Author: Eveline Jansen, Solarplaza
“Batteries could be economically viable in three to five years,” states a recently released report from international credit rating agency Moody’s. The report paints a pretty optimistic picture about the development of the US battery market, but also investigates the effects storage deployment will have on power companies.
In an exclusive interview with Solarplaza, Swami Venkataraman, lead analyst at Moody´s Investor Services and author of the report, shared his views with us on the factors he believes will push the battery market forward, and the sectors that will be affected.
The battery market is growing fast and is gaining further momentum. According to GTM, the US energy storage market experienced “900% growth in the second quarter of 2015” with prices dropping faster than expected. A study released just a month ago by the Australian Renewable Energy Agency predicted a “40-60 per cent price plunge for certain battery technologies by 2020.”
Many storage applications will become economically viable by the end of the decade.
According to Swami, “if Li-ion battery prices continue to fall, many storage applications will become economically viable by the end of the decade.”
“Batteries,” continues Swami, “will make most economic sense when used for peak shaving by large commercial and industrial (C&I) customers.” Moody’s report indicates New York City, California and Hawaii as being the most attractive US markets for peak shaving applications.
The second most promising application will be in the areas of load following and integrating renewables. With more and more renewable resources being connected to the grid, electric batteries are perfect for balancing out the intermittency. Talking about the role of solar PV in the development of the storage market, Swami sees a positive relation when batteries help integrate large-scale solar projects into the grid.
“Large-scale applications are the ones that will happen first.”
However, “most people tend to think of storage as putting panels on a roof and batteries in a garage. That really isn’t something we think is going to happen. Large-scale applications are the ones that will happen first.”
A third application will be fast-response ancillary services to help maintain grid stability. This form of storage is already economically viable today, but, Swami explains, “The market is just not very large, and mass application of batteries will happen more for the other applications.”
“If the current price decline continues, I think batteries will form a much larger part of the grid and they will be pushing the market forward,” Swami says. This view reflects the findings of Navigant Research, who state that, with the current expected decline in battery prices, “global installed energy storage for the grid and ancillary services, power capacity is expected to grow from 538.4 MW in 2014 to 20.8 GW in 2024.”
But falling prices and a growing customer base will eventually impact on power companies. Independent merchant generators in particular will feel the impact of peak shaving and demand-charge reduction. “Battery storage tends to smooth out power price volatility, resulting in the merchant power-producers making less money,” notes Swami. “Batteries will also cause lower capacity and on-peak energy prices as peak loads decline” Swami continues. “Some of the less economic plants will probably be retired, which will reduce supply, which may help get prices back up again”
The use of batteries in the long run will tend to reduce the cost of the grid overall
Utilities will also see their revenues from battery-owning C&I customers declining due to the reduction of demand charges. “These demand charges constitute a good portion of the fixed costs of running the electric grid – the risk being that, to cover these costs, utilities will simply charge other customers more. This practice is known as “cost shifting” and is an issue that regulators will need to address eventually.”
On the bright side, “the use of batteries in the long run will tend to reduce the cost of the grid overall,” in which case, utilities may not have to shift as many costs. Another positive opportunity is that “regulated utilities – perhaps more so than merchant generators – can invest in batteries as part of their rate base. They get to recover a return on it.” In the end, batteries are also credit negative for utilities, but to a lesser extent than for the merchant generators
“These kinds of credit issues will become material – not immediately, but only once battery penetration becomes substantial due to lower prices,” Venkataraman says. “It will not happen right away; I foresee this will take three to five years.”
“The whole development of the storage market strongly resembles PV in its earlier days,” notes Edwin Koot, CEO of Solarplaza, who points out that “fast market growth, the exploration of cost-competitive niche markets, combined with quickly dropping prices and an infinite future potential, is very similar to the history of PV so far. There is much to learn from this PV history, not the least that developments have often proven to go much faster than expected.”
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Swami Venkataraman will be speaking at:
Energy Storage North America conference in San Diego, October 15th 2015, as part of the Finance Track at 11.35 am.
Yieldcon conference in New York, December 3rd 2015, as part of the Attractiveness for Investors Session, 2.00 pm.