of new storage capacity announced. 2016 appears to be shaping up to be another big year. The past several months have seen several multi-billion dollar acquisitions of energy storage providers by large energy companies. Three of these mergers that made headlines were Total Energy’s acquisition of industrial battery manufacturer Saft, Engie’s purchase of Green Charge Networks, and Doosan’s agreement with software provider 1Energy Systems. Under synergistic circumstances, mergers can certainly jumpstart long-term growth for an enterprise, but the failure rate of mergers and acquisitions is between 70%-90%. This begs the question: will increased consolidation of the energy storage industry help or hinder the widespread adoption of new energy technologies?

To help illuminate the issue, it is important to understand why these energy giants are interested in energy storage. Daniel Halyk, CEO of Total Energy, stated that the ultimate goal of the company is to “accelerate its development in the fields of renewable energy and electricity, initiated in 2011 with the acquisition of (solar panel manufacturer) SunPower.” Total Energy is undergoing internal structural changes, and renewables are a key focus of its vision going forward. With the addition of a new fourth business, the company plans to capture several portions of the electricity value chain by expanding into downstream gas, renewables, and energy efficiency. Total Energy believes Saft is an ideal partner due to the company’s product portfolio, positioning in niche markets, international presence, and strong technical knowledge.

There exist several reasons why enterprises would choose to acquire companies: to increase profits of existing business segments (or decrease costs along the value chain), to fundamentally shift the core competencies of the company to another business segment, or some combination of the two. Creating shareholder value is important to secure longevity in any market; investor expectations help incent company innovation. Key motivations behind these acquisitions appear to be project financing and accessibility to behind-the-meter customers. Having more financial resources bolsters a storage company’s influence when bidding for larger grid storage contracts.

The Industry Looking Forward

Recent innovation in the storage industry has occurred with storage enabling technologies like software and controls and technical services components of the value chain, as several companies have emerged with primary expertise in technologies other than physical hardware. Investors recognize the value that these companies add to the profitability of a project and are making funds available to these integrators (e.g., GE Ventures’ $50 million investment in Sonnen and Macquarie’s $200 million investment in Advanced Microgrid Solutions). There could be other major mergers on the horizon in 2016, one of the largest being Tesla’s interest in purchasing Solar City. As the proposal builds upon a partnership that currently exists, some investors fear that anything beyond a partnership could lead to the demise of both companies. Tesla CEO Elon Musk states that if Tesla and Solar City truly want to scale up, the deal must happen.

While specific dynamics and patterns in energy storage markets vary considerably worldwide, energy storage systems can be invaluable assets that can provide flexible solutions for power providers and customers. Energy storage is increasingly becoming a cost-effective tool for grid operators to maximize the efficiency of existing power resources and infrastructure while helping to minimize costs passed on to ratepayers. All things considered, this is an exciting time for the energy storage industry, and we can expect many more changes to occur throughout the course of the next few years.

 

Dyson and Sakti3 Move Toward Solid-State Deployments

— May 13, 2016

BatteriesAs power and energy requirements are proving to be increasingly sophisticated for large-scale grid energy storage and automotive applications, many companies and research institutions across the globe are looking for alternatives to the lithium ion (Li-ion) battery. U.K. company Dyson acquired the rights to battery startup Sakti3 last December for $90 million and announced that it will invest an additional $1.44 billion to develop new battery technologies over the next 5 years. A portion of the investment will go toward building a new battery factory and R&D center.

Sakti3 is a pre-commercial battery technology firm based in Ann Arbor, Michigan, specializing in lithium solid-state battery chemistries. The company was founded with a goal of bringing next-generation battery technology to electric vehicles (EVs) and consumer electronics, stating that it intends to double the energy density at lower costs than current commercially available Li-ion batteries. Historically, solid-state batteries have been plagued by the solid-solid interface’s high resistance to ion intercalation (resulting in low power density) and performance scalability; Sakti3 believes that it has reduced design cycles and is on track to find the critical mass to take its technology to market.

Solid-State Battery

Ian Blog Image

 (Source: Dyson)

A Start in Consumer Electronics

Li-ion batteries started in early consumer electronic markets in 1991 when they were first discovered and now are being deployed in complex applications globally. Navigant Research expects 93.1 GWh of Li-ion capacity will be deployed globally for EVs in 2025 alone, along with an additional 59.1 GWh deployed for grid storage. Dyson has been developing an in-house battery technology for its cordless appliances for the past several years and now plans on utilizing Sakti3’s prototype technology in existing and future products. The biggest questions to be answered will be how this acquisition affects Sakti3’s process of innovation—and what it could mean for battery industry stakeholders.

The complementary nature of the acquisition could help Dyson develop competency in cutting-edge aspects of solid-state batteries and commit to the reutilization of the technology as a whole. Starting in smaller consumer electronic markets and growing toward others could put Dyson in direct competition with battery giants Panasonic, LG Chem, and Samsung SDI. The company has not ruled out the option of licensing out Sakti3’s technology to other companies, further expanding its market reach. Dyson’s CEO says it is transitioning to become more of a technology company as opposed to a home appliance vendor and plans to develop a more sophisticated product catalog in the coming years.

Supporting the Investment

One challenge the company may face is how its R&D expertise and support teams support this investment. To push the technology forward, it is imperative that Dyson thoroughly understands how integrating Sakti3’s battery affects its existing product catalog. As a home appliance company, teaming with a battery company could make sense in the long run and translate to developing robust synergies down the supply chain. Focusing on niche applications, making deployment a priority over research, and rushing the development of R&D projects could potentially lead to failure. One of the biggest risks after mergers and acquisitions is the threat of organizational upheavals. Hiring and maintaining key employees that drive research forward will be important. Sakti3 founder Ann Marie Sastry will continue to lead the development of the technology as an executive for Dyson.

Can large battery companies and automotive OEMs learn something from this acquisition? Only time will tell. Dyson plans to get Sakti3’s technology to market within the next 2 years; it will be fascinating to see how it plans to overcome engineering issues faced by other companies that have attempted to bring solid-state batteries to market. How well-equipped is a home appliance company to accomplish such a feat? History says to remain skeptical while the technology says to remain optimistic.

 

Clean Cars, but Dirty Batteries?

— April 11, 2016

moving white carThe raw materials used to fabricate advanced batteries are becoming increasingly important when predicting future market trends. In Navigant Research’s Five Trends for Energy Storage in 2016 and Beyond white paper, improving battery power and energy densities of advanced batteries will come in part by a shift to increased modularity of manufacturing concepts. Not only does this modularity need to occur in energy storage project design, but also in raw material synthesis of battery components. Designing a better battery—especially the (good, yet imperfect) lithium-ion (Li-ion) battery that can address short-term power applications and longer duration energy applications—will be critical for the market to continue to develop.

Increased interest has grown around materials used in advanced battery anodes, and graphite, an allotrope of carbon, is currently one of the leading options due to its abundance in nature, large surface area, and high specific capacity. Current methods of processing natural graphite into coated spherical purified graphite (CSPG), the final product used in battery anodes, can be expensive and harmful to the environment. A consortium of six mining and manufacturing companies are looking to address these issues by jointly acquiring a micronizing and spheronizing mill to produce CSPG. These types of partnerships could push the advanced battery industry forward in developing high-performance electrode materials for next-generation battery technologies.

Improved Performance

Utilizing CSPG in battery anodes leads to improved charge/discharge cycle performance attributed to lower resistance at the anode/electrolyte interface. All companies involved in the partnership have agreed to share their proprietary spheronizing knowledge with each other going forward, with the end goal of meeting cost and capacity targets for Li-ion batteries developed for transportation. Being able to process CSPG locally and efficiently decreases purification times, dramatically improves costs, and significantly reduces environmental impact.

Currently, around 70%-80% of naturally occurring graphite used in batteries is mined and processed in China. It is purified using hydrofluoric acid, a toxic substance that is highly corrosive, dissolving glass and metal surfaces upon contact. Unsustainable methods in place to fabricate batteries and their materials bring rise to questions of whether they are truly a clean alternative and if electric vehicles (EVs) are end-to-end better for the environment. As much as 25 kg of high-purity CSPG is needed to fabricate the anode for one Li-ion EV battery, so ensuring that purification process is as inexpensive and pollution free as possible will be important as demand for these batteries increases.

A Growing Market

The advanced battery market is putting pressure on graphite demand, and improved graphite manufacturing methods means better forecasts for EVs in the future. Navigant Research estimates that light duty plug-in EVs in use will reach over 13.9 million vehicles by 2024 and that Li-ion battery prices will for EVs will drop by over 50% over the same timeframe. Technological improvements of advanced batteries can exceed expectations by better, leaner manufacturing methodologies; more strategic partnerships that further develop the battery’s shortcomings could help foster these improvements while decreasing the environmental footprint.

 

FERC vs. EPSA Ruling: A Win for Demand Response and Energy Storage

— February 1, 2016

Control panelWhen independent system operators (ISOs) and regional transmission organizations (RTOs) were structured over a decade ago, rate structures were primarily based on participation by conventional energy generation methods. During that time, new technologies and services like energy storage were not contemplated. The Federal Energy Regulatory Commission (FERC) Order 745, approved in 2012, called for grid operators to pay the full market price (known as the locational marginal price) to economic demand resources in the real-time and day-ahead markets, so long that it is cost-effective.

In short, Order 745 allows third parties (i.e., customers) to circumvent utility prices and provide flexibility via demand-side management. The United States Supreme Court (SCOTUS) made headlines on January 25 by upholding the FERC’s authority to regulate demand response (DR) programs in wholesale markets. Known as FERC vs. Electric Power Supply Association (EPSA), the Court reaffirmed in a 6-2 decision that FERC acted within its authority under the Federal Power Act when it issued Order 745, setting standards for DR measures and pricing in wholesale markets. This ruling is a big win for energy conservation service providers like EnerNOC, which saw its stock shares jump 65% midday after the ruling.

Battery Storage

The decision is not only big for DR, but has huge implications for resources at the edge of the grid like energy storage. Battery storage is gaining popularity among commercial and residential sectors as a cost-effective solution to reduce peaks, manage demand charges, and integrate renewables; Navigant Research forecasts that 102.4 GW of new distributed battery storage will be deployed from 2016 to 2025. As the new ruling could catalyze a sharp growth in the distributed storage industry, utilities and their customers have a unique opportunity to leverage it in a variety of ways to provide value on both sides of the spectrum.

Battery storage offers enriched DR options in a number of ways, one being the speed at which storage can be deployed. With storage, utilities are able to instantaneously declare DR events, rather than hours or a day ahead. Additionally, with advanced battery management systems, atypical events that occur on the grid can be responded to autonomously. Distributed storage as a resource is dependable in terms of its performance, power capabilities, and location, which further enhances DR. Batteries have a finite amount of energy they can provide, allowing grid operators to schedule other energy resources with increased certainty. Conventional DR is prone to under or overestimating customer behavior, which can lead to decreased system efficiency.

Rise of Variable Generation

DR and energy storage have significant implications when compounded with increasing penetration of variable generation (VG). A study conducted by the National Renewable Energy Laboratory found that the grid can accommodate approximately 30% of annual electricity demand from VG with “flexibility options” (namely changes in operational practices) that increase the penetration of renewable energy resources. As renewable penetration exceeds the 30% threshold, integration becomes increasingly difficult because conventional generators cannot readily moderate output, causing assets like wind and solar to be curtailed, which could raise system costs. Even with increased curtailment of conventional generation, renewables offset less fossil fuel generation, effectively decreasing their overall value. This creates a huge market opportunity for DR and energy storage with their ability to shift load patterns, solidify capacity, and increase grid flexibility.

SCOTUS made a monumental ruling for the cleantech industry, and there will be increased DR participation to come as a result. The market has already seen several DR/storage systems like Schneider Electric and Johnson Controls (both leaders in DR), and even partnerships like that of EnerNOC and Tesla. The nexus of energy storage and DR provides efficient, economical solutions for utilities and their customers. As a result, how energy is produced and consumed will drastically change, requiring rate-makers to be more versatile with evolving regulations.

 

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