Navigant Research Blog

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.


Battery Makers Preparing for Post-Lithium Ion Era

— November 6, 2015

Lithium ion (Li-ion) batteries, we hardly knew ye.

Today’s mass-marketed light duty plug-in electric vehicles (PEVs) uniformly rely on batteries with Li-ion chemistries, but advancing the technology will hit an upper limit of performance by the end of the decade. Battery makers that spoke at the late October eCarTec conference in Munich stated that the energy density can be doubled while cutting the cell cost of PEV batteries in half by 2020, but that beyond that, battery makers will need to shift to other technologies.

Energy storage and automotive power electronics company Robert Bosch and automaker Renault both presented similar timelines for the beginning of the phaseout of Li-ion batteries. Li-ion cell prices will come down thanks to efficiencies in volume manufacturing at plants run by companies such as Tesla and LG Chem and reductions in the amounts of precious metals used. According to Navigant Research’s report Advanced Energy Storage for Automotive ApplicationsLi-ion pack prices (which include the battery management systems, cooling systems, electronic controls, and wiring) will continue to decline by 5%-6% annually through the remainder of the decade.

Once manufacturing and raw material costs have been optimized, other technologies such as lithium-air, lithium sulfur, and solid-state batteries will begin to take over as the technologies that will offer increased performance in PEVs, said Dr. Holger Fink, senior vice president of Engineering at Robert Bosch Battery Systems GmbH. Fink said that solid state battery technology is the most likely of the alternative battery technologies to be commercialized in the short term, with lithium sulfur unlikely to be commercially viable until closer to 2030.

Bosch is developing solid state battery technology based on the intellectual property it acquired when the company purchased startup battery company SEEO in September 2015. Fink said the solid-state batteries that Bosch are developing feature lithium metal anodes that have increased storage capacity and replaces a flammable liquid electrolyte with a safer dry polymer. One challenge for solid state batteries is the high minimal operating temperature of at least 80°C, which Fink said the company is focusing on in its research.

According to Navigant Research, and as seen in the chart below, by 2020, the global market for Li-ion batteries in automotive applications will reach $25 billion.

 Total Light Duty Consumer Vehicle Li-ion Battery Revenue by Powertrain Type, World Markets: 2015-2024

John Li-Ion Blog Chart(Source: Navigant Research)

Masato Origuchi, chief battery engineer for EV/HEV at Renault and another speaker at eCarTec, echoed Fink’s comments about the 5-year timeframe for Li-ion battery performance gains peaking. He said that improvements in energy density in Li-ion batteries will be able to provide 200 miles of driving range in battery electric vehicles (BEVs) such as the Nissan LEAF (a Renault-Nissan Alliance partner) by 2020. Origuchi said that further improvements in energy density via other technologies could extend the range of a BEV to 600 km (372 miles) or more.

Disruptive innovations in energy storage and many other automotive technologies often takes years longer than initially expected to gain market share over the incumbents due to higher prices and the cautious nature of automakers. As a result, the market share for Li-ion batteries can be expected to erode slowly, even after better performing technologies are first commercialized.


Utilities Explore Different Approaches to Residential Energy Storage

— August 31, 2015

Residential energy storage systems are anticipated to see exponential growth over the coming decade. The capacity of annual installations worldwide is expected to grow from 562 MWh in 2015 to 38,525 MWh in 2024, according to Navigant Research’s report, Community, Residential, and Commercial Energy Storage. While numerous storage system developers are lining up to begin selling residential batteries, utilities around the world are struggling to determine how to integrate these new distributed energy resources into their networks.

Utilities can receive numerous benefits from residential storage, including deferring investments in distribution grid upgrades and stabilizing circuits with high penetrations of solar PV. Additionally, the use of residential storage in an aggregated virtual power plant configuration helps utilities manage their financial risk by calling on distributed batteries to supply loads at times of peak demand, thus avoiding purchasing costly wholesale energy. Despite these benefits, many utilities are unsure how residential storage can be integrated into their networks. While much uncertainty remains, two major utilities have recently announced pilot projects employing very different business models.

Different Approaches

In August, Australian utility Ergon Energy announced a program with leading vendors SunPower and Sunverge to deploy residential storage systems tied to solar PV (initially in 33 Queensland homes). Through this program, Ergon will own the battery systems located behind the meter in customer homes. The utility claims these 5 kW/12 kWh lithium ion systems paired with a 4.9 kW PV array will supply around 75% of a home’s electricity needs. Participating customers will pay an $89 monthly fee, and Ergon claims they will save at least $200 per year by purchasing much less grid-supplied electricity. This utility-owned approach to residential storage represents one path, while a very different model is being tested across the Pacific.

California utility San Diego Gas & Electric (SDG&E) recently launched a pilot program to encourage homeowners to install residential storage themselves. In contrast to Ergon’s program, SDG&E would like its customers, or third-party vendors, to own the distributed systems. The utility will offer a tiered system of cash incentives and reduced rates that could, when combined with the state’s other incentives, render the storage free to customers. SDG&E envisions a rate that reflects forecasted system and circuit conditions on a day-ahead basis, and through hourly price signals, will incent both charging and discharging activity. Grid operators will then rely on energy stored in these batteries during peak demand, reducing the need to upgrade their equipment, and avoid utilizing more costly conventional generation sources. This approach can greatly improve the overall efficiency of the grid and help address the duck curve issues that arise from the ramping down of distributed solar PV systems during peak demand. A key feature of this model is that outside of peak demand periods, customers can utilize the battery however they want to maximize their consumption of solar energy, reduce demand charges, and ensure they have power during grid outages.

Potential Paths

The economics of both pilot programs will be determined over the next several years and will likely influence other utilities around the world. SDG&E has also proposed a separate pilot project that will deploy utility-owned batteries under its direct control, and it will compare that project’s performance against the tariff-based systems in terms of cost and effectiveness. Key questions for both utilities revolve around opening the residential storage market to additional participants and ensuring optimal benefits for both customers and grid operators. Despite the uncertainty, these pilot programs demonstrate potential paths forward for what is expected to be a massive global industry.


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