Originally published on RenewEconomy.
It was the big theme of the Australian Energy Storage Conference in Sydney, which attracted hundreds of people in suits with big ideas, bold plans and a lot of excitement about some of the technologies on offer – from battery storage units, smart technologies and the ubiquitous electric vehicle.
The arrival of battery storage has been predicted for a couple of years. And now it is here. But what, exactly, is here? A lot of presumed demand, a bunch of samples and a lot of excitement. And there are a bunch of things missing from the equation, and one of them is a business model, and an understanding of who, exactly, is the customer base.
Bloomberg New Energy Finance this week raised the tempo, predicting that there would be 37 GW (37,000 MW) of battery storage in Australia by 2040 – a phenomenal amount and much of it installed by households and businesses.
But who will be installing the batteries? And why? And what will the business model be? Will it be based, for instance, on the early adopters who will take up anything just to be first, or independent, or just to shove it up the networks?
Will it be the 250,000 solar households who next year will move from generous gross feed-in tariffs and an energy income, to net tariffs and a whopping big bill?
Will it be farmers so pissed off by utilities and network charges they will do anything to leave the grid? Commercial businesses tired of blackouts and spoilage and new demand charges? Utilities who discover that battery storage is a cheaper and more effective way of upgrading the network and allowing more renewables.
Will it be the housing estate developers and regional towns who want to either not connect to the grid in the first place, or buy it back and tap into the main network at the end of a rainy week? Will it be generators and grid operators installing large-scale grid storage to balance the output of renewables, provide frequency regulation as the fossil fuel generators exit the grid, and to respond to peak demand, if there is any left?
Chip in a few dollars a month to help support independent cleantech coverage that helps to accelerate the cleantech revolution!
It’s likely to be all of the above. The Australian Renewable Energy Agency summarised some of the options here (see graph above). Some of the applications will require different storage options at various scales. The only problem is that no one really knows how it is all going to fit together as a business model.
Half the problem is whether the regulators can keep up, and how much distortion in the markets will be allowed in the pursuit of short-term profits and to shore up revenues. Take the huge boost in fixed tariffs in Queensland last week, and the separate announcement by Ergon that it will impose restrictions on solar arrays in its network. All they know is that battery storage is going to be Really Disruptive.
The incumbent utilities are trying to get their minds around this, in the same way that Kodak tried to wrap its strategy around digital photography. Some utilities have concluded that the current and new business models are not comparable so have split their businesses. Others are soldiering on, trying to meld the two.
AGL Energy is one of those. Over the past 12 months it has hired some 200 people to its New Energy division, which doesn’t have a lot of revenue to date, but ranks equally in hierarchy with the existing retailing and merchant businesses.Many of the hirings have come from well beyond what would normally be thought of as typical utility types. Paul Fox, an Australian who spent a decade in energy and other start-ups in Silicon Valley, is one of those. He is now “head of technology” at New Energy, so it wasn’t a surprise when a sell-out crowd turned up to hear him talk earlier this month on Solar, Storage and New Energy business models.
Fox’s own presentation was titled “New Business Models for Utilities Arising from Opportunities in Solar and Storage.”
Summarised, it comes to this:
- Find out what the customers want
- Give it to them
- Make a profit
It’s easier than it sounds. Fox quoted Apple’s Steve Jobs in saying that people don’t know what they want until you show it to them. The problem with electricity is that most people spend just 8 minutes a year looking at their bill, and not much other time thinking about it.
On the other hand, there is a bunch of people who will do it anyway. This is the market AGL is initially targeting. Its initial findings were that battery storage is still too expensive. But it is selling them anyway, because early adopters will evolve to the mainstream and it suspects that mass appeal is not far away.
“No one knows the business model,” Fox said. “So you will have some companies who have built full-featured products that can do absolutely everything. But they are gloriously expensive and no one will buy them.
“Other people say they will build to a price, and take out functionality, but they are taking a risk as to whether or not that can be integrated.”
A big insight into potential business models will come in a few weeks when the Australian Energy Market Operator releases its first and ground-breaking study into the value of battery storage to consumers.
Matt Armitage, who has lead-authored the report, says there is no doubt that Australia will be a global leader in battery storage, because of its solar penetration, network prices, solar resource, low feed-in tariffs, innovative tariff structures, a tech-savvy population with high disposable incomes, and the low cost of finance.
“Australia will be a test bed for the storage market because of those tariffs,” he told a recent conference. He expects a huge battle for market share.
One of those companies looking to unlock some of that value is Reposit Power, a software company looking to use battery storage to enable consumers to tap into the value in the wholesale market. It is looking to partner with Tesla in the roll-out of its home-based Powerwall unit.
Reposit has been conducting trials sponsored by ARENA for its “grid credits” program, where some smart technology enables households to profit from changes in wholesale electricity prices. But trying to sell its battery storage product wasn’t easy, Dean Spaccavento got this feed-back from his clients and potential clients:
- $15,000 is too much for a battery storage unit.
- I want to be comfortable with how the payback time is calculated.
- 5 years warranty is not enough.
- I want to power my house during blackouts.
- I want it to look good and I want it to be safe and quiet.
- I want it all to work together, but I want to choose my hardware.
- I want it to do what is best for me.
- I want to see where all the money comes from and where it all goes.
Spaccavento says his observation from this is that customers are buying empowerment and transparency. “They see it as change in the way they do electricity. They see it as taking power back. These systems need to court them to match their needs.”