Into reserve gear

It was the elephant in the room that everybody wanted to talk about. As industry-defining presentations go, this was out there alone, in a field of one. Characters like cleantech entrepreneur Elon Musk do not come along too readily in the storage industry, making the global buzz that was generated by his unveiling of the new Tesla Powerwall storage battery in late April all the more discomfiting for industry veterans.
Storage is not supposed to be glamorous or exciting. It is not supposed to shunt sport, politics or celebs from the front pages of mainstream news websites. But there was Musk, flashing his billion dollar smile to the world, his celeb-status long confirmed, his showmanship praised, his message heard.
To some observers, that elephant in the room looked a suspicious shade of white – a style-over-substance storage offering that does little to actually advance the storage industry except for, you know, get the whole world talking about it.
Solar veterans had seen this all play out before in 2014, when the solar roadways story was doing the rounds on social media. “But it’s not any kind of improvement on current technology,” experts cried. That didn’t matter. It caught the public’s attention and ushered solar power – for a while – into the spotlight.The Solar Impulse team that is currently attempting to circumnavigate the globe in a solar-powered aircraft is hoping for a similar cultural impact. They are not trying to redefine the aviation industry, but rather our relationship with traditional fuel sources.
Tesla’s Powerwall goes beyond that. Retailing at $3,500 for the 10 kW model or $3,000 for the 7 kW model, the price point appears attractive even to early adopter dilettantes doing the cost calculations on their new Apple Watch. The sleek packaging and slick marketing will win others over, but skepticism about how suitable the battery actually is for current consumers has abounded.
“There has always been, economics aside, a large part of the global population that would be interested in, and have enthusiasm for, the idea of generating and storing their own electricity and relying on their own sources,” Sam Wilkinson, Manager for the Power and Energy Group at IHS, told pv magazine . “That self-sufficiency desire, paired with the accessible idea of Tesla’s Powerwall at an attractive price point, starts to become quite compelling.” Wilkinson identifies himself as being part of the chorus of cynics that have so far questioned the economics of the Powerwall, asking where the incentive is – particularly for U.S. customers – to purchase one, other than as a secure power backup supply. “But then one of the analogies I’ve heard is that people don’t need TVs any longer, but they still own and want them,” he says. “The price point is fast moving toward that consumer product, whereby people will buy the Powerwall not just for the economics but because it is a desirable thing to have. This is interesting for the industry, and is not something that we see very often.”

Following the first-movers

The storage industry, even before it had to make room for Tesla’s juggernaut, has been quietly expanding in recent years as solar power has proliferated and the price of batteries – particularly lithium-ion (Li-ion) batteries – has tumbled, making the dream of energy self-sufficiency a tangible reality for many.
GTM Research’s Ravi Manghani has said that battery efficiency is increasing at about 8% annually, and prices globally could fall by around 50% over the next two to three years, falling as low as $250 per kilowatt hour (kWh) by 2017, which is a price point Tesla hopes to achieve by the middle of 2016 once production at its Gigafactory in Nevada, U.S., hits top gear. Currently, system prices for residential storage are around $1,200/kWh, and $800/kWh for utility-scale.
These factors are boosting energy storage deployment, particularly in the U.S. GTM Research’s US Energy Storage Monitor report, published in May, found that 5.8 MW of storage capacity was added in the U.S. in Q1 2015 – a 16% increase on the same period in 2014. Significant growth is expected this year, Manghani says, putting the U.S. on course to install as much as 220 MW of storage capacity in 2015 alone. An acceleration is expected thereafter, to the point where the report forecasts the U.S. storage market to grow by 848 MW in 2019.
Growth will prove uneven across the country, however. California – the leading solar state – will inevitably head the pack, especially following the introduction of a storage mandate compelling the big three investor-owned utilities to procure 1.3 GW of storage by 2020. In contrast, Oregon has a similar mandate for just 5 MW by that date.
The GTM Research data suggest that residential behind-the-meter storage is set to play a larger role in this shifting landscape. First quarter data this year
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reveal that 1.6 MW of storage was added behind-the-meter, up from just 700 kW in Q1 2014. To date, there has been 1 MW of residential storage deployed in California, where homeowners can tap a California Public Utilities Commission (CPUC)-backed storage subsidy, while Hawaii – with its high electricity prices – is the second-largest residential market with 320 kW of cumulative deployments, spurred by tax credits for grid-connected and off-grid storage systems.
The storage landscape differs elsewhere in the U.S., nowhere more so than in the Northeastern states (those served by the PJM Interconnection). A shakier grid and heightened threat of tornadoes and other extreme weather events make large-scale power backup attractive, and GTM’s figures show that this region is the largest cumulative utility-scale storage market, with more than 68 MW of capacity.

U.S. Policy support

Stabilizing influences have arrived in the form of statewide policy and market developments. In the west, Washington has already commissioned two of five grant-funded storage projects, while the Arizona Public Service (APS) has a $1 million rebate fund for its solar-plus-storage pilot program, which has targeted the installation of 2 MW of storage. The state could also become one of the first to introduce time-of-use charges that could make stored energy a more attractive proposition for Arizonians than currently.
Such a non-volumetric charging model may soon be replicated in around 20 other states across the country, and as net metering schemes are rolled back, homeowners and commercial businesses with solar installed will need somewhere for their excess power to go – which is likely to further drive behind-the-meter energy storage. In New York, Con Edison has contracted 2 MW of residential-scale storage, while New Jersey’s BPU has awarded $2.9 million in funding for 13 storage projects totaling 8.75 MW paired with renewable generation, said GTM Research. However, until it becomes economically viable for residential consumers to store, rather than sell, their excess solar energy, change will prove slow.
For the utility-scale segment, the Federal Energy Regulatory Commission (FERC) has proposed plans to permit the sale of primary frequency response service at market-based rates for storage systems. These developments are serving to unlock the U.S. storage industry with every passing day, and if Tesla can come good on its pledge to offer its Powerwall at $250/kWh, then the pressure will be on the rest of the storage industry to develop and introduce compelling competitors to the market.

Europe’s golden opportunity

With American commercial and industrial businesses faced with high peak demand charges in the U.S., there has been noticeable interest in storage emanating from this segment. In Europe, however, demand charges make up a much smaller proportion of commercial and industrial customers’ electricity bills, which means that demand for storage among this segment is comparatively lower.
“The European electricity network is, on the whole, a lot more reliable than in the U.S., which is another reason why the addressable market for energy storage for these clients is smaller in Europe,” Logan Goldie-Scot, head of storage analysis at Bloomberg New Energy Finance (BNEF) told pv magazine .
Where there is a case for storage growth in Europe, however, is at both the residential and utility-scale levels. High solar penetration rates in many countries – not least Germany, Italy and Spain – allied to poor or non-existent feed-in tariffs (FITs) make solar+storage an attractive deal for homeowners, even in the absence of supportive subsidies.
“The Italian regulator AEEG is increasingly interested in the potential role of energy storage due to the high penetration of PV in the Italian grid,” said Goldie-Scot. “Energy storage is not explicitly incentivized in Italy, but it can now be used alongside PV systems, for instance, and any PV output that is stored in the battery could still qualify for incentives.” Solar PV penetration stands at 8.8% in Italy, above Germany’s 5.8%. But Germany is making progress in storage as part of the country’s Renewable Energies Act, the Energiewende. Data from the German Solar Association (BSW) show that there are now more than 15,000 behind-the-meter storage systems installed in Germany, with demand growing 35% at the end of 2014.
German renewable energy company LichtBlick will introduce the Tesla Powerwall to the German market later this year, and German automobile manufacturer Daimler AG announced in June that it will rollout a Mercedes-Benz branded Li-ion battery to the market, available in 2.5 kWh or 5.9 kWh versions. The company already has in excess of 500 kW of energy storage deployed in Germany at utility-scale, and has teamed with German utility EnBW Energie Baden-Württemberg AG as a commercial partner.
“We are accelerating the transition to sustainable energy generation both on the road and in the field of power supply for companies and private households,” said Mercedes’ head of electric drive program, Harald Kröger.
“There is a growing interest in aggregating small, residential behind-the-meter storage systems in Germany that provide ancillary services to the grid,” explained IHS’ Wilkinson. “Germany is also the only country where we are seeing commercial deployment of grid-scale storage projects.” Wilkinson cited the recent Belectric Energy Buffer Unit (EBU) installed at Alt Daber farm in Brandenburg as an example of a large-scale (67.8 MW) PV system participating in the country’s primary reserve, grid-balancing market. “There are not so many systems that are participating in a genuine business case outside of Germany,” he added.
In the U.K., which has just eased off the solar accelerator that saw more than 1.5 GW of PV capacity deployed in the first three months of the year, a rapidly maturing solar industry has begun to attract the overtures of the storage sector, but the still-generous FIT for residential customers means that commercial- and utility-scale storage may blossom first.
Indeed, the U.K. is home to Europe’s largest battery storage project – a 6 MW smarter network storage substation located near London that is the result of a collaboration between Younicos, Samsung SDI and S&C Electric.

Asia Pacific on the charge

The irresistible force that is Australia’s solar industry has butted up against the immovable object of Australian politics with such regularity in recent months that a concession on either side is all but inevitable. The power-broker in this unedifying spectacle is likely to be energy storage, which is being touted as the solution to finally convince skeptics of the attractive economics of solar power in the country.
“The Australian energy storage landscape continues to take shape, with several recent developments in end-user, transmission and distribution applications and R&D,” said Goldie-Scot. “Its supply chain remains immature and priced at premium to the U.S. and Europe market, but interest in energy storage is surging.” The analyst added that there could be intense cultivation of end user markets over the next 12 months, and recent developments in the sector suggest that may be the case.
In May, Trina Solar unveiled its Li-ion home battery Trina House to the Australian market, available in sizes of 3.6 kW, 5 kW, and 9.6 kW, at an expected retail cost of around US$1,200/kWh. The company will also release a grid and micro-grid model later this year, and a commercial-scale battery in the future.
With poor or non-existent FITs in many parts of Australia – allied to high levels of solar irradiation, high home ownership rates and a mature solar industry – residential-scale storage makes perfect sense. Japan’s Panasonic has also recently muscled in on the market, working with three utility companies to pair its new Li-ion battery systems with their rooftop solar packages in a trial rollout.
As part of the trial, Panasonic will assess how effective the batteries are at both peak shaving – with owners able to self consume up to 60% of their solar energy, the company claims – and demand response. If successful, such a product could bring a multitude of benefits to Australian homeowners and utilities without necessitating any large-scale infrastructure upheavals.
Panasonic is working with Tesla to produce its battery packs at the Nevada Gigafactory, but these particular residential systems – with a capacity of 2 kW – are manufactured in Japan, where the energy storage market is on the cusp of seismic growth.
“There is a JPY 13 billion ($105 million) budget to support residential energy storage systems in Japan, and BNEF expects this to support roughly 77 MWh to 160 MWh of storage in FY 2015,” said Goldie-Scot. At large-scale too, Japan appears to be finally embracing the potential of storage, with Japan’s Ministry of Economy Trade and Industry (METI) recently launching a new $221 million subsidy program for the installation of energy storage systems at solar and wind farms.
“The immediate prospects for energy storage look good in Japan,” Goldie-Scot added. In China, where discussions about the future role of solar energy are being held as part of the country’s five-year plan, the true extent of storage uptake and ambition remains something of a gray area. Some bullish reports – including a paper by RnR Market Research in March that predicts a 14% annual growth rate between now and 2018 – suggest China will play an ever-increasing role in the growth of the global storage industry, while other experts remain skeptical.

The power to disrupt

As with any close cousin of the solar industry, there are very few certainties in storage. The prevalence of Li-Ion batteries as the preferred forerunner is accepted, if challenged, while there is consensus that costs are set to fall drastically over the coming years, even if nobody really knows for sure by just how much.
One thing is certain, however, and that is storage’s role as conductor to the disruption that is spooking traditional energy models. Both on the commodity front and the utility side, storage is the market segment that will tie it all together, and will grow massively in the process. A Citi Group report published in January estimates that the global storage market will reach 240 GW by 2050, and will be worth in excess of $400 billion, delivering system costs as low as $150/MWh.
To get to that stage, however, further convergence of policy support, solar penetration and technical innovation is required. “It is important to point out just how important innovation is right now in storage,” said Wilkinson. “We have moved through a period of significant cost pressures, throughout the entire industry, and are now in a commoditized market. Differentiating oneself within that environment – which comes down to innovation of products and innovation of business models – is becoming increasingly important.” Tesla went down the route it always goes down – an iCandy offering supported by slick PR and a compelling price point. Other leading storage manufacturers, with the battery ball in their court, have either batted back or taken it home for closer inspection. The upshot of all this, for the consumer, the grid and the environment, is that costs will tumble and efficiencies will increase at a pace far quicker than ever before.