Solar-plus-storage: a new dawn for renewables
To date, power grids have struggled to cope once intermittent renewables reach around 30% of electricity generation. This is because of fluctuations in supply, in what one could term a “challenge of success”. Renewables overproduce at the wrong times for demand (midday) and under-produce at the right times (sunset, dinner and TV hours). Concerned utilities and policymakers point to the risks exemplified in the “California Duck Curve”1, which shows solar power tailing off at sunset just before peak demand occurs. This puts huge pressure on typically fossil fuel-powered “peaker” capacity to rapidly ramp up. On the flipside, at midday, solar might produce more energy than can be used (“over generation”) at zero marginal cost, forcing the grid operator to curtail supply, thus reducing the environmental and economic benefits of having cheap solar there in the first place.
We cannot stop at 30% renewables if we are to decarbonise the electricity supply. Energy storage and a smarter, more digitalised grid will help to solve this problem of renewable integration, but until recently their use was in small pockets and pilot schemes. This looks set to change.
Bloomberg New Energy Finance (BNEF) reports that the cost of lithium-ion batteries has fallen 24% in the past year to an average of $209/kWh. This is a fifth of the cost in 2010. By 2025, BNEF predicts that battery costs could fall below $100/kWh2.
As a result of the rapidly improving economics of storage, BNEF expects cumulative storage deployments to grow from 3GW in 2016 to 124GW by 2030, with the industry attracting $103 billion of investment over the period.
BNEF forecasts utility-scale applications to account for most of the volume initially. Several markets such as Japan, Mexico and Chile now require storage to be co-located with new renewable deployments.
In India and California a number of renewables-plus-storage tenders have been issued. Australia’s recent review3 of the electricity market included the recommendation that new renewable projects be “firmed” by building or contracting with dispatchable resources like energy storage.
In the medium to long-term, BNEF expects commercial, industrial and residential applications will dominate the mix. Less generous tariff structures for rooftop solar will push consumers to self-consume more of the solar energy they produce. For example, in 2019 variable “time-of-use”4 rates for residential customers will likely be introduced in California and will help to build the economic case for combining rooftop solar with storage.
As battery costs decline and awareness grows, residential storage may eventually follow a similar pattern of technological diffusion as washing machines and colour TV (within its addressable market). On the commercial side, corporate procurement of renewables is being driven by companies’ growing commitments to reduce their carbon footprints. Again, as storage costs fall it will become increasingly compelling to deploy storage to maximise the value of their renewables. In short, energy storage appears to be approaching an inflection point and we believe it presents a number of opportunities for investors over the next few years.
1. https://energy.gov/eere/articles/confronting-duck-curve-how-address-over-generation-solar-energy ↩
2. BNEF 2017 Global Energy Storage Forecast, November 2017↩
4. http://www.cpuc.ca.gov/General.aspx?id=12194 ↩
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