Dear Energy Storage Market: It’s Time to Grow Up!
The other day, I had a heartening conversation with my 5-year-old son about making good choices. After the millionth fight between he and his younger sister, he pleaded with me to consider the unfairness of her constant pestering and his refusal to share his toys with her. For the first time in his young life I watched him reason through this problem in search of a solution. He first identified the problem—that he fights with his sister over toys. . He doesn’t like it because he just wants to be left alone. I asked him what he thinks he could do about it, and he first suggested that his sister could go away. I asked him “do you really think that is likely?” He affirmed that this was not a likely solution. Then he said “maybe I can play somewhere else,” which I told him was a good choice. And then he made his breakthrough—“Maybe if I give her something else to play with, we can play together and be happy and I don’t have to move.”
I was so proud of him to come to this conclusion. He stumbled on one of the greatest tools to maintain successful human relationships: achieving mutual benefit through compromise. I gave him a hug and told him he’s a wise man.
Learning to Compromise in the Energy Storage Market
In today’s blog, I plan to address a problem in energy storage. That problem is the refusal to share, just like my young children. Until some compromise is made, the storage industry will be stuck in a pattern of limited progress toward mutual growth.
As the independent engineer (IE), DNV GL is brought into many conversations about confidential data. This data can be related to performance, lifetime, safety, or details about battery management systems. Evaluation of this data is critical to our ability to offer a valid opinion on the viability of a project. In almost all cases, the data we need is available, but the possessing party is afraid to share it. When the data is eventually provided, we are able analyse it, make conclusions, and provide an opinion that leads to a financed project. However, getting that data is ridiculously hard and it adds months of unnecessary delay to project commissioning.
To date, the energy storage industry is getting by with less-than-complete reviews of technology. Consider this laughable scenario: you walk up to a stranger on the street and put a spec sheet in their hands, and ask them if they think it looks reasonable. They will likely say, “what is this? I don’t know what this means.” If you find a stranger that has seen something like that before, they will say “this looks like others I have seen.” The second scenario is how I would describe competitors in the market, most of whom do not have home-grown energy storage experts and are simply taking a single step outside their solar or wind IE business to claim that they are providing IE for energy storage. Relying on general engineering knowledge, they are having some success. Although, they have not offered solutions to independently test and learn for themselves. That’s how DNV GL is different. Our energy storage expertise is unique and our mission is to give that knowledge back to the industry to help everyone grow.
We should all focus on winning the race; the race to making a successful and sustained energy storage market. To do so, it’s important to bring the entire market to a higher level of awareness so that it grows faster, which sometimes means we may be giving away knowledge our competitors can use. The way that we think about energy storage is unique, and every public guideline, report, and recommended practice we publish teaches our competitors how to be more like us. At this stage in the energy storage market, we all need to grow up a little to see the bigger picture, just like my son did with my daughter.
To that end, I have some areas to highlight where the energy storage industry needs to grow up a little, so that everybody wins.
Share complete and comprehensive cell lifetime data, covering all the major abuse factors related to dwell times at varying state of charge, temperature, and c-rates. It makes people feel comfortable about the warranty, and you’ll sell more batteries. DNV GL offers the Product Qualification Programs (PQP) for the Battery Scorecard (coming in 2018) and Battery XT. If your electrochemistry claims that it has no degradation in capacity, show it! Every battery today has a weakness. Don’t be afraid to show your weakness, because it will make your strengths stronger. Show it all—I can guarantee you that the strengths and weaknesses of every chemistry create a level playing field where all batteries today can only demonstrate marginal advantages. There is no defining attribute of any commercial battery today that makes it the hands down universal solution for all markets, so please stop selling yourself that way! I am sorry to tell you that the technical features of your battery are not that special. What makes you special is your demonstration of experience and your transparency to share data. If you approach your customer with a willingness to share data, you have set a precedent. They will expect it from everyone else, and if the others don’t share, they will be viewed suspiciously, and your customer will choose you because they trust you. Data transparency is a strategic selling point, not a threat to your business.
Acknowledge that cell lifetime is just as much a function of the chemistry and cell performance data as it is about your battery management system (BMS), if you have your own, and start talking about system state of charge (SOC) and electrochemical SOC as two different things. Share your BMS control logic. I promise you, it isn’t that different from the other guy, and you won’t be losing anything by doing so. Explain how you balance cells and how you monitor. Make it clear that you’ve communicated well with the cell provider and designed the BMS to compensate for weaknesses in the electrochemistry. But please, don’t dismiss electrochemistry weaknesses by stating that your BMS is taking care of it. No one is accepting a “black box”—they want to know what is inside. In fact, require that your cell provider be transparent about the lifetime data before you sign a supply agreement so you don’t have problems during project finance later. You are providing a solution, and your cell provider is part of it. If they aren’t transparent with you about their lifetime data, they are exposing you to risk. Lastly, acknowledge that your inverter solution is likely where your cost bottleneck lies. Address this by being more flexible and agnostic, and you’ll be more competitive.
Software and Controls Providers
Your predictive algorithms and responsiveness to control signals are critical and can make or break a project. If you are stacking multiple revenue streams, your algorithms achieve a new level of complexity. Outline how you’ve considered weaknesses in the system and cell chemistry and you’ve developed algorithms that maximize system throughput. System throughput is a critical factor in maximizing revenue. If you aren’t considering cell lifetime, you can’t justify how you are maximizing throughput, and therefore, how you are minimizing O&M costs and maximizing revenue. When you speak to the IE, explain to them how your system SOC set points maximize throughput. The developer will be happy you did. Offer a logic tree dictating your control structure. Nobody wants to read your code, so don’t worry about that. But you will help yourself if you can provide detailed explanatory documents supporting the intelligence of your software.
Engineering, Procurement, and Construction Companies (EPC’s)
You have the unenviable position of being the “one throat to choke”. You take on operational risk in the project, providing O&M, and other operations services. You are the one on call if something goes wrong. Your performance guarantee or capacity maintenance agreement depends critically on the transparency of your supply chain. This means that your supply agreements should mandate that all providers of solutions—including systems, software, and batteries—should be open to sharing any data necessary to get the project financed. If data is not available, they should allow for independent testing. The EPC is the first crowbar to opening the locked boxes of data that the supply chain refuses to open. As the EPC, it is in your best interest to have this risk covered! It does not behove you to side with the supply chain and join them in reluctance to share data. It just makes you look like you are hiding something along with them. You can be the best ally to the developer by putting all the data on the table in an open book for them to review. Your conversation should be guided by principles of risk mitigation. You will succeed in the market by aligning with the developer.
You may have developed relationships with one or more EPC’s, system integrators, or battery providers, and you are finding success in the market with them. However, it is in your best interest to have a few of these parties at your disposal. Do not make the mistake of adopting their marketing language verbatim, and becoming their mouthpiece. When the developer is just the sales front end for a battery, the developer contributes to propagating risk obscurities all the way to the lender. Your salary is dependent on these entities delivering; isn’t it in your best interest to make sure they are not in denial of critical risk factors? Additionally, your cost of the project is directly proportional to how well your supply chain communicates. If you are too expensive, you are limited in the markets you can access. If you have cost competitiveness and a flexible supply chain, you can build more projects. Your contract with your suppliers should dictate data transparency, and in lieu of data, it should mandate independent testing. This arms you with the best solutions possible in today’s market and makes you competitive.
I have learned from lenders that there is no shortage of capital. In our latest Lender’s event, I saw a significant difference in attendance compared to what I saw in San Francisco in early 2017 and New York in 2016. I saw people serious about financing projects. I didn’t hear anyone say “if it isn’t $50M I’m not interested”. I heard people asking intelligent questions, and I heard their expectations that the battery industry shall adopt similar tools to what PV has done with the PV Scorecard, PVSyst, and other objective tools. Lenders, you are at the top of the supply chain. You are the ultimate buyer, and your financial risk is dependent on data transparency. You, above all else, can build your market by requiring data transparency and testing in your contracts. It serves you the most. Everyone wants to get in on the next big market in energy. Energy storage is that market. As a lender, you will be well positioned if you understand all risks and how they are mitigated before you start on a project. Think of it this way—our typical technology review and independent engineer’s report can take anywhere from 6 weeks to 6 months to complete. The duration is highly dependent on when we engage, and whether data is readily available. If the storage industry adopted the Battery Scorecard, PQP, and Battery XT model, all of the data transparency issues would be resolved, and data would be available up front. Realistically, in today’s market a developer is likely commissioning 1-2 projects a year. If each of those projects has built-in delays, due to lack of data transparency, that adds 1-3 months to the project and it means data transparency is an opportunity cost. It could be a difference between 1 project per year and 2 projects per year, or 2 projects versus 3 projects. This means that a lack of data transparency results in a slowdown of 33-50% in the market progress rate, which means it slows your capital deployment. If it slows your capital deployment, it slows your returns, and therefore, your volume of business. Data transparency is an “all boats float” solution for the market.
So, if you think about this for a minute or two, the energy storage market can grow up a little bit, just like my son, by learning to share for mutual benefit. And everyone wins.