(NYSEMKT:SCE-E) Falling costs mean energy storage is ready to make an impact

(NYSEMKT:SCE-E) Falling costs mean energy storage is ready to make an impact

Energy storage technology may finally be ready for the big stage, most clearly demonstrated by a move last month by utility Southern California Edison (NYSEMKT:SCE-E), who decided to abandon plans for natural gas peaker plants in favor of investing in energy storage facilities to meet future energy shortfalls.

"We knew it was technically feasible,” said Colin Cushnie, vice president of energy procurement and management at SCE to Bloomberg. “When prices came in, we saw it was competitive.” 

This is the latest move in what was a breakthrough year for energy storage. As demand for clean energy grows, energy storage's lower costs are allowing it to work with renewables to help balance supply and meet peak energy needs. The growth in storage was strong in 2015, with 60.3 MW of energy storage deployed in the third quarter of 2015, a 200 percent increase from the previous year, a 46 percent increase from the previous quarter, according to the Q3 2015 U.S. Energy Storage Monitor from the Energy Storage Association.

Energy storage takes many forms, from dams, distributed grids, and, the most promising and fastest growing technology, batteries. Its importance has grown in the past few years as greater demand for renewable energies due to states such as California passing strong renewable energy standards. 

“A driver for battery storage is the growing realization that it makes solar and wind more valuable, in essence stabilizing the electricity production for when you need it," said Robert Magyar, Managing Director of Navitus Strategies, a professional services provider in the area of renewable energy revenue obtainment.

That is because wind and solar resources are not consistent – the sun only shines half the day, and wind can vary greatly depending on location, geography, and weather. Energy storage can, ideally, store renewable energy and distribute it when there is higher demand, reducing the need for traditional power plants. That is why Zolaikha Strong, director of sustainable energy for the Copper Development Association, believes that the prospects for energy storage are bright.

"I foresee energy storage expansion in the short, medium and long term" said Strong. "It’s the wave of the future, and is vital to supporting grid energy systems in order to prevent any type of interruption."

The other key drive is rapidly falling costs. According to a report from GTM research released on Jan. 4, energy storage costs are expected to fall 41 percent in the next five years, due to improvement in technology systems and savings from production volume increases. 

"If lithium ion battery prices do down below $300 kw/hr. per cost, then those numbers start to work really well, as you're at the cost of grid power," said Magyar. Currently, prices are at $500/kw/hr., a nearly 50 percent drop in just two years, and General Electric recently announced it expects its lithium-ion cell costs will be $145/kWh by 2017.

This is why many are forecasting energy storage growth. A KEMA study for the Copper Development Association (CDA) found tremendous potential for growth fueled by investments and governmental policies. They estimate that between two and four gigawatts of energy storage could come online in the next 5 years.

"The estimated global opportunity for energy storage over the next 10 to 20 years is valued between $200 and $600 billion," said Strong. "We’re already seeing tremendous growth in usage due to increasing affordability and accessibility."

“2015 [was] a breakout year for the U.S. energy storage market,” said Ravi Manghani, senior energy storage analyst at GTM Research. ”Energy storage has started to appear in different utility requests for proposals and grid planning across states, another indication that utilities and policymakers are getting comfortable with the technology and the multiple values it can provide.”

Magyar believes that the adoption of energy storage will be far faster than solar. "There no guesswork or concern as there was initially with solar, so I think you'll see the adoption of more storage in specific markets a lot quicker than solar," said Magyar. "When I talk to investors and clients, everybody understands a battery storage system is really basic equipment.”

 

Companies to Watch

Tesla Motors (NASDAQ: TSLA) – Though best known for its auto manufacturing, Tesla's real strength is in batteries. It is preparing to open the world's largest battery plant, the Gigafactory, in Nevada. It recently announced a partnership with SolarCity, the largest PV installer in the U.S.

SunPower (NASDAQ: SPWR) – The solar company is testing battery storage and hopes to release a commercial product in the next couple of years. 

General Electric (NYSE: GE) has a large energy storage research division, led its Durathon Battery Energy Storage Solutions program, and aims to be a leader in this field as it was with wind energy.

ABB Group (NYSE: ABB) operates the largest commercial battery storage system in the world, a 40 MW nickel-cadmium system in Fairbanks, Alaska.

AES Corporation (NYSE: AES) is a leader in battery storage, with $17 billion in 2015 revenues. They are replacing SCE's peaker plant with what will be the world's biggest battery: a 400 MW system.

Nithin Coca is a freelance journalist who focuses on energy, environment, and economic issues in developing countries, and has specific expertise in Southeast Asia. Nithin's feature and news pieces have appeared in global media outlets including Al Jazeera, Quartz, Atlantic Cities, SciDev.Net, Southeast Asia Globe, The Diplomat, Penang Monthly and numerous regional publications in Asia and the United States

Originally published on January 26, 2016