Utility-Scale Battery Storage Costs Dropping

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Originally published on RenewEconomy

The cost of battery storage is falling quicker than most analysts presume and could be competitive with gas-fired generation –  even in the US, where gas prices are low – within the next 18 months.

That’s the prediction of Steve Hellman, the president of battery storage start-up EOS Energy Storage, which intends to launch its zinc-air battery next year with a price of $200-$250/kWh.

EOS has grabbed the attention of the renewables and the mainstream energy industry with its battery product, which undercuts the pricing of lithium-ion batteries by a significant margin.

EOS actually predicts its storage will be available at around $160/kWh, but that is for D/C battery system. It needs extra costs and additions to be integrated into the A/C system on which major grids operate. Its attractiveness, Hellman says, will be its ability to provide   capacity at prices that compete with current options.

In a recent talk with a US analysts and investors hosted by UBS, Hellman gave a fascinating insight into how he sees the battery storage industry evolving in coming years. Its attractiveness, Hellman says, will be its ability to match gas on upfront capital costs. After that, it has no fuel cost.

“In 2014-2015 energy storage will actually be less expensive or competitive with gas,” he said. “Basically, in utility scales, that’s tomorrow … energy storage will be your default approach for solving standard peak capacity challenges. It will be much more usable as peaking capacity than a traditional generator.”

Not that Hellman thinks that the major energy grids are suddenly going to dump gas and swith to battery storage. These transitions will take time, he notes. But NRG, the largest private generator has already invested in the company, and EOS has been approached by the likes of Con Edison, ENEL, GDF Suez, and National Grid.

(Just to put Hellman’s claim into a little context –  he began his career with commodities giant Glencore, where he built six successful companies in oil production and refining. His bio says that Hellman (pictured right) then created his own energy trading company which grew to $8 billion revenues, and built a shipping company of 27 tankers, an energy technology company, and a $150 million real estate company. He speaks Russian and Chinese. He hasn’t just wandered in from an environmental NGO and he’s not a nerd that just emerged with a good idea from a test lab).

Hellman says there was a common myth that people would want to install battery storage to make money by buying cheap off-peak power and selling expensive on-peak power.  In effect, however, the amount of energy lost in such a round trip would probably offset any gains made.

“That’s not your fundamental value proposition,” he says.  It would instead be in its ‘capacity’-like properties, able to be quickly installed in constrained regions, rapidly respond to demands of the grid, and clip scarcity price events. He says the immediate outlook did not suggest merchant build in any meaningful manner in the near term, but development will remain focused on urban utility contract-backed opportunities, such as the 1.3GW mandate from the California Public Utilities Commission, and a similar one in Long Island.

“Ultimately, we view energy storage as a business problem, not as a technology problem. The business problem we are trying to address is: how do you decouple supply and demand on the electricity grid?

“The grid overall is this gargantuan infrastructure that is basically attempting to instantaneously match supply and demand. Though there is variable demand, you have full control of supply. As soon as you introduce the intermittency of generation sources such as wind and solar, you have intermittent supply and demand. This problem becomes a lot more difficult for grid operators without storage to buffer supply and demand.

“There are also very complex infrastructure problems that need to be resolved where storage can play an important role. There is pressure from end users, who would like to lower electricity costs by using micro-grids. Storage becomes a critical component for this. In sister sectors like transportation, for example, energy storage is of course the key to transitioning to an electrically charged transportation grid and electric vehicles. Energy storage plays a crucial role for this transition.

“These factors are leading to an enormous amount of innovation in this space, but they all converge around a certain set of major requirements. To become viable, energy storage needs to be extremely inexpensive in terms of capital costs. It needs to be very long lasting because like other capital assets on the grid you need to be able to amortize those costs over a long period of time.

“You need to have high efficiency as these business cases are built around energy value propositions. The ratio of energy out of a battery to energy or the round-trip efficiency becomes critical to that business problem and at energy storage in its classic paradigm, which is distributed energy storage. In other words, getting energy storage as close as possible or even inside the load centers so you can not only time shift energy, but you can debottleneck and get downstream from bottlenecks on the transmission and distribution system.”

If, as Hellman suggests, battery storage can match gas-fired generation on both capital costs and levellised cost of energy, then energy storage value proposition becomes a “triple play” with three different sources of revenue.

The first is on capacity: a device with 4-6 hours storage should be entitled to capacity payments, a storage facility behind the metre is reducing demand charges or is monetising the capacity value, and is also playing that off-peak, on peak arbitrage.

The second is locational capacity,, the most important: The ability to be modularized and placed in areas of the grid that require the most attention but traditional sources of generation, and th transmission and distribution system, are either impossible or too expensive to install.

The third area of growth Hellman sees is behind the meter micro-grid, pairing with distributed generation in order to create a fully autonomous type of environment.

This, he says, is good news for the traditional utilities. “Many think energy storage is somehow a threat to the utility paradigm. It’s actually not.  The energy storage – in so far as it can provide locational capacity – can resolve problems for utilities in a very cost- effective fashion, allowing them to better optimize their capital spend for example.

“Over the long-term and in even in this micro-gridding configuration, energy storage is an opportunity for utilities that actually embrace it and understand how to make that paradigm function to provide those services to customers rather than encouraging customers to take the technology risk, the development risk, the operating risk and so forth.

“The utilities understand this technology better. They will have a lower cost of capital and a better ability to take advantage of this emerging opportunity even on the customer side of the meter going forward. So we see it as a benefit. Not just on the grid, but behind the meter as well in terms of the traditional utility business model.”

But he says that energy storage will provide a new way of designing an electricity grid, particularly for emerging countries that actually are perhaps mired in energy poverty.

Micro-grids become a realistic solution for that problem together with distributed generation. Even in developed countries as you see energy storage and distributed generation become more and more prevalent, ultimately the future is an overlay on top of loosely interconnected micro-grids that can actually add robustness, lower costs and robustness for all kinds of energy consumers.

“The winners in this process are going to be electricity consumers, technology providers, developers and ultimately those utilities that are able to and have a mechanism for embracing change, which is inevitable in any case as the sector grows.

On some other issues, Hellman says:

EOS batteries are designed to achieve 10,000 cycles. If it was charged at night and discharged during the day, that would correspond to one cycle a day. So 10,000 cycles equates to something like a 30-year operating life for its batteries.

Hellman said EOS technology was specifically designed for grid-scale.storage but it was looking to see if it could be adapted for electric vehicles. He was not confident of the future of lithium ion battery technology, because of its cost and because of its lack of stability.

He said the challenge with lead acid is that it is very cheap, but it doesn’t last very long. “It doesn’t really fit the requirements for utilities style solutions. It’s not a bad stop-gap technology, but it’s probably not a great long- term technology.”

However, he noted that there are so many different applications for energy storage on the grid and off the grid that there will likely be a large number of technologies that emerge as being very commercial and having a lot of value added in this whole process.