Critics of renewable energy always cite the fact that the sun does not always shine and the wind does not always blow. As such, the intermittency of renewable energy needs to be backed up by baseload power, which would need to come from natural gas, coal, or nuclear power.
The key to resolving the intermittency problem is energy storage, but batteries have thus far been too expensive to offer a viable solution. But that is quickly changing.
Energy storage technologies are now cost-competitive with conventional grid electricity in certain markets. That is not the claim of some environmental outfit, but the conclusion of an in-depth study from asset management firm Lazard.
To be sure, there is still a ways to go before battery storage can compete on a mass scale. But Lazard finds that energy storage is actually a preferred option already in a few scenarios, such as replacing the need for major new transmission lines, or for circumstances where microgrids are needed.
The Lazard analysis is complicated because storage can be valued in so many different ways. Energy storage not only can provide electricity during downtimes, but it can obviate the need to build new power plants. Or it can increase the reliability of the grid. These aspects make it difficult to come up with concrete cost figures, but Lazard lays out a range of cost scenarios. The bottom line is that energy storage is rapidly becoming cost-competitive.
Lazard also expects the cost of battery storage to decline significantly over the next five years, due to rising penetration of renewable energy and specific policies to support storage. At the same time, the aging power grid supports the economics of energy storage, as the costs of maintenance of transmission and the need for more power lines make energy storage competitive by comparison.
Moreover, major battery manufacturing facilities, such as Tesla’s gigafactory, are slated for completion, and the ramp up in battery production will bring down costs. Lithium-based batteries could see costs fall by 50% by the end of the decade, for example.
Taken together, Lazard arrives at a striking conclusion: energy storage could “be positioned to displace a significant portion of future gas-fired generation capacity, in particular as a replacement for peaking gas turbine facilities, enabling further integration of renewable generation.” These “peaker” plants tend to be much more expensive than regular power plants, and are only used when demand is at its highest. Over the next few years, it may no longer make sense to build peaker plants as batteries become the most cost-effective option.
There is often talk of a “utility death spiral,” in which rising electricity rates and falling renewable energy costs cause more ratepayers to abandon the grid. As fewer ratepayers are left to pay utilities, rates must go up to compensate, forcing more ratepayers to leave in an accelerated fashion.
Similarly, energy storage could see a virtuous spiral. More installations of batteries bring down costs. That allows more and more renewable energy to come online. The scaling up of both brings down costs even further, allowing for faster penetration. Meanwhile, the cost of transmission and of fossil fuel-based power generation are likely to go up.
In fact, according to Navigant, energy storage could grow from 196 MW today to over 12,700 MW by 2025.
Batteries will be helped along by public policy. For example, in Oregon, the major utilities will be required to install 5 megawatts of energy storage by 2020. Oregon is the second state, after California, to have a battery storage mandate. The law recognizes the multiple benefits that come with energy storage: Deferred investment on generation, transmission, and distribution infrastructure; reduced need for peakers; the ability to accelerate renewables deployment; improved grid reliability; and reduced price volatility.
All of those benefits are increasingly making battery storage a competitive force in electric power markets.