Battery Storage - Key to Renewable Energy sector growth?

On April 30th a global team of experts in the battery storage industry, analyzed along with manufacturers, energy companies, investors and sponsors, the growth perspectives and how this technology can lead the energy transition.
Co-moderated by Amit Kumar (PwC) and David Taff (Siemens Participações), the specialists Adalberto Maluf Filho (BYD Brazil), Dario Cirio (ABB Switzerland), Sajjad Fekriasl (International Energy Agency - France), Samer Oukaili (Siemens - Germany), Tarun Shankar (IFC - India) and other global GRI Club members shared perspectives about the current challenges faced by stakeholders in the energy storage segment, the policy changes needed to boost the industry consolidation and what are the market adjustments required to attract more investments.

Energy storage systems are capable of renewable smoothing, allowing the grid to counteract the variability and intermittency of individual generation assets and providing more stability to the full network.

Along with RE-integration, energy time shifting will push toward electric mobility and the replacement of generation devices would further drive the uptake. The transmission and cross structure are required to undergo transformation to accommodate a distributed or a two-way flow of electricity (a grid with traditionally balanced supply and demand; is continuous, where generation is precisely meshed with the demand).

This means regulation will need to recognize battery storage not only as a generation asset but also as transmission and distribution asset. With falling capex, the effort of acknowledging revenue streams from storage devices is something that helps build storage-based renewable energy. In the past, renewable energy generation was neglected in comparison to conventional sources when it came to power generation. Today the tables have turned and investors in renewable energy are both launching and operating hundreds of megawatts of plants, changing the energy matrix all over the world.

Brazil’s Large Potential for Energy Storage

The Brazilian federal government alongside other Brazilian associations in the RE space are focusing on putting clean energy at the center of Brazil’s reconstruction. Of the forecasted US$500 million of investment to 2027, half of the investments are toward generation of which half is renewables. If the projection materializes, it will result in 30% of capacity being generated through wind, solar, biomass and small hydro plants, and 50% of capacity generated by large hydro plants. This would result in 80% of Brazilian energy being composed of renewable energy. This also creates an opportunity for batteries and all forms of storage devices.

Brazil has around 10 gigawatts of capacity requirement to meet the peak hour demand which is currently being fulfilled by diesel and natural gas generators. Not to mention electric mobility potential growth that can be seen as an additional opportunity for the battery storage industry.

Indian Government Involvement in Battery Storage

The Indian government is planning for a 50 gigawatt-hour of manufacturing capacity of batteries in the country. In order to facilitate this, the planning commission has introduced a subsidy and incentive which is yet to be announced. The programme framework is in the final stages of fine tuning and approval process.

Broadly, the framework is set to launch a performance linked subsidy and cash subsidy which the government will be giving based on the energy density and the life cycle of the cell manufactured in the country. The subsidy will be around $30 – $50 kilowatt hour and apart from this there will be various tax concessions which will also be extended.

Game Changer in RE

For distribution utilities, battery storage represents an increased ability to absorb power produced by the renewable sector; increased operating revenues and optimal utilization of available infrastructure. Particularly for the grid, storage could also reduce the amount of new investment required (on the transmission side to operate the grid).

The evolving technological landscape of the energy sector coupled with an effective cost cutting strategy has made battery storage a reality in today's world. The falling price of storage, primarily due to economies of scale, technological maturity and the learning curve, has been instrumental in pushing the battery storage market around the globe. There have been developments in the optimization of the cost model for battery storage systems from 2012 to today.

Technological Solutions Providing Flexibility

There has been a lot of discussion around shifting energy transition from a centralized to a decentralized approach. Energy transmission itself requires and demands a certain degree of flexibility, and battery storage is a technological solution that can provide this flexibility.

Battery storage provides two forms of flexibility. First, cost avoidance to consumers to deploy a storage system and reduce dependency on the grid and second, monetize the battery storage by utilizing different revenue streams that can be captured from the market. Battery storage is preferred in few markets as this technology is faster and stable.

Regulation for Transmission System Operators

The challenge of transmission system operators is to keep the frequency stable and ensure consistency to provide energy when required and to make sure renewable power can really be integrated. Failing to achieve this would mean the investor will not be able to get the expected returns. It is important to have strong policies which address the need for stable and constant power supply. Investors should be aware of these regulations to build their confidence in the sector. There is a strong need for a regulation that states that transmission system operators need to allow battery storage to play into the market for the primary services or be open for selling power globally.

A Need to Explore Revenue Streams

Currently, there are several revenue streams available for battery storage. The industry along with the regulators need to work toward monetizing the non-monetizable benefits across streams viza capex deferral investment as 15% of the capex can be absorbed by the storage device as capex deferral investment.

Another question that arises is whether from a regulation perspective, battery storage would be considered as a generation, transmission or distribution asset?

Once the regulators take into account the monetizable benefits of the storage devices it will help in creating a business case for integrating a storage device whether in a transmission network or distribution network or alongside generation assets. While there have been comforting responses in the form of tenders in this space, the challenge is to arrive at revenue streams which can give investors and lenders some comfort.

In the background of various ancillary services coming up around the world, how can the market player try to monetize these assets by connecting a storage device to these networks to help in achieving revenue stream predictability and building a business case so that no single revenue stream dominates the supply coming out of integrating storage device is a key issue. 

There are two primary challenges anticipated:, first is to increase the number of revenue streams acknowledged by the regulators and second, is to have diversification in the revenue streams. If the market wishes to really build up on the scale of operations and attract lenders, then it is a must to address these challenges.

Price Concerns

High power and high voltage markets promise that by 2025 the prices will go down by 30-40 percent from the current 500-600 euro per kWh In 2015, the outlook for the next 5 years contemplated the price of around 300 – 340 euro per kWh for the entire system and not just battery packs. However, even in 2020, the price is still at the 500 euro per kWh mark.

While there has been great development in the automotive market with battery storage from a grid perspective it looks like more R&D is still required for the renewable energy sector.

At the moment, there is a requirement for suppliers to improve battery technology as oversized batteries are driving up costs. If the most experienced suppliers tackle this issue and reduce battery sizes, it would significantly reduce costs.

Disposal Outlook

It remains to be seen whether the responsibility of disposal of batteries will be imposed on the developers, on the entity installing it or if a separate market of recyclers would be created.

The strict liability associated with disposal is a big concern due to the chemicals involved. At this stage the market has not evolved to an extent where these factors become prohibitive, but it will need to be considered in the business case.

In the EU, there is a clear directive that the solution provider must ensure that at the end of the life of the asset, they would decommission and recycle the battery. This is going to be an important element in the business model, because if it is considered as part of the service model typically offered to customers, the recycling costs will need to be factored into the financial model.

Challenges Post COVID-19

With the reduced power demand, the challenges faced by battery storage stakeholders are more grave in the post-COVID-19 scenario. To ensure reduced cost pressures, there needs to be a change in the thought process on how to set-up the storage systems. The business models will need to be different and should be seen more as a service model and less as a capex model.

Going forward, the market players will have to be ready for the new norm and move toward being more innovative in business models and quantifying and sharing risks.

Driving Sustainability

Making the world 100 percent sustainable is the motto now, but will the industry be truly successful in reaching this target? The market player feels that at this stage the answer would be no. However with further technological advancements such as battery storage are not only the future of sustainability, but it will definitely help in cutting costs up to double digits or even exponentially.