Navigant Research Blog

Vanadium Batteries Await Breakthrough

— January 26, 2015

A remote hillside in the Nevada desert may hold the keys to developing the next generation of affordable energy storage systems.  One of the world’s largest deposits of vanadium, a hard, silvery gray mineral often mixed to create high-quality steel, is located underground on this site.  First discovered in the 1950s, the site is now being developed into a large-scale mining operation, known as the Gibellini Mine, by Vancouver, Canada-based American Vanadium.  The company, which partners with German flow battery manufacturer GILDEMEISTER, requires an affordable and secure supply of vanadium to develop its redox flow batteries.

With the majority of global vanadium supplies coming from China, a domestic source of the metal could be instrumental in reducing battery costs.  Despite the recent success of lithium ion (Li-ion) batteries, alternative technologies such as flow batteries address several shortcomings of Li-ion chemistries.

Stepping Up

There are several types of flow batteries with different characteristics currently competing for market share, including iron-chromium, zinc-bromine, and vanadium redox.  Well-suited to stationary applications, vanadium-based batteries offer several advantages over Li-ion systems.  Vanadium-based batteries can fully discharge with minimal degradation of key components, leading to a longer duration discharge and greater life expectancy.  Additionally, vanadium flow batteries are much safer than certain Li-ion chemistries, as they have no thermal runaway issues, which is a key consideration for systems located on densely populated distribution networks.

Significant improvements to flow batteries have been made in recent years as more companies enter the space and competition heats up.  One area in which flow batteries must improve is energy density; Li-ion and other batteries are much more energy-dense, giving them an edge in any project with limited space.  A recent milestone was achieved by UniEnergy Technologies with its vanadium-based flow battery, allowing a standard 500 kW, 4-hour system to be containerized and installed in a 1,000-square-foot pad.  The system has an expected operating life of 20 years and can be installed for around $750 per kWh.

As with most advanced batteries, makers of vanadium-based systems must reduce costs to fully capitalize on the diverse market opportunities available.  Fortunately, advances are being made in that area as well.  California-based Imergy, for example, claims that it will soon reduce costs enough to offer a vanadium-based flow battery for around $300 per kWh.  One reason for the low price is Imergy’s ability to use lower-grade vanadium, recycled from mining waste and other sources.  While vanadium flow batteries are currently somewhat more expensive than most Li-ion chemistries, they have the advantage of a longer life expectancy, allowing the upfront cost to be spread over several decades.

An Uncertain Future

Navigant Research’s report, Energy Storage for the Grid and Ancillary Services, found that flow batteries are likely to account for 2,357 MWh of capacity in 2020, about 7% of the total market for grid-scale systems.  However, these figures could increase dramatically with breakthroughs in system efficiency and cost.  A consistent, low-priced supply of key components, such as vanadium, could help rapidly reduce costs.  Additionally, greater diversity and competition among suppliers of key flow battery components can drive down manufacturing costs.  Given the very ambitious price reductions being forecast by manufacturers, many may be relying on market developments such as the Gibellini Mine to allow flow batteries to compete effectively with Li-ion.

 

The Future of Energy: Open or Closed?

— January 20, 2015

Among technology giants, two predominant business models dictate the way in which consumers connect (and interact) with the broader Internet and the way in which innovation unfolds: open and closed.  This tug-of-war between open versus closed has been going on ever since the Internet first started to hit the mainstream.  As described by GigaOM, “It’s a battle that has been at the heart of the technology industry for most of its modern history.”

Open models seek to facilitate universal access and maximize creativity, but potentially breed chaos, error, and design catered to the lowest common denominator.  Closed systems limit the number of participants and exert more control over the flow of information, but can make it easier to roll out dynamic products while minimizing the potential for error.  In more specific terms, it’s a battle between the Google, Android, and Adobe business models and those of Facebook, Apple, and Microsoft.  Each carries with it specific advantages and disadvantages.

Advent of the Cloud

Although still in its infancy, in the emerging Energy Cloud, the battleground is divided similarly, with advocates of open and closed models both beginning to stake claims.

The Energy Cloud – the end result of an evolutionary shift away from a financial and engineering model that relies on large centralized power plants owned by utilities to one that is more diverse, in terms of sources of generation and ownership of assets, and enables the integration of new, distributed energy resources in addition to traditional generation – provides a rich ecosystem for breeding innovation as energy becomes increasingly democratized.  As depicted in the graphic below, the hallmark of the Energy Cloud is a shift away from one-way power flows to bidirectional flows in which consumers become both consumers and producers of power:

The Energy Cloud

(Source: Navigant Research)

Lessons from the Revolution

There are many lessons from the Internet revolution that can be applied to the Energy Cloud.  Open and closed Energy Cloud models alike must balance the need for access, reliability, safety, and ultimately, innovation.

The question comes down to this: will the Energy Cloud take the form of a walled garden, as CompuServe and America Online attempted in the early days of the Internet and Facebook is doing today, or will it remain an open landscape?  Or, perhaps of more relevance to stakeholders, which model best serves the goal of fostering a thriving, ubiquitous Energy Cloud?

Likely, both open and closed models will play key roles, as the Energy Cloud will serve multiple objectives simultaneously.  According to an essay on the topic from PricewaterhouseCoopers, innovation is almost never an either/or choice.  As most companies have discovered, their innovation goals involve a complex mix of closed and open models that is uniquely tailored to their specific innovation objectives.

Customers and Providers

For the incumbent utility, for example, objectives remain focused on preserving market share and maintaining safety and reliability while also growing profitability.  For the consumer, access to inexpensive and reliable power around the clock and choice in how and by whom their energy is produced remain key objectives.  Some stakeholders will seek to maximize either one of these positions, while others will seek to bridge the two.

In either case, the emergence of the Energy Cloud will require a rethinking of standards, protocols, and relationships among stakeholders.  With a slew of innovative technologies gaining market share – solar PV, distributed storage, home energy management systems – the integration of these assets into an efficient and resilient system remains among the greatest challenges ahead for all Energy Cloud stakeholders, and will likely be where the greatest emphasis on innovation will occur.

 

How Oversupply Could Benefit the World Oil Market

— January 19, 2015

For economists, it has been fascinating to watch what’s been happening in the oil & gas market since OPEC’s meeting in November, when it decided (driven by Saudi Arabia) to maintain production of 30 million barrels of oil per day.  This decision, combined with the sharp rise in U.S. production and a decrease in demand driven from China’s slowing economy, has sent oil prices to their lowest levels since May 2009.  Saudi Oil Minister Ali al-Naimi has explained that OPEC’s reason for maintaining the production level is to recoup market share lost to what he considers high-cost or inefficient non-OPEC oil producers, such as Russia, Brazil, and Canadian tar sands producers.  Of course, there’s also a geopolitical side to the story, but let’s take a deeper look at the situation in economic terms.

The demand for oil is fairly inelastic to price; that is, as the price changes, demand stays relatively consistent, especially in developed countries.  As such, OPEC has been able to essentially set the price of oil by choosing how much to produce.  Over the past 5 years, however, non-OPEC oil production has exploded, especially in the United States.  The country, which was OPEC’s biggest customer only 10 years ago, is now the world’s largest producer of total oil (crude and natural gas liquids) and moving toward self-sufficiency.

Consumers’ Delight

OPEC has typically responded to increases in non-OPEC oil supply by cutting its own production in order to keep the price of oil above $80 per barrel.  Now it appears the oil market and OPEC have reached a turning point as the huge influx of supply and a slowing of demand growth from China and Europe (among other reasons) have sent the price of oil on a steady decline since June.

At the meeting in November, OPEC ministers faced unenviable choices.  They could cut production in order to raise the price of oil and increase their margins in the short term, but this would not have served them in the long run.  If only OPEC cuts production, not only do their competitors share the benefit of higher margins, but also OPEC concedes more market share.  Instead, OPEC decided to forgo profits in order to thin out the herd.  By declining to cut production, the Saudis hopes to drive higher cost producers out of business while giving oil-consuming economies a shot in the arm.

Thinning the Herd

As my colleague Richard Martin has pointed out, the stronger members of OPEC (i.e., Saudi Arabia and Kuwait) can likely withstand drastic price declines, while the weaker members (Venezuela, Iran, Nigeria, and Algeria) could face economic disaster.

The current market trajectory will end up benefiting those countries that have a comparative advantage in oil production, as it should, and it’s likely that the market will be left more efficient and better off in 2 to 5 years as a result.  According to some, the U.S. might actually be better positioned for a price war than Saudi Arabia, which as a society has grown accustomed to the benefits of $100/barrel oil.  According to Naimi, we may never see $100/barrel oil again.  As far as he’s concerned, Saudi Arabia and OPEC will see this price war through, regardless of how low it goes: “Whether it goes down to $20, $40, $50, $60, it is irrelevant.”

As for the effects of all this on the natural gas market and renewables, that’s for another blog.  The December issue of Navigant’s NG Market Notes includes a great infographic about the breakeven prices of oil for producers around the world.

 

In Review: Energy Metatrends

— January 14, 2015

In Navigant Research’s 2013 white paper, Smart Energy: Five Metatrends to Watch in 2013 and Beyond, we discussed key shifts in the energy landscape.  In this post, I’ll review those trends and discuss which have come to pass and which have yet to materialize or have fizzled out.

The white paper covered the following metatrends:

  • Energy is becoming increasingly democratized
  • The role of government innovation funds is changing
  • Technologies are converging
  • The Southern African Power Pool is becoming the new BRIC
  • The role of utilities is changing

Energy Democratization

Distributed generation (DG), which lies at the heart of the energy democratization shift, has gained significant traction in recent years.  The growth of DG – spurred in part by greater consumer awareness, cost reductions for technologies like solar PV, and improved financing models, among other things – is one of the most dynamic factors driving the evolution of the traditional utility business model.  In Navigant Research’s report, Global Distributed Generation Deployment Forecast, we state that between 2014 and 2023, DG is expected to displace the need for at least 321 GW of new large-scale power plants, valued at more than $1 trillion in power plant construction revenue.  Annual DG capacity additions are expected to outpace centralized generation capacity additions by 2018, underscoring the importance of this metatrend going forward.

Government Innovation Funds

The white paper argued that quasi-governmental funds would step in to fill the void left by private equity and venture capital exiting the energy sector.  The role of government funds would expand to drive innovative technologies from R&D to commercialization.  While this has proven to be partly true, significant capital has exited the energy space, leaving many fledgling companies (and technologies) exposed to market realities.  Spectacular flameouts have rocked the cleantech financing landscape.  That said, governments remain key sources of funding across the innovation lifecycle, so the jury is still out with respect to this metatrend.

Technologies Converging

As discussed in our recent webinar on January 13, Energy Storage for Renewables Integration, storage reigns supreme within this metatrend, allowing for greater flexibility in managing electrons across both space and time.  Whether in an electric vehicle battery or advanced batteries deployed as peaking plants on the grid, energy storage has proven to be a linchpin technology unlocking the potential of distributed wind, solar PV, and microgrids.  For example, hybrid solar and storage deployments create exciting opportunities for energy consumers at the edge of the grid.  This is certainly a trend that has begun to emerge in a significant way.

Southern African Power Pool = the New BRIC

This metatrend is among the more difficult to measure, as specific goals remain longer term.  Economic growth appears to be gaining momentum across the region, but developments in Brazil, India, and China continue to overshadow the emergence of dynamic energy economies in Africa.  There is a general sense that investment to date in emerging energy technologies and infrastructure throughout emerging BRIC markets is just the tip of the iceberg.

Utility Role Changing

The changing role of the utility remains the most dynamic metatrend overall.  While predictions of a “utility death spiral” may prove to be overly dire, most acknowledge that utility business models will need to adapt to changing electrical grid realities.  In most cases, this will entail more complex partnerships with customers as utilities move toward more integrated service offerings.  In other cases, utilities may narrow their focus on one or two aspects of the grid, essentially becoming “poles and wire” companies.

Summarizing, three out of five of these metatrends have materialized in significant ways.  While it is still too early to tell with the others, heading into 2015, we can expect a sustained global shift toward localized power generation and increased pressure on utilities to adopt (or at least explore) alternative business models.

For more on these dynamic changes and others, please see Navigant Research’s free white paper, Smart Grid: 10 Trends to Watch in 2015 and Beyond.

 

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