Navigant Research Blog

How Advanced Battery Manufacturers Can Support Storage Project Finance

— March 2, 2016

Accumulators and batteries close up.The emergence of the stationary energy storage sector is shining a new light on battery energy storage technologies. Navigant Research sees the following drivers underpinning new business models that are making energy storage systems (ESSs) more prevalent:

  • The integration of new distributed, intermittent variable generation sources such as wind and solar into power markets.
  • The restructuring of electricity markets to enable the recognition of energy storage’s ability to deliver flexible grid benefits.
  • The need for cost-effective solutions to address how changing population trends and load profiles will affect the structure and operation of the power grid.
  • The rise of distributed energy resources and microgrids that will improve reliability in areas with relatively unstable grids and frequent outages and minimize the impact of outages affecting large numbers of customers for areas with stable grids.

Building on the macro drivers outlined above, a recently released Navigant Research white paper examines five ESS trends in greater detail. These trends address key issues that will enable the energy storage sector to meet its transformative and disruptive potential. In particular, Navigant Research anticipates that the emergence of standardized ESS contracts will drive the growth of both consumer behind-the-meter and utility ESS markets. It is also expected that advanced battery manufacturers can play a key role alongside ESS project developers and financing partners in the movement toward standardization.

Importance of Contracts

A standardized contract stands as the essential building block of power and renewable energy project financing. Just as contracts, insurance, banking, and rules of law constitute the fabric of almost every modern business investment, so too do these factors contribute to bankable energy storage projects. And similar to what happened during the birth of distributed solar, new business models are being driven by the emergence of predictable revenue flows to energy storage project asset owners.

ESS contracts will need to address key issues like battery readiness, availability, degradation, calendar and cycle life expectations, and warranty issues, among others. Moreover, due to the growth of installed ESS projects and project pipelines, project developers and financiers are working closely to tie the anticipated ESS use case to definable and enforceable battery performance warranty contract language.

Navigant Research believes that the lessons learned from the distributed solar sector on standardized contracts should be leveraged by ESS stakeholders. Advanced battery manufacturers can play a pivotal role in the standardization of ESS contracts, similar to the efforts undertaken by solar PV panel and inverter stakeholders during the Solar Access to Public Capital Working Group effort on solar contract standardization.

There is a significant level of investor interest in the emerging energy storage sector. Some of the interested parties have participated in the solar and wind financing sectors, while those that missed previous renewables-related opportunities are eager to replicate the success of the first movers in the solar and wind industries. Navigant Research believes standardized contracts will make the financing of energy storage projects simpler and easier to repeat. Battery manufacturers have a unique opportunity to help create a new energy storage asset class driven by debt and equity participants, thereby driving the development and construction of more energy storage projects.


Batteries and Business Models Driving Utility-Scale Energy Storage Markets

— January 15, 2016

Accumulators and batteries close up.Navigant Research sees several key factors driving the global need for energy storage. The development of new distributed and intermittent variable generation sources being connected to power grids worldwide will require increased load balancing against demand. In addition, the restructuring of electricity markets is expected to create new marketplaces for energy storage systems (ESSs), as the regulatory and economic structure of these markets enables the valuation of the flexible benefits of energy storage deployments.

Furthermore, population changes affecting load profiles are expected to play a critical role in the structure and operation of the power grid, which is anticipated to influence the development of energy storage markets. Navigant Research anticipates that energy storage will increasingly become a viable option to costly grid and substation upgrades to meet changes in load. In addition, the stability of the local electrical grid will remain an important consideration. Areas with relatively unstable grids and frequent outages can benefit from distributed ESSs and microgrids with storage, whereas operators of stable grids are expected to consider utility-scale ESSs to minimize the impact of outages affecting large numbers of customers.

Advances in battery ESS technology, demonstrated by the rise of commercial installations, have enabled energy storage to meet performance requirements for both short-duration, power-focused and long-duration, energy-focused grid applications. These successes are driving revised power market rules and regulations that are expected to enable ESSs to deliver grid and load management benefits. And now, similar to what happened during the birth of distributed solar, we are seeing new ESS business models driven by project financing due to the emergence of predictable revenue flows to energy storage project asset owners.

A Maturing Market

The maturation and growth of energy storage markets will be dependent on three main areas. These include the specific application or applications the battery ESS will provide; the specific grid location of the project; and the quantification of the value that the storage project will create given the local power market rules. Navigant Research’s recently published Market Data: Advanced Batteries for Utility-Scale Energy Storage report examines the factors driving these markets and forecasts power capacity, energy capacity, and battery pack-equivalent revenue for the next 10 years globally.

Navigant Research sees lithium ion (Li-ion) batteries emerging as the leader in utility-scale applications of batteries on the grid given their flexible mix of performance specifications and cost for most energy storage applications. Flow batteries have the potential to deliver long-duration energy storage applications at lower costs, while advanced lead-acid batteries have proven to be excellent performers in certain power-intensive applications. According to Navigant Research, global revenue for advanced batteries for utility-scale storage is expected to grow from $231.9 million in 2016 to $3.6 billion by 2025.

New Installed ABES Pack Energy Capacity and Revenue by Region, World Markets: 2016-2025

Bill Blog Charts(Source: Navigant Research)

Navigant Research looks forward to participating in the 9th Annual Storage Week in San Diego later this month as a variety of industry stakeholders convene to examine the market factors and developments underlying the U.S. energy storage markets.


Reductions in Battery Costs Just One Piece of the Energy Storage Puzzle

— December 11, 2015

Lately, there’s been quite a bit of talk about energy storage price points. This is partly due to the fact that the operating histories of deployed battery energy storage systems (BESSs) are now eliminating concerns about whether batteries can safely and reliable perform in grid-connected energy storage applications. While it’s true that BESS costs continue to come down, this factor is just one piece of the energy storage market development puzzle. Navigant Research’s upcoming Advanced Batteries for Utility-Scale Energy Storage report provides further insights on advanced batteries and related grid energy storage markets—stay tuned for its release in the next few weeks.

Rise of the BESS Value Chain

Navigant Research sees the maturation of battery energy storage delivery chains as another key driver in the growth of energy storage system (ESS) markets. While these projects differ by application (such as whether the project is a grid-scale application or a distributed behind-the-meter system at a utility customer’s property), four key components must come together to deliver the benefits of energy storage. These four components include battery energy storage technology, power conversion equipment, software and controls, and system integration services. These critical value chain issues have been addressed in Navigant Research’s Energy Storage Enabling Technologies report and our recent Navigant Research Leaderboard Reports covering lithium ion grid storage and ESS integrators.

Aligning Drivers

Just addressing the technical BESS value chain issues is not enough to solve the puzzle. Navigant Research sees two other key issues underpinning the development of financially viable projects in ESS markets. First, states and grid operators need to continue to create power market rules and regulations that drive revenue models that will enable ESSs to deliver their unique benefits. Second, as these regulatory factors and revenue models develop, project developers, asset owners, and financiers need to leverage them in a way that creates new business models resulting in bankable ESS projects. One new business model that is garnering a great deal of attention stands at the heart of the unique advantage that battery ESSs have: the ability to provide energy storage services for more than one power market or customer application. Using this approach (called revenue stacking), a single energy storage asset can monetize multiple revenue streams to deliver value and improve the return on investment for the asset owner.

One such signature ESS project will be the focus of a Navigant Research webinar on December 15. S&C Electric and LG Chem have partnered with an Ohio municipal power provider on a signature project that will sell into PJM’s frequency regulation market to improve grid reliability, integrate a 4.2 MW solar system into the municipality’s service area, improve local power quality, and reduce peak demand to help the municipality avoid costly PJM peak electricity pricing spikes. Navigant Research firmly believes that this is exactly the type of project that will drive the rise of ESS markets by enabling innovative project finance equity and debt participation by those who are increasingly anxious to invest in grid-connected energy storage assets.


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