Rocky Mountain Institute.
By Jesse Morris.
Four short years ago, the U.S. solar industry surpassed expectations by installing 340 MW of solar at a cost of $6.40 per watt in the first half of 2010. How times have changed. In the first quarter of this year alone, the U.S. installed 1,330 MW of solar for an average $2.36 per watt. In other words, we installed roughly four times as much solar in half the time for about one-third the cost. Talk about progress!
Because technology costs (in this case, PV modules) plunged so rapidly, balance-of-system costs today make up the majority of system prices. That’s today’s land of opportunity for further cost declines in solar. And now, battery energy storage is undergoing a similar evolution.
Over the past several months an increasing number of industry executives have drawn analogies between energy storage and the history of solar costs. Lithium ion-based energy storage systems, it’s said, are currently where solar was back in 2010. Typically these kinds of comments are in reference to the cost of lithium-ion batteries, which, with the help of the Tesla gigafactory, are expected to come down dramatically in cost over the next several years—just like PV modules circa 2010.
Batteries can play an important role in helping the U.S. realize a clean, affordable electricity future powered largely by distributed renewables. But forecasted declines in the cost of lithium-ion cells won’t be enough. Just as with solar, batteries’ balance-of-system costs—permitting, interconnection, inverter/converter costs, installation labor, safety testing, battery enclosure, power electronics, etc.—will be an important enabler of greater, faster adoption. This is especially true considering that balance-of-system costs for batteries currently consume an even greater share of distributed energy storage costs than solar balance-of-system costs did for PV systems back in 2010. And that’s precisely why RMI is launching this important line of work.
The Enabling Role of Battery-Based Energy Storage
Battery-based energy storage can enable high levels of renewable energy adoption by complementing the predictably variable and sometimes intermittent nature of solar and wind resources. But selling energy storage on this attribute alone ignores a number of other values provided by the technology, including but not limited to:
- Peak shifting: Energy storage can shift a building or entire electricity grid’s peak consumption patterns to reduce demand charges, better align energy consumption with distributed resource production, or help reduce the impact of the duck or “nessie” curve.
- Backup power: Safety considerations prevent most rooftop solar systems installed in the U.S. from running during power outages. Installing an island-capable inverter with an energy storage system solves this problem and can keep the lights on during such events.
- Frequency regulation and other grid services: In electricity markets like PJM, distributed energy storage systems can actually bid into a special market for frequency regulation at the distribution level. Here, energy storage systems help grid operators better match electricity generation with load by adjusting output on an incremental minute-by-minute basis to maintain desired grid frequency.
Battery Balance of System Costs
Unfortunately, these different values are extremely difficult to capture for two primary reasons: 1) in most cases, markets don’t exist for distributed energy storage systems to do much beyond peak shifting and backup power provision and 2) where such markets do exist (PJM interconnection and CAISO in the U.S.), the high cost of distributed energy storage prevents cost-effective provision of those services. Thus, battery balance-of-system costs must come down in order to enable cost-effective participation in both current and future markets.
While it’s impossible to know exactly how these costs will come down in the future on their own, the graph below illustrates what the cost trajectory would look like if the energy storage industry experienced the same annual percentage decrease in balance-of-system costs as observed in the solar industry during the transformational 2008–2014 period.
Interviews with over twenty distributed energy storage manufacturers, developers, aggregators, utilities, regulators, and industry representatives, along with a review of existing research, show that battery balance-of-system costs comprise nearly two-thirds of the cost of energy storage systems currently being installed in the U.S.—74 percent and 63 percent for residential and commercial systems, respectively. And if the cost reduction history of solar balance-of-system costs is any indicator, these costs will contribute significantly to energy storage system costs well into the future.
The RMI Approach
RMI’s Battery Balance of System (BBoS) project will convene relevant stakeholders and explore the challenges presented by BBoS costs and the potential for collaboration. Similar to our solar balance of system work, we hope to unearth potential pilot projects, working groups, spinoffs, and research products with the ability to help shrink the battery balance of system portion of the cost stack outlined above.
We envision a future where distributed energy storage systems are being used to capture value throughout the electricity system by both utilities and end users, a future where largely renewable microgrids enabled by energy storage are the norm across the U.S. However, in order for this technology to be adopted at scale and have a meaningful impact, costs must come down, and convening industry to address balance of system costs in particular is an important near-term step.
Source: Rocky Mountain Institute. Reproduced with permission.
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