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Where is the energy storage market heading and where is the disruptive change? (Part 2)

Introduction
In Part 1 of this blog series, I discussed the direction renewables and energy storage are heading and reached the following conclusions that: 1) PV is rising as a key driver for energy storage;  2) Future grids will face a mix of bulk and distributed resources; and 3) “Distributed Bulk” will be the smartphone of electric grids. In this post, I will address the disruptive impacts of energy storage, who will be affected, and how we can be prepared for it.

Where should we expect a disruptive change?
There are a variety of energy storage technologies currently under development that range from incremental improvement of existing technologies to material research for developing totally new technologies. Before planning any long term storage program, one must know two factors about any expected storage technology under development: 1) when would it be commercially available; and 2) its level of impact on the market and other storage options.

Figure 1 displays a sample of battery technologies on the two axes of time and impact. It concludes that no disruptive change is expected in the market, due to a new storage technology over the next several years. In order to understand what is meant by time to market and disruptive impact, a good example is li-ion, one of the most popular batteries for grid applications. It was announced in 1970s and commercially introduced to the market 20 years later in early 1990s. Now, another twenty years later it is simply a popular choice, not disruptive enough to make other batteries obsolete. Every day we hear about new material research and great fine tuning of an existing battery technology; this is good news, but one should not halt a storage project today in expectation of a fantastic technology becoming available in a couple of years. It takes time before a new entry would drastically impact the storage market.

Figure 1 – Time to market and Impact of diferent battery storage technologies

Figure 1 – Time to market and Impact of different battery storage technologies

It should be noted that not having a disruptive change in the storage market does not mean that storage may not have a disruptive impact on other markets or businesses. In fact, the electric utility business model—in many areas of the world—is going to see a relatively disruptive change, due to the combined impact of PV and energy storage.

Figure 2 shows a view of possible future energy grids that are envisioned to be a delicate balance of bulk and distributed energy resources along with power lines of different capacities and functions to interconnect them together. Depending on the specific needs, cost of electric energy, and state of the energy infrastructure, some communities would continue to operate in traditional manner depending heavily on transmission lines to deliver their energy needs while, other areas would evolve into “smart cities” where local energy resources are controlled in a manner to minimize their dependency on remote energy resources and transmission lines to deliver them.

Figure 2 – A View of Possible Future Energy Grids

Figure 2 – A View of Possible Future Energy Grids

While the introduction of a new renewable or storage technology may not be too disruptive to their competitors, their presence on a grid, collectively, could be very disruptive to some energy businesses like utilities that will be facing the following fundamental challenges particularly from distributed resources operated by customers or independent power producers:

  • Power flow is not always from utility to customers
  • Cash flow is not always from customers to utilities
  • Independent power producers could compete directly
  • Customers demand more services (like access to market) than commodity (like energy)

In the situations where the above challenges are faced early, utilities need to either adapt to this change or be left behind. Some utilities are facing the impacts sooner, or have a better sense of what is coming and have already started to make or announce some changes.

In 2013, the chairman of the Ergon Energy, one of the largest Australian utilities, suggested that within the next decade renewables and battery storage will be cheaper for domestic consumers than grid power—and that they are moving away from the traditional “poles and wires” approach to investment. Their CEO added that the network’s role is transitioning from a transporter of electricity to a market enabler as the customers are increasingly becoming producers selling energy into the grid. The CEOs of other utilities, such as German RWE, have also made similar statements about the inadequacy of the current business model to serve them in the coming market conditions, and there is a need to move from offering commodities to offering services to customers.

In a survey of 53 utilities in 35 different countries in 2013, conducted by PwC, the majority of utilities recognized that the future grid or energy market will have a mix of central (mostly existing) and new distributed energy storage by 2030. Many of these utilities also admitted that their business model  needs to be changed and even transformed in certain cases. Figure 3 makes a side-by-side comparison of the utility responses to whether they expect to see a transformation on their grid or business model. It is noted that those who see the impact of distributed resources on the grid also see the impact on their business model.

North American and European utilities see a clear role for distributed resources, and also expect the highest impact on their business model—due to the competitive market pressures. Asia also sees the penetration of more distributed resources, but does not necessarily see a transformed business model as there is more control on how the utilities operate and compete. South American utilities see a higher probability of staying with the large scale resources that could be due to the presence of ample hydro energy. The middle Eastern utilities, despite their interest in renewable  resources, do not expect distributed resources to play a transformational role. This could be due to a very low cost of electricity in most of this area that does not encourage customer owned PV or storage.

Figure 3 – Survey on How Utilities see their Transformation in their Markets and Business Models

Figure 3 – Survey on How Utilities see their Transformation in their Markets and Business Models

Deployment Challenges and No-Regret Plans
Deployment of grid-scale energy storage has a long history, but the recent activities—especially after the introduction of different battery technologies—picked up momentum in mid-1990s with availability of sodium sulfur and different redox flow batteries. As illustrated in Figure 4, after a decade of prototypes and demonstrations, private investors and government incentives started to stimulate and sustain the slow growth in the storage deployment despite the global economic downturn.  Shortly after 2010, the rapid penetration of PV started to create a new market or driver for grid-connected and off-grid energy storage in both kW and MW scale installations.

The next five years are expected to bring a rapid growth in deployment of renewables (particularly PV) and energy storage. In addition to all of the skills that were needed in the past, there is going to be a high demand for people who can think of innovative ways to “optimally operate” a large number of distributed resources. These skills are both in system design, operation, and large data management.

Figure 4 –Deployment Stages of Energy Storage as a New Tool for Grid Operators

Figure 4 –Deployment Stages of Energy Storage as a New Tool for Grid Operators

The demand for these new skills is mainly due to challenges to deployment of energy storage which can be divided into two groups of short term and long term. These challenges need to be thought through before any significant investment is made.

Short term challenges include:

  • Limited number of mature storage technology options
  • Regulatory and policy barriers
  • Long paybacks

Long term challenges include:

  • Balancing the shares of storage costs and benefits among multiple stakeholders with different business models or financial priorities
  • Big Data (from a large number of distributed resources, especially energy storage that needs to be controlled for both local and central benefits)
  • Data Security (vulnerability of large data and the corresponding operational algorithms)

Regulatory and policy barriers are man-made problems resulting from setting up previous rules that do not match the capabilities of today’s energy storage options. Conflicting business interests may also slow down removal of these barriers but, in the end, these are not inherent problems and will be resolved in time.

Long payback is also a relatively short term problem as storage costs are decreasing while, at the same time, people are learning how to bundle multiple applications and services that would increase the value of energy storage (see Part 1 of this article for more details).

The most difficult challenges are the long term ones that require thorough consideration of multiple options and a clear plan for the business growth, hence a new set of skills.  None of these challenges apply to the cases where owners are content with one or two storage demonstrations and have no need or plan to go beyond that. However, utilities, independent power producers, and other entities that are considering deployment of a large number of grid-connected storage units may face an energy storage trilemma (similar to what is displayed in Figure 5). What this trilemma tries to display is that there are multiple stakeholders to serve, multiple storage options, different ways to stack up or bundle different applications and services, different grid locations for deployment of storage, and a different set of regulatory rules or constraints that impact all of the above options. There is a need for a well-thought through plan and a growth strategy to evade costly future problems. Such a plan would be unique to each case and needs to be developed. Some of the questions to be considered for development of such a long-term storage deployment plan include:

  1. Which, or how many, of the three main stakeholders or benefiting parties need to be served and with what set of priorities (i.e., grid, customer, market)?
  2. What are the relative priorities of local vs. system needs to be set for each unit?
  3. Can the storage deployment plan accommodate changes in stakeholders and their priorities?
  4. Any no-regret flexible plan for collection, communication and management of the exponentially increasing data?
  5. Any emergency plans for continuing to operate and balance local and central needs despite a partial loss of the resources due to any reason?

Utilities, independent power producers (IPP), or other entities that plan to install and operate more than a few grid-connected distributed resources either need to become familiar with all the factors of the storage trilemma that impact their profitability and operation of the distributed assets under different future scenarios or risk some costly consequences.

Figure 5 –Meeting the Needs of Multiple Stakeholders of Energy Storage

Figure 5 –Meeting the Needs of Multiple Stakeholders of Energy Storage

Conclusions:
The issues discussed Part 2 this article may be summarized in the following points:

  1. Over the next 5-10 years, it is unlikely to have a disruptive new technology (renewable or storage) at the market level that would make some of the present storage technologies obsolete. However, the collective impact of new renewables and storage technologies could be disruptive to the utility business model, forcing them to move from selling commodities to offering different services.
  2. The next five years will witness a rapid growth of PV and energy storage. This needs a thoughtful review of current technical options and business structures as well as a strategy and a no-regret deployment plan that would work under different future scenarios.
  3. Utilities, independent power producers (IPP) or other entities that plan to install and operate more than a few grid-connected distributed resources needs to understand where they stand in the energy storage trilemma.

This content was originally posted on Energy Storage Industry News.

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