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Energy Storage on the Smart Grid Will Be 99.45% Cheap and 0.55% Cool

7.17.09 Storage Week John Petersen

Infocast’s Storage Week was all I had hoped it would be, and more. While I thoroughly enjoyed serving on three discussion panels and was warmly received by roughly 250 attendees, including executives of companies that I've occasionally criticized, the most important value for me came from the opportunity to hear four days of high-level presentations by industry executives, national thought leaders and policymakers who repeatedly stressed that:
  • From a utility perspective grid-based energy storage is the functional equivalent of an instantly dispatchable generating asset;
  • The combination of wind assets with cost effective load-shifting storage can improve internal rates of return by 50% or more;
  • The combination of solar assets with cost effective load-shifting storage can improve internal rates of return by 50% or more;
  • When it comes to grid-connected energy storage, cost, reliability, maintenance and cycle life will be the primary decision drivers.
Consensus was that an optimal smart grid configuration will need storage capacity equal to at least 5% of peak system load and areas that rely heavily on intermittent renewables like wind and solar will need a higher capacity to maximize the value of those assets.

In the example of California, the required annual storage build was estimated at 500 MW per year for the next 10 years. Of this total, 50 MW would need to be fast storage in the form of flywheels and Li-ion batteries and the 450 MW balance would be 4 to 6 hour storage in the form of pumped hydro, compressed air, flow batteries and advanced lead acid batteries.

The following table assumes that fast storage for frequency regulation will have an average discharge duration of 15 minutes and load shifting storage will have an average discharge duration of five hours. It shows how the aggregate annual storage build for both California and the U.S. as a whole will break down in terms of both MW of dispatchable power and MWh of stored energy.

State of California
MW Percent MWh Percent
Annual Fast Storage Build
50 10.00% 12.5 0.55%
Annual Load Shifting Build
450 90.00% 2,250 99.45%





Nationwide (8x California)




Annual Fast Storage Build 400
10%
100
0.55%
Annual Load Shifting Build 3,600
90%
18,000
99.45%

Using a quick and dirty pricing metric of $1 million per MW for fast storage devices including flywheels and Li-ion batteries the annual revenue potential of $400 million is impressive. Using an equally quick and dirty pricing metric of $500,000 per MWh for load shifting storage, the annual revenue potential of $9 billion is mind-boggling.

In the fast storage space, the leading contenders are Maxwell Technologies (MXWL), a leading manufacturer of supercapacitors; Active Power (ACPW), which builds low-speed flywheel systems for industrial power conditioning and UPS applications; Beacon Power (BCON), which builds high-speed flywheel systems for utility frequency regulation and recently snagged a DOE loan commitment for a 20 MW fast storage demonstration project; Altair Nanotechnologies (ALTI), which has built and deployed 2 MW of fast storage that is currently being tested by a major utility; and A123 Systems, which has also built and deployed several MW of fast storage for utility customers in the U.S. and overseas.

In the load shifting space, the leading contenders are Dresser Rand (DRC) which builds above ground compressed air systems, ZBB Energy (ZBB), which builds zinc-bromine flow batteries; lead-acid battery manufacturers like Enersys (ENS), Exide (XIDE) and C&D Technologies (CHP); and innovators like Axion Power (AXPW.OB) which is in the early stages of demonstrating the capabilities of its lead-carbon storage technologies.

The broader market has not yet come to grips with the realities that:
  • The combination of wind and storage yields better returns than wind as a stand-alone;
  • The combination of solar and storage yields better returns than solar as a stand-alone; and
  • While the fast storage developers have been grabbing all the headlines because of the push to develop PHEVs and EVs, the manufacturers of cost effective load shifting systems will lay claim to well over 90% of the anticipated revenue.
As investors in the $100+ billion wind and solar sectors come to understand the critical need for storage to maximize the economics of those intermittent renewables, interest in the $2 billion storage sector will surge. As storage sector investors come to understand the critical need for cost-effective load shifting storage, interest in established manufacturers of less glamorous technologies will also surge. It all goes back to my fundamental premise that for the next decade, cheap will beat cool.

I'm in transit from California to Europe and won't have access to electronic copies of the Storage Week presentation materials for a few days. So I apologize for the dearth of links to source materials. When those materials become available, I'll follow up with a more detailed series of articles that get into the grittier questions of which companies are best positioned to capitalize on explosive growth in both fast and load-shifting grid based energy storage.

For the first time in my career, I find myself on the leading edge of a trend that will be larger than most investors can begin to imagine. It's going to be a fun decade for investors who position their portfolios early because events like Storage Week and the anticipated IPO from A123 Systems are rapidly sending a clear signal to the broader market.

DISCLOSURE: Author is a former director and executive officer of Axion Power International (AXPW.OB) and holds a large long position in its stock. He also holds a small long position in Exide (XIDE).



was posted on AltEnergyStocks.com.


       

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Comments

As you develop additional articles on this topic, to facilitate our own due diligence please include info, even just names & product areas, about companies that are presently private .

Hi John,
Forgive my ignorance, but how well do hydrogen fuel cells fit into the equation? Such as this project:
http://www.powertechlabs.com/cfm/index.cfm?It=106&Id=71

I suspect your answer will be "not cheap enough!"...or something along those lines.

Thanks for the regular posts, they're a great read.

Brad

Efforts to drive down the cost of fuel cells have not been very effective to date, which is the biggest reason for the push to PHEVs and EVs.

I remain optimistic that somebody will eventually solve that particular riddle, but don't see a solution on the short-term horizon.

John,
You include ACPW in the fast storage space, but I wonder if all their sales are included in your fast storage numbers, since they sell mostly into the UPS market, not the grid regulation market.

ACPW is focused primarily on the UPS market, but they've got tremendous potential in the smart grid because the evolving paradigm will consider all backup assets, regardless of which side of the meter they're on. So while ACPW hasn't traditionally been thought of as a smart grid company, that is likely to change.

Another form of load shifting energy storage is typified by the Ice bear product from Ice Energy. This seems to be straight-forward technology that is quite amenable to cost reduction through higher volume production. With that in mind, it would seem to me to be fertile grounds for an IPO or purchase by a publically traded company.

I met Ice Energy at Storage Week and spoke on a panel moderated by its legal counsel. This is a very cool company (pun intended) that has a promising and very cost effective storage solution. Unfortunately, until it moves into the public arena, talking about Ice Energy is teasing rather than informing.

Commenting on non-public companies is a slippery slope because once you start, the number that think they deserve mention grows exponentially. So while I would love to be able to talk about everyone, I'm not planning to talk about anyone that doesn't have an SEC registration or reporting history.

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