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Tue, Aug

Why energy storage now looks like solar in 2000?

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That is the optimistic view, but I think there is something to it. And if that is right, storage will not only move from niche to mainstream, but could also be the final push to up-end the current power system.
 
Consider:  Solar costs have fallen 6 percent to 8 percent a year since 2000, meaning that the cost of solar was almost triple then what it is now, due to greater technological efficiency (turning the sun into actual power) and lower material costs. And the trend is actually accelerating, with costs falling 60 percent since 2008.  No wonder, then, that in both the United States and globally, the use of solar is rising sharply.  In 2016, the United States installed 9.5 gigawatts of utility-scale installations (meaning big projects, not panels on rooftops), more than any other single source.  (One gigawatt can power about 700,000 homes.)  That was triple the figure for 2015, and more than the previous 3 years combined.  In short, the market has spoken.  As prices have fallen, consumers have proved more and more willing to buy and use solar.
 
What does this mini-history have to do with storage?  Like solar in the 1990s, there is a lot of enthusiasm for storage among energy, green, and tech wonks.  To put it simply, energy storage is the ability to absorb power, hold it, and then release it on demand.  To be widely used, 2 to 4 hours duration is necessary, and of course, the longer the better.  At the moment, renewables like wind and solar can only be dispatched when the wind is blowing or the sun shining.  If solar energy generated in the heat of day could be stored in, say, a battery, and then released that night (or the next day), the potential of renewables would be greatly expanded.
 
As my McKinsey colleagues noted in their work on the subject, there are other advantages to storage.  It can smooth the flow of power; provide backup service to electricity systems; increase the utilization of power-generation or transmission and distribution assets; and help to smooth out the costs, because the cost of generating power is different at different times of day. Indeed, my McKinsey colleagues think that at first, the demand for storage will not be from renewables, but from such ancillary services.  And that’s a good thing—the more useful storage is, the better its prospects, as there are more reasons to invest and innovate and more ways to make money from it.  “The game-changing nature of energy storage is its ability to balance power supply and demand instantaneously,” concludes the Energy Information Administration, “which makes power networks more resilient, efficient, and cleaner than ever before.” 
 
Those are the advantages.  The disadvantage comes down to one word:  Money.  Right now, storage is too expensive to bother with much (just like solar in 2000).  But the economics are improving rapidly.  Battery-pack costs could be as little as $200 per kilowatt hour in 2020, half the level of 2016, and less than $160 by 2025, according to McKinsey estimates.  As the technology matures, McKinsey thinks the global storage market could reach 1,000 gigawatts in the next 20 years.  And many leading solar companies are working to integrate storage into future development. Bloomberg New Energy Finance has a slightly different set of assumptions (its cost estimates are higher, but sees steeper declines).  Even so, it sees storage systems in Texas breaking even around 2025.
 
Energy storage is so tiny at the moment, however, that it can barely be categorized as boutique.  At the end of 2016, there was 540 MW of batteries in the US market—not much in the context of a total US generation capacity of more than a million megawatts.  Still, there is momentum—another 234 MW were added in the first quarter of this year.  Again, solar showed a similar trajectory, starting from a tiny base, then picking up momentum as costs fell.  
 
Most research on energy storage technologies is taking place in developed countries, which makes sense as they have the resources and expertise.  And there is a lot going on.  The US Argonne National Laboratory is, in its own terms, “working in overdrive” to develop battery systems both for electric cars (an effort well reported in Steve Levine’s book, The Powerhouse) and for the grid.  The goal of Argonne’s Joint Center for Energy Storage Research (see image above) is to develop batteries that store five times as much energy, at one fifth the cost, in the next 5 years.  Many other countries are also hard at work, including companies and labs in Brazil, Britain, Canada, China, Germany, Israel, Japan, Malaysia, Russia, Singapore, and South Korea.  Aside from battery initiatives, ultra-long duration storage projects and technologies may yet achieve lower costs and better performance, such as the EU 90 million euro grant to a compressed air energy storage project in wind-saturated Ireland, hydrogen storage in England, and pumped hydroelectric storage in an abandoned coal mines in Germany. It is hard to believe that this code won’t be cracked.
 
Cheap solar is already proving a challenge to  utilities in some markets, and cheap storage could complicate matters.  In broad terms, the broad use of energy storage could mean customers staying with the grid for reliability, but generating almost all their own energy.. That is a business model that makes utility executives shudder.  As McKinsey put it, “Utilities must start now to understand how low-cost storage is changing the future.  In effect, utilities need to disrupt themselves—or others will do it for them.”
 
The more intriguing and powerful (so to speak) possibilities could be in areas that have never known the luxury of flipping a switch.  More than a billion people have no electricity—about half of them in Africa—and for billions more, power is only available a few hours a day.  Used in conjunction with site-specific solar installations, storage could help fill the gap.  The analogy here might be to the mobile phone, which made communications available to areas that had never seen a land line; users simply leapfrogged over the 20th century technology.
 
To the extent that happens in terms of storage, that would also be happy news in terms of climate. India, for example, has been ramping up investment in coal, citing the need to get power to the people and to fuel economic growth. If costs were to come down, renewables-plus-storage could provide a cleaner alternative—an option that is already gaining traction, with pilots in the works in several Indian states.  South Africa is also experimenting with storage, and China has more than 100 projects going, and is growing fast.
The emergence of storage as a routine technology cannot be assumed, but the prospects are more promising than ever.  Another implication is that regardless of what happens in terms of international agreements like the Paris climate accords, the emergence of cheap technology will play an important and possible definitive role in decarbonizing the global energy.  First, second, and last, though, the economics have to be right.
 
Mr. Scott Nyquist
Senior Partner, McKinsey & Company
 
 
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Monday, 20 August 2018 12:41

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