The Extra Mile On Industrial Performance

The Extra Mile On Industrial Performance

5 reasons why Grid-scale Energy Storage might be missing

Energy storage is critical for mitigating the variability of wind and solar resources and positioning them to serve as baseload generation. But despite battery-based energy storage capacity installations soared more than 1200% between 2018 and 1H2023, they do not have a pivotal role in the mix today and it does not seem to have it in the near future.

There are five main reasons to understand why Grid-scale Energy Storage is missing and why it might remain missing in the next 15 years:

  • The cost per KW is still very high, doubling the cost of the renewable source attached
  • Most of the current renewable capacity does not include storage, so we are starting from scratch and we need to achieve very aspirational goals in a short period of time
  • There is not a winning Technology yet, with several solutions still under development
  • Battery economic returns for Mobility are higher than for Grid Energy Storage, getting more focus and investment and delaying the deployment of utility-scale energy storage
  • The investment in Transmission is not following the growth in renewable energy, leaving storage alone in the goal of supporting energy transition

Let’s have some additional details on those 5 reasons

1. The cost per KW is decreasing, but it is still high

The Levelized Cost of Battery Storage (LCoS) for grid-scale projects depends mainly on its operational profile and performance requirements. How many times a day will it cycle? When will it charge, and from what sources? Are you using the battery to avoid peak demand charges, to provide balancing services, to trade on the wholesale market, or to combine one or more of these value streams?

The LCoS is made of five components:

  • CAPEX, including battery costs, permitting, construction, installation, and fire safety
  • O&M costs, including scheduled & unscheduled maintenance, and performance data monitoring and retention
  • Augmentation / Replacement, including ongoing costs to recover battery capacity lost to degradation
  • End of Life costs, including recycling, disposal, and remediation costs, but also any residual value
  • Efficiency, as the cost of energy lost to charging and discharging inefficiencies

As an example, Invinity modeled a grid-connected utility-owned battery co-located with a solar array, performing multiple daily cycles to serve deep wholesale and balancing markets for 40 years. Such markets reward high-throughput systems: the more opportunity the battery has to do valuable work like solar shifting or performing energy arbitrage the more revenue it can earn. The Battery Storage Cost comparison is:

Source: Invinity Energy Systems

NREL has recently published the cost and performance projections for utility-scale lithium-ion battery systems, with a focus on 4-hour duration for use in capacity:

Source: NREL

In 2035, the average cost is expected to be 300 $/KWh, which for a 4-hour battery means 1,2 Million $ per MW. If the cost of deploying wind power is on average 1 Million $ per MW, that implies to double the cost of installing a wind farm paired with batteries.

Pumped hydroelectric energy storage (PHES), whereby water is pumped from a lower reservoir to a higher one and then run back down through turbines to recapture the energy, is a great option but not always available. PHES accounts for about 99 percent of the U.S. grid energy storage market.

Most PHES installations today are built for diurnal cycling (every six to 24 hours) and have energy capacity costs in the hundreds of dollars per kilowatt-hour, which makes them unsuitable for LDES.

Some PHES projects with particularly large reservoirs can get over 100 hours of duration at energy capacity costs in the $20 to $30/KWh range, which combined with their relatively high round-trip efficiency means they can probably eat into some clean firm generation at the margins. But those sites are even more geographically limited than PHES generally.

Not until prices hit $50/KWh will LDES even begin to see meaningful deployment or declining costs. Not until $20/KWh will they reduce system costs by 10 percent. And to deliver more significant savings in electricity costs (>10%), storage technologies must exhibit costs in the $1-$10/kWh range and discharge efficiencies greater than 60%.

2. Energy Storage will have a small contribution to the Electricity mix

Different forecasts conclude that in 2035 we will demand 47.700 TWh worldwide:

World Electricity Consumption. Source: Enerdata

Bloomberg NEF (BNEF) presented its 2nd Half 2023 Energy Storage Market Outlook some weeks ago. BNEF expects 1,8 TWh to come from Energy Storage, which means 0.004% of the total supply. Despite the huge investment to achieve the 650 GW of energy storage to provide that electricity.

APAC maintains its lead in build on a gigawatt basis, representing almost half (47%) of the additions in 2030. China leads largely due to top-down compulsory requirements to pair storage with utility-scale wind and solar. Other markets have also set new policies to promote storage too.

Source: BNEF 2H 2023 Energy Storage Market Outlook

3. Energy Storage Technologies are still in development

Battery–based energy storage systems (ESSs) will likely continue to be widely deployed, and advances in battery technologies are expected to enable increased capacity, efficiency, and cost-effectiveness till 2035.

Lithium-ion batteries are extremely good at storing energy for electronic devices, electric vehicles and, at least for short periods of time (four to six hours), the power grid. But a net-zero-carbon grid is going to need storage that lasts a lot longer than six hours. It’s going to need durations of up to 100, 300, 500 hours or more, and it’s going to need them to be cheap. Lithium-ion batteries just aren’t going to work for that.

Lithium-ion batteries using nickel manganese cobalt (NMC) chemistries are losing market share due to their relatively higher cost when compared to lithium iron phosphate (LFP) batteries. In fact, lithium and nickel prices will also remain high in the coming years, given the uncertainty of supply from China or other countries.

Sodium-ion batteries, still in their infancy, are beginning to scale up. This technology could alleviate battery-market pressures — and potentially push down costs — as soon as 2026.

Beyond lithium-ion batteries, alternative technologies focused primarily on long-duration energy storage (LDES) needs remain limited, with 1.4GW/8.2GWh of commissioned capacity worldwide. Compressed-air Energy Storage (CAES), Liquid-air Energy Storage (LAES), molten salt and gravity storage are some of those options.

As we saw above, PHES is technologically mature but it is not available wherever we want, so its constraint to scale up is more geographical than technical.

4. Battery economic returns for Mobility are higher than for Grid Energy Storage

As an example, the UK Governement presented last week its UK Battery Strategy, which includes +2bn £ of investment in Batteries.

Nevertheless, it is disappointing to see that most of the growth in energy storage will be related to mobility and only 5% will be Grid-scale Storage:

5. The International Energy Agency (IEA) Warns of Insufficient Transmission Lines Worldwide to Connect Renewables to the Grid

According to IEA, the world has to add or replace 80 million kilometers of transmission lines by 2040 in order for countries to meet their climate goals through the use of renewable energy and to meet electricity demand. That amount of transmission lines needed is about equal to the total number of kilometers of the electric grid that currently exists in the world, which took 100 years. This level of construction of transmission lines across the globe will require an annual investment in electric grids of more than $600 billion per year by 2030, which is double what current global investment levels are in transmission lines.

Wind turbines and solar farms are located much further from demand centers than fossil fuel and nuclear plants because they need to be located where the best winds are and where the sun is the strongest. Those sites are usually far from existing generating stations and far from city centers, which is why the massive increase in transmission is needed.

Renewables without storage and without appropriate transmission bring curtailment and demand more flexibility from conventional power plants. Curtailment is generally rising with the growth of solar and wind generation, with wholesale power prices increasingly dropping to zero or even negative at certain times of the day when renewable energy supply exceeds electricity demand.

Just in the USA, this phenomenon appears to be spreading nationally, with 8,950 GWh of renewable energy curtailment in 2022:

This percentage is growing jointly with the increase of renewable capacity if it is not paired with adequate storage and means a disincentive for investors.

Conclusions

Grid-scale Energy Storage SHOULD be the cornerstone of Energy Transition, ensuring renewable sources grow in the mix to achieve higher power contributions.

Investors will decide if the massive investments required to expand this storage worldwide has the expected Return on Investment and so Energy Transition succeeds or, on the contrary, Grid-scale Energy Storage remains residual in the mix.