Navigant Research Blog

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.


California Incentive Program: Remaining Challenges for Energy Storage

— October 23, 2015

California’s Self-Generation Incentive Program (SGIP) has significantly advanced the state’s distributed energy storage market and has also highlighted the remaining challenges facing the industry. The program provides incentives for customers to install qualifying technologies including: small wind, waste-to-energy, generator sets and microturbines, fuel cells, and energy storage systems. SGIP has made California’s burgeoning energy storage industry one of the most advanced in the world. Storage systems currently receive incentives of up to $1.46 per watt, the second highest rate in the program. As a result, 224 storage systems have been deployed through the program, representing just over 11 MW of capacity. Despite this success, the industry still faces many challenges that are evident when analyzing the program’s project data.

Program Backlog

While an impressive number of systems have been deployed through SGIP, many projects have been cancelled, and many others currently sit idly by with little chance of being developed. There are currently 301 systems in the SGIP pipeline that were initiated before the start of 2014. These systems account for $25.1 million of held-up incentives that could otherwise go to more active projects. Given the program’s annual statewide budget of $77.1 million, these languishing projects account for 32% of the available incentives.

One reason for this backlog is the relative ease with which customers can begin working with vendors and reserve incentives through the program. Several companies active in California have employed a strategy of taking as many reservations as possible from prospective customers, regardless of the odds of the companies following through with an installation. While this strategy may improve a company’s market share for pipeline alone, it is detrimental to the overall program goals because it works against the other companies that focus efforts on the appropriate and more reliable customers. A potential fix for the program could include stricter milestones and required reservation timelines. Currently, a proof-of-project milestone is due 90 days after the start of most projects, meaning many systems have been in the pipeline for well over a year since that milestone was passed.

Remaining Challenges

The program’s large pipeline and rate of cancelled storage projects highlight challenges for both the program and the overall storage industry. The average ratio of systems deployed to systems that are eventually cancelled is only around 18% for leading vendors in the program. This results in a significant amount of capital resources for emerging companies that are lost on identifying and working with customers that never install systems. Furthermore, this dynamic highlights challenges with systems integration and installation that are faced by the relatively new industry. Changes in interconnection and installation requirements in different parts of the state—often not discovered until well into the development process—can add substantial costs to a project and significantly alter the overall economics, resulting in cancellations.

The large number of cancelled and delayed projects undoubtedly illustrates that the distributed storage industry as a whole must mature to improve the efficiency of operations and lower costs. Improvements should come naturally to the rapidly growing industry as customers become more educated and as increasing sales volumes lead to more standardization and streamlined processes, perhaps similar to California’s recent experiences with solar PV.


Regulatory Focus on Air Transit of Li-Ion Batteries Increases

— July 2, 2015

Lithium ion (Li-ion) batteries have been highly touted for their long lifespan, high discharge rate, and ability to perform effectively in a number of different energy storage applications, which has led to their widespread adoption across the consumer electronics, automotive electrification, and utility grid energy storage sectors. The key factors driving the design and application of Li-ion battery technologies include power capacity, energy capacity, cost, lifespan, and safety. On the cost side, Navigant Research sees the maturation of the automotive and energy storage manufacturing and supply chains creating market forces that are expected to drive costs to new lows. However, the safe transport and use of Li-ion batteries is paramount and must be factored into each step of the manufacture, sale, transport, and use phase of the battery.

Since Li-ion cells are shipped partially charged to maximize their lifespan and reduce the chance of oxidation over time, they are classified as dangerous goods for transport, according to the United Nations (UN) Model Regulation for the Transport of Dangerous Goods.  Further, it has been well-documented that heat generation coupled with metal contamination and poor battery management systems can increase the risk of thermal runaway and fires during the use phase of a Li-ion battery. Whereas design, manufacturing, and quality control improvements have been implemented to reduce these risks during battery use, new scrutiny is being placed on the air transport of partially charged Li-ion cells and battery packs due to combustion risk from extreme temperatures. These developments are creating a challenge for Li-ion battery manufacturers that are considering export strategies due to the increasingly complex set of regulatory challenges facing airline carriers.

For example:

Assessing and Addressing the Risks

To address safety risks during transport and use, scientists at NTT Facilities, Inc. have tested adding a chemical flame retardant called phosphazene to lithium batteries to increase their safety in different applications. Their study has shown that fully charged 200 Ah packs, like those commonly used in portable electronics, did not explode, ignite, or undergo thermal runaway when undergoing significant laboratory testing protocols. Further, larger battery packs were also tested and operated for 400 days in a state of floating charge with positive results and minimal impact to battery capacity.

Though this advancement is still in the early stage of development, the prospect of integrating a material that is commercially available with a high voltage resistance and low cost to further improve safety while balancing costs merits a watchful eye. Whereas battery manufacturers are loath to add materials, those battery manufacturers and energy storage systems integrators looking to ship (or procure) Li-ion batteries from long-distance manufacturing sites will want to track these developments.


Offshore Wind Farm a Milestone for New England Energy

— May 18, 2015

At an industrial facility in Rhode Island, work has finally begun on what will likely be America’s first offshore wind farm. Originally proposed in 2008, Providence-based company Deepwater Wind’s project has overcome significant headwinds to receive permits, sign power purchase agreements, and finally begin construction. Made up of only five turbines, work on the relatively small project comes at a time when New England’s energy future faces uncertainty. The region generates almost no energy locally, being dependent primarily on natural gas and coal imports from other parts of the country. As a result, consumers are susceptible to volatile rates due to severe weather and supply constraints. A proposal to expand natural gas pipelines represents one way forward for the region, while the wind farm on Block Island represents a very different path.

As a former resident of Block Island, I have been intently following the progress of this project since its initial announcement. While working on the ferry to the mainland, I spent many hours on a nearly empty ship hauling truckloads of diesel fuel to be burned at the island’s one power plant. It comes as no surprise that island residents have to pay some of the highest electricity rates in the country, around $0.50 per kWh. These rates are significantly higher than even Hawaii, where expensive electricity has set off a rush of solar PV and other local energy generation.

Looking Ahead

The wind farm is a crucial component of Block Island’s energy future. Deepwater Wind claims that once operational, the farm could reduce island electricity rates by nearly 40%. Many island communities around the world have recently initiated ambitious plans to wean themselves off imported fuels completely by integrating locally generated energy. Local energy storage has been an important aspect of many islands’ plans to reduce dependence on imported energy, as discussed in a recent post by my colleague Anissa Dehamna. A great example of this can be found on Kodiak Island in Alaska. Global power electronics provider ABB worked with the local electric cooperative to install both battery and flywheel-based energy storage systems to help stabilize the output from the island’s wind turbines, and to store excess power generated at night to be used at times of high demand. The addition of energy storage on Kodiak Island has enabled up to 100% penetration for renewable energy and greatly reduced diesel consumption.

The development of the wind farm on Block Island will present great opportunities to demonstrate the value that other clean energy technologies can provide. The island is an interesting case due to the dramatically smaller population outside of the summer months. There are only around 1,000 year-round residents on the island, meaning demand for electricity most of the year is only a fraction of summer demand. For most of the year, the 30 MW output from the wind farm will be far more than is needed to power the island. By integrating local energy storage, the island could easily be a net exporter of energy through the soon-to-be-built transmission line connecting the mainland while only ever using locally produced clean energy. This can provide substantial benefits to residents through lower electricity rates and a much cleaner, more reliable power system.


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