How Cheap Can Energy Storage Get? Pretty Darn Cheap

This is part 3 of a series looking at the economic trends of new energy technologies. Part 1 looked at how cheap solar can get (very cheap indeed). Part 2 looked at the declining cost and rising reliability of wind power. Part 3, below, talks about storage. Part 4 looks at how far renewables can go (pretty darn far). Part 5 looks at how cheap electric vehicles can get, and how they’ll disrupt oil.

How Cheap Can Energy Storage Get?

Bill Gates recently told The Atlantic that “we need an energy miracle”. The same article quotes him as saying that storage costs roughly an order of magnitude too much. How quickly will the cost of storage drop? I attempt to answer that question here.

tl;dr: Predictions of the future are fraught with peril. That said, if the current trajectory of energy storage prices holds, within a decade or two mass energy storage of a significant fraction of civilization’s needs will be economically viable.

Disclosure: I’m an investor in two companies mentioned in this post: LightSail Energy and Energy Storage Systems.

Background: The Storage Virtuous Cycle

Before going further, you may want to read my primer on energy storage technology and economics: Why Energy Storage is About to Get Big – and Cheap.

In short, there are profitable markets for energy storage at today’s prices. And additional scale drives down the price further, opening up new markets. This is the Energy Storage Virtuous Cycle.

Energy Storage Virtuous Cycle

(Almost) Everything Gets Cheaper With Scale

As I mentioned in the post on how cheap solar can get, almost every industrial activity shows signs of a ‘learning curve’. That is to say, in industry after industry, as volume scales, prices drop. This is not simply the economies of scale. Rather, the learning curve is about both scale and about the integration of lessons and innovations that build up over time.

Evidence of the learning curve goes back to the Ford Model T.

Model T Price Learnin Curve

And the learning curve is clearly on display in exponentially declining solar prices and likely continues to play a role in declining wind power prices.

It shouldn’t be any surprise, then, to find that energy storage has a learning curve too.

The Lithium-Ion Learning Curve

How fast does energy storage get cheaper? Let’s start with lithium-ion batteries. Lithium-ion is the battery chemistry used in laptops, phones, and tablets. It’s used in electric vehicles. And it’s starting to be used at grid scale.

The price of small lithium-ion batteries dropped by roughly a factor of 10 between 1991 and 2005.

Lithium-ion battery price 1991-2005

Large battery formats, such as those used in electric vehicles and for grid storage, are more expensive than the smaller batteries used in mobile devices. But large batteries are also getting cheaper

Different analysts looking at the data draw similar but slightly different conclusions about the learning rate of large lithium-ion batteries. Let’s review those estimates now.

The Electric Power Research Institute (EPRI) reviewed a variety of data to find that lithium-ion batteries drop in price by 15% per doubling of volume. (What most would call a 15% learning rate, but which they instead call an 85% learning rate.)

EPRI Future Battery and Energy Storage Cost Curve - 95 and 90 Percent - by packs per year

Winfriend Hoffman, the former CTO of Applied Materials, and one of the first to apply the learning curve concept to solar, similarly finds a 15% learning rate in large format lithium-ion batteries

Battery Learning Curve hoffmann-grafik-1-01.

Bloomberg New Energy Finance (BNEF), meanwhile, uses more recent data, and finds a 21.6% learning rate in electric vehicle batteries. In fact, the learning rate they find is strikingly similar to the learning rate for solar panels.

BNEF Battery Energy Storage Learning Curve is the Same as PV Learning Curve

So the range of estimates of from 15% to 21%. How cheap does that suggest lithium-ion battery storage will get?

How Cheap Can Lithium-Ion Batteries Get - Energy Storage

All of today’s large-format lithium-ion batteries, combined, can store less than 1 minute of world’s electricity demand. As scale increases, that number will rise, and, if current trends hold, the price of new batteries will drop.

On that trend, starting with the assumption that batteries today cost somewhere around 25 cents per kwh sent through them, by the time the planet has sufficient lithium-ion battery storage to hold just 13 minutes of today’s electricity demand, lithium-ion prices will have dropped by a factor of 2 to 2.5, down to a range of 10-13 cents per kwh stored.

By the time the world has enough lithium-ion battery storage for roughly an hour of electricity demand, prices will be in the range of 6-9 cents.

And by the time the world can store a full day of electricity demand, prices (if current trends hold) would be down to 2-4 cents per kwh.

How Cheap is Cheap Enough?

If you’re informed on wholesale electricity prices, the prices above may sound ridiculously high. Wholesale natural gas electricity from a new plant is roughly 7 cents per kwh (though that doesn’t include the cost of carbon emitted). How could batteries priced at 25 cents per kwh, or even 10 cents a kwh, compete? Particularly when you also have to pay for electricity to go into those batteries?

The answer is that batteries don’t compete with baseload power generation alone. Batteries deployed by utilities allow them to reduce the use of (or entirely remove) expensive peaker plants that only run for a few hours a month. They allow utilities to reduce spending on new transmission and distribution lines that are (up until now) built out for peak load and which sit idle at many other hours. In a world with batteries distributed close to the edge, utilities can keep their transmission lines full even during low-demand hours, using them to charge batteries close to their customers, and thus cutting the need for transmission and distribution during peak demand. And batteries reduce outages.

To roughly estimate the value that batteries provide, look at the gap between the peak retail prices customers pay at the most expensive hours of the day versus the cheapest retail power available throughout the day. In a state like California, that’s a difference of almost 20 cents per kwh, from peak-of-day prices of more 34 cents to night time power that’s less than 14 cents. That difference is an opportunity for storage.

CA Time of Use Pricing Model

Another opportunity is the difference between the cheapest wholesale power price – wind at 2 cents per kwh – and peak of day wholesale prices from natural gas peaker plants, which can be over 20 cents per kwh. Again, the gap is close to 20 cents per kwh.

That said, batteries at 20 cents per kwh are only economical for a fraction of the day’s power needs. The cheaper batteries are, the greater the fraction of hours, days, weeks, and months that they’re economical for. And if we want carbon-free energy to be cheaper than coal or natural gas on a 24/7 basis, we need batteries that are extremely cheap – down to a few cents per kwh. Lithium-ion is on track for that, eventually. But, in my view, other technologies will get there first.

What’s Cheaper Than Lithium-Ion?

The cost of energy storage is, roughly, the up-front capital cost of the storage device, divided by the number of cycles it can be used for. If a battery costs $100 per kwh and can be used 1,000 times before it has degraded unacceptably, then the cost is one tenth of a dollar (10 cents) per cycle. [In reality, the cost is somewhat higher than this – there are efficiency losses and cycles in the far future are potentially worth less than cycles now due to the discount rate.]

Lithium-ion batteries suffer from fairly rapid degradation. Getting 1,000 cycles out of a li-ion battery with full depth of discharge (draining it completely) is ambitious. Tesla’s PowerWall battery is warrantied for 10 years, or 3,650 cycles, which appears to be possible only because the battery is never fully drained. What Tesla sells as a 7kwh battery is actually a 10kwh battery that never allows the final 3kwh to be drained.

Other energy storage technologies, however, are far more resilient than lithium-ion.

  • Flow batteries can potentially be used for 5,000 – 10,000 cycles, with complete discharge every time, before needing refurbishing.
  • Adiabatic compressed air energy storage (CAES) uses tanks and compressors that are certified for 30 years or more of continuous use, meaning more than 10,000 cycles, again at complete discharge rather than the 70% discharge possible in lithium-ion.(In addition, CAES can be used to store energy for weeks, months, or years, something that batteries can’t do due to leakage.)

As an added bonus, CAES systems and some flow battery systems can be made with abundant elements that are cheaper and available in higher volumes than lithium. For instance:

  • LightSail Energy‘s compressed air tanks are made of carbon fiber, the primary ingredient of which (carbon) is the 4th most abundant element in the universe, and roughly 1,000x more abundant in the earth’s crust than lithium.
  • ESS’s flow batteries are comprised almost entirely of iron, which is at least several hundred times more abundant in the earth’s crust than lithium.

[To be clear, lithium is available in quantities sufficient to make at least hundreds of millions of Tesla-class electric vehicles. There is no near-term lithium crunch. But there may be a long-term one.]

How big is the price advantage of more and deeper discharges? It’s difficult to compare apples-to-apples, because neither compressed air nor any flow battery chemistry have reached anywhere near the scale of lithium-ion. They haven’t gone nearly as far down the learning curve. At the same time, the cost of materials for a flow battery, for instance, should be comparable to or lower than for a lithium-ion battery.That’s approximately true for compressed air as well (though some more interesting differences apply, which I may return to in a future post.)

If we assume then that flow and compressed air have similar up-front costs to lithium-ion, and a similar learning curve, we can project what a unit of electricity stored and retrieved in them will cost. We’ll do so by giving them a (conservative) 50% cost advantage to account for their many times longer lifetime. In reality, their cost advantage in the long term may be larger than this.

Even at 50%, however, we find that flow batteries and compressed air are much cheaper than lithium-ion, and reach the price points of a few cents per kwh much sooner. In the graph below, we see that, assuming a similar learning rate, flow batteries and compressed air reach around 4 cents per kwh round-tripped at around 1 million MWh of storage versus 10 million MWh for lithium-ion. They reach a price of 2 cents per kwh round-tripped (a true fossil-fuel killer of a price) at around 10 million MWh stored, versus 80 million MWh for lithium-ion.

How Cheap Can Energy Storage Get

Obviously, the above is just a projection. And for flow batteries and CAES, we have far less of a track record than for lithium-ion. Some preliminary data does support the notion that they’ll be cheap, however.

  • Redflow, a maker of zinc-bromide flow batteries, sells batteries with a cost of storage around 20 cents per kwh. And zinc-bromide is well off the left side of the graph above, many many steps in its learning function away from the beginning of the chart.
  • ESS is a graduate of the ARPA-E GRIDS program, which set a goal of $100 per kwh capital costs of batteries, for batteries that can run for many thousands of cycles. The math there points to batteries that eventually cost a few cents per kwh.

We cannot be certain that any technology will follow a trajectory on a graph. Fundamentally, though, the presence of the learning curve in nearly all industrial activities, combined with the longer lifetimes of flow and CAES systems, suggests that their prices will drop well below those of lithium-ion.

The disadvantage of both flow batteries and CAES is that their energy density is low. To hold they same amount of energy, both flow and CAES are larger and heavier than lithium-ion. As a result, I expect to see a divergence over time:

  • Lithium-ion and its successor technologies (perhaps metal air) will be used for electric vehicles and mobile devices.
  • Bulkier, heavier, but longer-lasting and deeper-draining storage technologies like flow batteries and CAES will be used for stationary power for the electrical grid.

Cheap, Zero-Carbon Power, 24/7

Solar power and wind power are each headed towards un-subsidized prices of 2-3 cents per kwh in their best areas, and perhaps 4 cents in more typical areas.

Future Solar Cost Projections - PPA LCOEFuture Wind Price Projections - Naam - 14 Percent Learning Curve

New natural gas costs around 7 cents per kwh. As solar and wind steal hours from natural gas plants (because they’re cheaper when the sun is shining and the wind is blowing), natural gas plants will sit idle longer. As a result, the price of natural gas electricity will rise to perhaps 10 cents per kwh, as the up-front capital cost of natural gas plants is spread over fewer kwhs out.

To compete with that on a 24/7 basis, we need storage that costs no more than 5 or 6 cents per kwh, and ideally less.

In other words, we need to cut the price of energy storage by a factor of 5 or 6 from today’s prices.

We’ve already cut energy storage prices by a factor of 10 since the 1990s. And if current trends hold, the world is very much on path to achieving cheap enough storage to allow 24/7 clean energy, and doing so in the next 15-20 years.

How Cheap Can Energy Storage Get

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There’s more about the exponential pace of innovation in both storage and renewables in my book on innovating in energy, climate, food, water, and more:The Infinite Resource: The Power of Ideas on a Finite Planet

Tesla Battery Economics: On the Path to Disruption

Update: The Tesla battery is better than I thought for homes. And at utility scale, it’s deeply disruptive.

Elon Musk announced Tesla’s home / business battery today. tl;dr: It’ll get enthusiastic early adopters to buy. The economics are almost there to make it cost effective for a wide market. [Update: It might actually be cost effective in the US today. See the third cost estimate down below.] And within just a few years, it almost certainly will be cheap enough to be cost effective for a broad market. Not a complete game changer for the home mrket today, but a shot fired in an incredible energy storage disruption.

At the utility scale, it may actually be even more disruptive. Tesla appears to be selling the utility scale models at $250 / kwh. Multiple utility studies suggest that such a price should replace natural gas peakers and drive gigantic grid-level deployments.

[If you want to understand the overall energy storage technology race and market, read this: Why Energy Storage is About to Get Big, and Cheap.]

Here are the specs, from Tesla’s Powerwall site.

Gizmodo has more details.

$3500 is, as some people online have noted, less than a fully decked out Mac. There will be some set of early adopters who buy this because they love the idea, because they dislike utility companies, because they’re committed to solar, or because they love Elon Musk. Indeed, across my feed, I’ve seen quite a large number of people already announce that, at $3000 or $3,500, they’re just going to buy it, and ROI be damned.

There’s also an economic case for anyone to whom outages are extremely expensive and cutting off even one or two outages in the lifetime of the battery is worth the purchase price.  (Movie theaters are one set of customers I’ve heard are looking closely at this.) As competition against a backup generator, the battery has huge advantages. [Seamless, no fueling, less maintenance, can save money on day-to-day operations, etc…] That alone may power early sales.

Beyond that, is the battery cheap enough to make storing your self-generated solar power worthwhile for hundreds of thousands or millions of homes across the US and overseas? If not, how close is it?

As I’ve written before, the number that really matters is the round-trip cost of electricity over the lifetime of the battery. How much do you pay for every kilowatt-hour put into the battery and then retrieved later?  We can talk about this as LCOE (levelized cost of electricity).

Here are two (make that three) ways we can calculate the LCOE of the Tesla Powerwall.

1. Rule of Thumb: 1,000 Full Charge Cycles. This gives an LCOE of $0.35 / kwh.  That compares to average grid electricity prices in the US of 12 cents / kwh, and peak California prices on a time-of-use plan of around 28 cents / kwh.

2. 10 Year Warranty + Daily Shallow Cycles. Tesla is offering a ten-year warranty on these batteries, which is bold. Yet evidence shows that Tesla automotive batteries are doing quite well, not losing capacity fast. Why? It’s because they’re rarely fully discharged. Most people drive well under half of the range of the battery per day. So let’s assume 10 years of daily use (3650 days, if we ignore leap days) and 50% depth of discharge on each day. Using the 7kwh battery, that gives us a price of around 23-24 cents / kwh.

3. UPDATE: 10 Years of 7kwh Cycles. Cheap Enough. I’m adding this after some twitter conversations with Robert Fransman. Let’s assume for a moment that the Tesla Battery actually can be used for full 7kwh charging and discharging every day during its 10 year warranty. That would make the cost around 12 cents / kwh.

[I had initially assumed that daily 7kwh cycling was impossible, despite the specs Tesla provided. No Li-ion battery today can handle 3650 discharges to 100% depth. But Robert Fransman has done the math on the weight of the battery vs. Tesla car batteries. He suggests that the 7kwh battery is actually a 12kwh battery under the hood. Discharging a battery to 60% 3650 times is still a stretch, but much closer to plausible. Tesla may here be just assuming they’ll have to replace some on warranty before 10 years, but given that the price of batteries is plunging, future replacement is far less expensive. Smart.]

All three of these prices are the price to installers. It’s not counting the installer’s profit margin or their cost of labor or any equipment  needed to connect it to the house. So realistically the costs will be higher. If we add 25% of so, the bottom price, the one backed by the warranty, is around 15 cents per kwh. 

Tentative Conclusion: The battery is right on the verge of being cost effective to buy across most of the US for day/night arbitrage. And it’s even more valuable if outages come at a high economic cost.

In Sunny Countries: Bigger Impact, Drives Solar

Outside the continental US, the battery’s economics look far better, though. 43 US states currently have Net Metering laws that compensate solar homes for excess power created during the day. A good Net Metering plan is simply a better deal for most solar-equipped homes than buying a battery.

In some of the sunniest places in the world, though, retail electricity prices from the grid are substantially higher than the US, plenty of sunlight is available, and Net Metering either doesn’t exist or is being severely curtailed.

Here’s a map from BNEF of sunshine vs grid electricity rates. Countries above the 2015 line have cheaper solar electricity than grid electricity today. But a number of those countries, including Australia, Spain, Italy, Turkey, and Brazil have no or severely limited ability for solar home owners to sell extra power back to the grid. In those sunny, policy-light countries, Tesla’s batteries make economic sense today, and will help drive rooftop solar. 

Even Germany, I’d note, gets enough sun that the price of rooftop solar is below that of grid electricity. And in Germany, feed-in-tarrifs to homes that put solar on the grid are plunging. There’s now a roughly 20 euro cent difference between the price of retail electricity and the feed in tariff in Germany. That’s 22 US cents. So if the Tesla battery is really 15 cents per kwh, it makes more sense for German solar customers to store their excess solar electricity in a battery than it does to provide it back to the grid.

The real prize, though, would be India. Northern India is sunny. The power grid struggles to provide enough electricity to meet the daytime and early evening peak. India is now rolling out Time-of-Day pricing to residential customers and reports indicate that retail peak power prices are edging towards 20 cents / kwh in some cities. (Most commercial customers in India are already on Time-of-Day pricing.) For now, the solar + battery economics aren’t quite there for Indians that have access to the grid, though with outages there so frequent, high-income urbanites and commercial power users may find that the reliability value puts it over the top.

Back to the US

For some parts of the US with time-of-use plans, this battery is right on the edge of being profitable. From a solar storage perspective, for most of the US, where Net Metering exists, this battery isn’t quite cheap enough. But it’s in the right ballpark. And that means a lot.

Net Metering plans in the US are filling up. California’s may be full by the end of 2016 or 2017, modulo additional legal changes. That would severely impact the economics of solar. But the Tesla battery hedges against that. In the absence of Net Metering, in an expensive electricity state with lots of sun, the battery would allow solar owners to save power for the evening or night-time hours in a cost effective way. And with another factor of 2 price reduction, it would be a slam dunk economically for solar storage anywhere Net Metering was full, where rates were pushed down excessively, or where such laws didn’t exist.

That is also a policy tool in debates with utilities. If they see Net Metering reductions as a tool to slow rooftop solar, they’ll be forced to confront the fact that solar owners with cheap batteries are less dependent on Net Metering.

As I mentioned above, the battery is right on the edge of being effective for day-night electricity cost arbitrage, wherein customers fill up the battery with cheap grid power at night, and use stored battery power instead of the grid during the day. In California, where there’s a 19 cent gap between middle of the night power and peak-of-day power, those economics look very attractive right now. Further price reductions will make this even more clear.

And the cost of batteries is plunging fast. Tesla will get that 2x price reduction within 3-5 years, if not faster. See below for a Nature Climate Change view of the pace of battery price declines.

What About Utility Deployment?

The above analysis is for homes and businesses. But what about utilities deploying the battery themselves?

The impact there may be far bigger. Elon Musk has tweeted that the cost to utilities is $250/kwh.

$250 / kwh appears to be cheap enough to replace natural gas peakers and motivate hundreds of gigawatt hours of deployment across the US.

For example, a study conducted for ERCOT, the Texas power grid, found that below a cost of $350 / kwh, ERCOT would benefit from deploying 8 gigawatts and 24 gigawatt hours of battery storage.

This is a potential huge impact on utilities, the power grid, and electricity markets. If you want to understand more, read my primer which goes into more depth on energy storage innovation and markets.

In Summary: Disruption is Coming

Net, on the home front, I think this battery will sell quite a lot of units to early adopters and those with a low tolerance for outages. As a substitute for a backup generator, it has huge advantages. For utilities, it may have tremendous bang for the buck. And early adopters and utilities will fund the price continuing to decline. Tesla’s strong brand, and the compact, convenient nature of lithium-ion will help sell this into enthusiastically pro-solar homes. For anywhere that doesn’t have Net Metering or a high feed-in-tariff rate today, or where Net Metering is getting full (Australia, Germany, Spain, Hawaii, etc..) this is a slam dunk and a balance-of-power shifter beween home owners and utilities.

All that said, for large scale grid deployment (outside of the home), it still looks like flow batteries and advanced compressed air are likely to be far cheaper in the long run.

Batteries are going to keep getting cheaper. This is just the beginning.

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There’s more about the exponential pace of innovation in both storage and renewables in my book on innovating to beat climate change and resource scarcity and continue economic growth:The Infinite Resource: The Power of Ideas on a Finite Planet

Why Energy Storage is About to Get Big – and Cheap

tl;dr: Storage of electricity in large quantities is reaching an inflection point, poised to give a big boost to renewables, to disrupt business models across the electrical industry, and to tap into a market that will eventually top many of tens of billions of dollars per year, and trillions of dollars cumulatively over the coming decades.

Update: As a follow-on to this post, I run the numbers on how cheap can energy storage get? And the answer is: Quite cheap, indeed.

The Energy Storage Virtuous Cycle

I’ve been writing about exponential decline in the price of energy storage since I was researching The Infinite Resource. Recently, though, I delivered a talk to the executives of a large energy company, the preparation of which forced me to crystallize my thinking on recent developments in the energy storage market.

Energy storage is hitting an inflection point sooner than I expected, going from being a novelty, to being suddenly economically extremely sensible. That, in turn, is kicking off a virtuous cycle of new markets opening, new scale, further declining costs, and additional markets opening.

To elaborate: Three things are happening which feed off of each other.

  1. The Price of Energy Storage Technology is Plummeting. Indeed, while high compared to grid electricity, the price of energy storage has been plummeting for twenty years. And it looks likely to continue.
  2. Cheaper Storage is on the Verge of Massively Expanding the Market.  Battery storage and next-generation compressed air are right on the edge of the prices where it becomes profitable to arbitrage shifting electricity prices – filling up batteries with cheap power (from night time sources, abundant wind or solar, or other), and using that stored energy rather than peak priced electricity from natural gas peakers.This arbitrage can happen at either the grid edge (the home or business) or as part of the grid itself. Either way, it taps into a market of potentially 100s of thousands of MWh in the US alone.
  3. A Larger Market Drives Down the Cost of Energy Storage. Batteries and other storage technologies have learning curves. Increased production leads to lower prices. Expanding the scale of the storage industry pushes forward on these curves, dropping the price. Which in turn taps into yet larger markets.

 

Let’s look at all three of these in turn.

1. The Price of Energy Storage is Plummeting

Lithium Ion

Lithium-ion batteries have been seeing rapidly declining prices for more than 20 years, dropping in price for laptop and consumer electronic uses by 90% between 1990 and 2005, and continuing to drop since then.

A widely reported study at Nature Climate Change finds that, since 2005, electric vehicle battery costs have plunged faster than almost anyone projected, and are now below most forecasts for the year 2020.

The authors estimate that EV batteries in 2014 cost between $310 and $400 per kwh. It’s now in the realm of possibility that we’ll see $100 / kwh lithium-ion batteries in electric vehicles by 2020, with some speculating that Tesla’s ‘gigafactory’ will push into sufficient scale to achieve that.

And the electric car market, in turn, is making large-format lithium-ion batteries cheaper for grid use.

What Really Matters is LCOE – the Cost of Electricity

Now let’s digress and talk about price. The prices we’ve just been talking about are capital costs. Those are the costs of the equipment. But how does that translate into the cost of electricity? What really matters when we talk about energy storage for electricity that can be used in homes and buildings is the impact on Levelized Cost of Electricity (LCOE) that the battery imposes. In other words, if I put a kwh of electricity into the battery, and then pull a kwh of electricity out, over the lifetime of the battery (and including maintenance costs, installation costs, and all the rest), what did that cost me?

Traditional lithium ion-batteries begin to degrade after a few hundred cycles of fully charging and fully discharging, or 1,000 cycles at most. So naively we’d take the capital cost of the battery and divide it by 1,000 to find the cost per kwh round-tripped through it (the LCOE). However, we also have to factor in that some electricity is lost due to less than 100% efficiency (Li-ion is perhaps 90% efficient in round trip). This multiplies our effective cost by 11%.

So we’d estimate that at the following battery prices we’d get the following effective LCOEs:

– $300 / kwh battery  :  33 cent / kwh electricity storage
– $200 / kwh battery  :  22 cent / kwh electricity storage
– $150 / kwh battery  :  17 cent / kwh electricity storage
– $100 / kwh battery  :  11 cent / kwh electricity storage

All of those battery costs, by the way, are functions of what the ultimate buyer pays, including installation and maintenance.

For comparison, wholesale grid electricity in the US at ‘baseload’ hours in the middle of the night averages 6-7 cents / kwh. And retail electricity rates around the US average around 12 cents per kwh. You can see why, at the several hundred dollars / kwh prices of several years ago, battery storage was a non-starter.

On the Horizon: Flow Batteries, Compressed Air

Right now, most of the talk about energy storage is about lithium-ion, and specifically about Tesla, who appear close to announcing a new home battery product at what appears to be a price of around $300 / kwh.

But there are other technologies that may be ultimately more suitable for grid energy storage than lithium-ion.

Lithium-ion is compact and light. It’s great for mobile applications. But heavier, bulkier storage technologies that last for more cycles will be long-term cheaper.

Two come to mind:

1. Flow Batteries, just starting to come to market, can theoretically operate for 5,000 charge cycles or more. In some cases they can operate for 10,000 cycles or more. In addition, the electrolyte in a flow battery is a liquid that can be replaced, refurbishing the battery at a fraction of the cost of installing a new one.

2. Compressed Air Energy Storage, like LightSail Energy’s, uses physical components that are likewise rated for 10,000+ cycles of compression and decompression.

Capital costs for these technologies are likely to be broadly similar to lithium-ion costs over the long term and at similar scale. Most flow battery companies have $100 / kwh capital cost as a target in their minds or one that they’ve publicly talked about. (ARPA-E has used $100 / kwh as a target.) And because a flow battery or compressed air system lasts for so many more cycles, the overall cost of electricity is likely to be many times lower.

How low? At this point, other variables begin to dominate the equation: The cost of capital (borrowing or opportunity cost); management and maintenance costs; siting costs.

DOE’s 2013 energy storage roadmap lists 20 cents / kwh LCOE as the ‘short term’ goal. It articulates 10 cents / kwh LCOE as the ‘long term’ goal.

At least one flow battery company, EnerVault, claims that it is ‘well below’ the DOE targets (presumably the short term target of 20 cents / kwh of electricity).

[Update: I’m informed that EnerVault has run into financial difficulties, a reminder that the storage market, like the solar market before it, will likely be fiercely Darwinian. In solar, the large majority of manufacturers went out of business, even as prices plunged by nearly 90% in the last decade. We should expect the same in batteries. The large majority of energy storage technology companies will go out of business, even as prices drop – or perhaps because of plunging prices – in the decade ahead.]

Getting back to fundamentals: In the long run, given the advantage of long life, if flow batteries or compressed air see the kind of growth that lithium-ion has seen, and thus the cost benefits of scale and learning curve, it’s conceivable that a $100 / kwh flow battery or compressed air system could reach an LCOE of 2-4 cents / kwh of electricity stored.

Of course, neither flow batteries nor compressed air are as commercially proven as lithium-ion. I’m sure many will be skeptical of them, though 2015 and 2016 look likely to be quite big years.

Come back in a year, and let’s see.

2. Storage is on the Verge of Opening Vast New Markets

Now let’s turn away from the technology and towards the economics that make it appealing. Let’s start with the simplest to understand: in the home.

A. Fill When Cheap, Drain When Pricey (Time of Use Arbitrage)

The US is increasingly going to time-of-use charges for electricity. Right now that means charging consumers a low rate in the middle of the night (when demand is low) and a high rate in the afternoon and early evening (when demand is at its peak, often twice as high as the middle of the night).

This matches real underlying economics of grid operators and electricity producers. The additional electricity to meet the surge in afternoon and early evening is generally supplied by natural-gas powered “peaker” plants. And these plants are expensive. They only operate for a few hours each day, so their construction costs are amortized over a smaller amount of electricity. And they have other problems we’ll come back to shortly. The grid itself pays other costs for the peak of demand. Everything – wires, transformers, staff – must be built out to handle the peak of capacity, not the minimum or the average.

The net result is that electricity in the afternoon and early evening is more expensive, and this is (increasingly) being passed on to consumers. How much more expensive? See below:

In California, one can choose the standard tiered rate of 18.7 cents per kwh. Or one can choose the the time-of-use rate. In the latter, there’s a 19.2 cent per kwh difference in electricity rates between the minimum (9pm to 10am) and the peak (1pm – 7pm).

Batteries cheaper than 19 cents / kwh LCOE (including financing, installation, etc.) can be used to arbitrage this price difference. Software fills the battery up with cheap power at night. Software preferentially uses that cheap power from the battery during the peak of demand, instead of drawing it from the grid.

This leads to what seems to be a paradoxical situation. A battery that is more expensive than the average price of grid electricity can nonetheless arbitrage the grid and save one money. That’s math.

That’s also presumably one of the scenarios behind Tesla’s entry into the home battery market, though it’s unlikely to be explicitly stated.

One last point on this before moving on. The arbitrage happening here is also actually good for the grid. From a grid operator’s standpoint, this is ‘peak shaving’ or ‘peak shifting’. Some of the peak load is being diverted to another time when there’s excess capacity in the system. The total amount of electricity being drawn doesn’t change. (In fact, it goes up a bit because battery efficiency is less than 100%). But it’s actually a cost savings for the grid as a whole. In any situation where electricity demand is growing, for instance, widespread use of this scenario can postpone the data at which new distribution lines need to be installed.

B. Store the Sun (Solar + Batteries, as Net Metering Gets Pressured)

Rooftop solar customers love net metering, the rules that allow solar-equipped homes to sell excess electricity back to the grid. Yet around the world and the US, net metering is under pressure. It’s likely, in the US, that the rate at which consumers are paid for their excess electricity will drop, that caps will be imposed, or both.

The more that happens, the more attractive batteries in the home look.

Indeed, it’s happening in Germany already, and the economics there are revealing.

First, let’s be clear on the scenarios, with some help from some graphics from a useful Germany Trade and Invest presentation (pdf link) that dives into “battery parity” (with some tweaks to the images from me.)

Current scenario: Excess power (the bright orange bit – electricity solar panels generate that is beyond what the home their own needs) is sold to the grid. Then, in the evening, the home need power. It buys that electricity from the grid.

Potential new situation. Excess power is available during the day. At least some of it gets stored in a battery for evening use.

Under what circumstances would the second scenario be economically advantageous over the first? In short: The difference in price between grid electricity and the net metering rate / feed-in-tariff is the price that batteries have to meet. In Germany, where electricity is expensive, and feed-in-tariffs have been plunging, this gap is opening wide.

There’s now roughly a 20 euro cent gap between the price of grid electricity and the feed-in-tariff for supplying excess solar back to the grid (the gold bands) in Germany, roughly the same gap as exists between cheapest and most expensive time of use electricity in California.

GTAI and Deutsche Bank’s conclusion – based on the price trends of solar, batteries, electricity in Germany, and German feed-in-tariffs – is that ‘battery parity’, the moment when home solar + a lithium-ion battery makes economic sense, will arrive in Germany by next summer, 2016.

Almost any sunny state in the US that did away with net metering would be at or near solar + battery parity in the next 5 years.

Tesla’s battery is almost cheap enough for this. In fact, it makes more economic sense in Germany than in the US.

Note: Solar + a battery is not the same as ‘grid defection’. It’s not going off-grid. We’re used to 99.9% availability of our electricity. Flick a switch and it’s on. Solar + a small battery may get someone in Germany to 70%, and someone in Southern California to 85%, but the amount of storage you need to deploy to increase that reliability goes up steeply as you approach 99.99%.

For most of us, the grid will always be there. But it may be relegated to slightly more of a backup role.

C. Storage as a Grid Component (Caching for Electrons)

Both of the previous scenarios have looked at this from the standpoint of installation in homes (or businesses – the same logic applies).

But the dropping price of storage isn’t inherently biased towards consumers. Utility operators can deploy storage as well, Two recent studies have assessed the economics of just that. And both find it compelling. Today. At the price of batteries that Tesla has announced.

First, Texas utility Oncor commissioned a study (pdf link – The Value of Distributed Electricity Storage in Texas) of whether it would be cost-effective to deploy storage throughout the Texas grid (called ERCOT), placing the energy storage at the ‘edge’ of the grid, close to consumers.

The conclusion was an overwhelming yes. The study authors concluded that, at a capital cost of $350 / kwh for lithium-ion batteries (which they expected by 2020, but which Tesla has already beaten), it made sense across the ERCOT region to deploy at least 15,000 MWh of battery storage. (That would be 15 million KWh, or the equivalent battery capacity of nearly 160,000 Tesla model 85Ds.)

The study authors concluded that this additional battery storage would slightly lower consumer electrical bills, reduce outages, reduce the need to build added capacity (by shifting the peak, much as a home battery would), and similarly reduce the need to build additional transmission and distribution lines.

The values shown above are in megawatts of power, by the way. The assumption is that there are 3 MWh of storage per MW of power output in the storage system.

You can also see that at a slightly lower price of storage than the $350 / kwh assumed here, the economic case for 8,000 MW (or 24,000 MWh) of storage becomes clear. And we are very likely about to see such prices.

8,000 MW or 8 GW is a very substantial amount of energy storage. For context, average US electrical draw (over day/night, 365 days a year) is roughly 400 GW. So this study is claiming that in Texas alone, the economic case for energy storage is strong enough to motivate storage capacity equivalent to 2% of the US’s average power draw.

ERCOT consumes roughly 1/11th of the US’s electricity. (ERCOT uses roughly 331,000 GWh / year. The US as a whole roughly 3.7 million GWh / year.) If similar findings hold true in other grids (unknown as of yet), that would imply an economic case fairly soon for energy storage capacity of 22% of US electric draw for 3 hours, meaning roughly 88,000 MW or 264,000 MWh.

This is, of course, speculative. We don’t know if the study findings scale to the whole of the United States. It’s back of the envelope math. Atop that, the study itself is an analysis, which is not the same value as experience. Undoubtedly in deployment we’ll discover new things which will inform future views. Even so, it appears that there is very real value at unexpectedly high prices.

Energy storage, because of its flexibility, and because it can sit in so many different places in the grid, doesn’t have to compete with wholesale grid power prices. It competes with the price of peak demand power, the price of outages, and the price of building new distribution and transmission lines. 

Which brings us to scenario 2D:

D. Replacing Natural Gas Peakers

The grid has to be built out to support the peak of use, not the average of use. Part of that peak is sheer load. Earlier I mentioned natural gas ‘peaker’ plants. Peaker plants are reserve natural gas plants. On average they’re active far less than 10% of the time. They sit idle, fueled, ready to come online to respond to peaking electricity demand. Even in this state, bringing a peaker online takes  a few minutes.

Peaker plants are expensive. They operate very little of the time, so their construction costs are amortized over few kwh; They require constant maintenance to be sure they’re ready to go; and they’re less efficient than combined cycle natural gas plants, burning roughly 1.5x as much fuel per kwh of electricity delivered, since the economics of investing in their efficiency hardly make sense when they run for so little of the time.

The net result is that energy storage appears on the verge of undercutting peaker plants. You can find multiple articles online on this topic. Let me point you to one in-depth report, by the Electric Power Research Institute (EPRI): Cost-Effectiveness of Energy Storage in California (pdf).

This report specifically looked at the viability of replacing some of California’s natural gas peaker plans.

While the EPRI California study was asking a different question than the ERCOT study that looked at storage at the edge, it came to a similar conclusion. Storage would cost money, but the economic benefit to the grid of replacing natural gas peaker plants with battery storage was greater than the cost. Shockingly, this was true even when they used fairly high prices. The default assumption here was a 2020 lithium-ion battery price of $528 / kwh. The breakeven price their analysis found was $842 / kwh, three times as high as Tesla’s announced utility scale price of $250/kwh.

Flow batteries, compressed air, and pumped hydro (where geography supports it) also were economically viable.

California alone has 71 natural gas peaker plants, with a combined capacity of 7,418 MW (pdf link). The addressable market is large.

3. Scale Reduces Costs. Which Increases Scale.

In every scenario above there are large parts of the market where batteries aren’t close to competitive yet; where they won’t be in the next 5 years; where they might not be in the next 10 years.

But what we know is this: Batteries (and other storage technologies) will keep dropping in cost. Market growth accelerates that. And thus helps energy storage reach the parts of the market it isn’t priced yet for.

I take a deeper look at how fast battery prices will drop in this post: How Cheap Can Energy Storage Get? Pretty Darn Cheap.

How Cheap Can Energy Storage Get

Who Benefits?

Storage has plenty of benefits – higher reliability, lower costs, fewer outages, more resilience.

But I wouldn’t have written these three thousand words without a deep interest in carbon-free energy. And the increasing economic viability of energy storage is profoundly to the benefit of both solar and wind.

Let me be clear: A great deal can be done with solar and wind with minimal storage, by integrating over a wider region and intelligently balancing wind and solar against one another.

Even so, cheap storage is a big help. It removes a long term concern. And in the short term, storage helps whichever energy source is cheapest overcome intermittence and achieve flexibility.

Batteries are flexible. Storage added to add reliability the grid can soak up extra solar power for the hours just after sunset. It can soak up extra wind power from a breezy morning to use in the afternoon peak. Or it can dispatch saved up power to cover for an unexpected degree of cloudiness or a shortfall of wind.

Once the storage is there – whatever else it was intended for – it will get used for renewables. Particularly as those renewables become the cheapest sources of electricity on the grid.

Today, in many parts of the US, wind power is the cheapest source of new electricity, when the wind is blowing. The same is true in northern Europe. On the horizon, an increasing chorus of voices, even the normally pessimistic-on-renewables IEA, see solar as the cheapest source of electricity on the planet, heading towards 4 cents per kwh. Or, if you believe more optimistic voices, a horizon of solar at 2 cents per kwh.

Cheap energy storage adds flexibility to our energy system overall. It can help nuclear power follow the curve of electrical demand (something I didn’t explore here). It helps the grid stay stable and available. It adds caching at the edge, reducing congestion and the need for new transmission.

But for renewables, especially, cheap storage is a force multiplier.

And that’s a disruption I’m excited to see.

—-

There’s more about the exponential pace of innovation in both storage and renewables in my book on innovating to beat climate change and resource scarcity and continue economic growth:The Infinite Resource: The Power of Ideas on a Finite Planet

The Learning Curve for Energy Storage

Energy storage prices are dropping fast. If you follow me, you’ve seen me write about this before. Energy storage prices have in fact been dropping exponentially for at least 25 years.

Here’s a new piece of analysis –  a model that uses a 20% learning curve per doubling to that project Li-ion batteries dropping to 5 cents per kwh round-tripped through them by ~2030.

You can read more about this here.

This cost projection is roughly in-line with what I’ve seen for Li-ion. For instance, here’s the view of what happened in Li-ion price and density in the well-studied period of 1990-2005.

However, for grid storage, this may be too conservative. Why? Because there’s a very real chance grid storage will veer away from lithium ion and towards flow batteries. Flow batteries are much bulkier and heavier than the lithium-ion in your cell phone and in a Tesla, but they’re potentially much cheaper.

ARPA-E’s GRIDS program has the goal of producing grid-scale energy storage at the capital cost of $100/kwh. With reasonable numbers of recharge cycles, that’s already at or close to 5 cents per kwh. ARPA-E has looked at many different technologies in the program. Among those are flow batteries. And having talked to some of the GRIDS folks, I see the flow batteries coming out of the program (and the other flow batteries coming onto the market) as nearing that line.

All of which is to say that we could see 5 cents per kwh stored closer to 2020 than 2030.

And that’s a price at which large scale grid storage starts to look economically viable.

I talk much more about renewables, energy storage, and how to accelerate progress in them in my book on innovating to beat climate change and other resource and environmental challenges: The Infinite Resouce: The Power of Ideas on a Finite Planet 

The Renewable Energy Revolution

Transforming the world’s energy supply will take decades. It is a very tall order. But it’s starting. The price of renewables – and energy storage – continues to plunge, putting them on a path to being cheaper than any other form of energy within the coming decade. And they continue to grow exponentially – albeit it from a low baseline – spreading out into the market.

WIND

Wind, more established than solar, has seen it’s price decline by a factor of more than 20 over the last 30 years. The average wind power purchase agreement signed in 2013 was priced at 2.5 cents per kwh.

In many parts of the US and the world, wind power is now the cheapest source of new power.

In scale, the amount of wind power around the world has grown by an astounding 10x (1000%) over the last 11 years. Incredible.

SOLAR

Solar makes wind look slow and sedate. Solar PV module prices have dropped an astounding 150x since 1977.

Of course, module costs are not the whole cost.  Even so, fully system cost continues on an impressive decline of its own, having fallen by a factor of three in just the last 10 years – a more rapid decline than any other energy source.

And the solar market, in response to plunging prices and market and regulatory incentives, has exploded, surging by an incredible 100 times (10,000%) in just 13 years.  A few years ago the total solar installed base was just 1/10th that of the wind power installed base. Now it is almost half the size of the wind installed base, and poised to overtake it in the next 4-5 years.

OUTPACING IEA PREDICTIONS

The growth of solar and wind has been staggering. It has also consistently outpaced the projections of the International Energy Agency, the US Department of Energy, and virtually all other traditional energy forecasters. The graph below shows how the IEA, in particular, has had to raise their forecasts of future solar and wind growth every year to keep up with actual growth rates.

And in fact, the IEA predicts that new installations of solar and wind will stay flat or decline over time, despite all evidence to the contrary.

Here’s a fuller analysis of IEA’s continual under-estimation of renewables.  Bear this trend in under-estimating new technologies in mind when reading forecasts from traditional energy forecasters.

BATTERY STORAGE

Finally, while the battery storage technology for the grid is, IMHO, unlikely to be lithium-ion, and is more likely to be flow batteries, it’s instructive to look at the price history of lithium-ion batteries to see what’s possible.

Between 1990 and 2005, the price per unit of energy stored in lithium-ion batteries dropped by a factor of 10, and the amount of energy that could be stored per unit weight nearly tripled.

That’s instructive, as flow batteries appear to be nearly at the price to make them viable for grid storage. If they have similar price trajectories as they scale, renewables will see one of their most formidable obstacles to adoption removed.

We shouldn’t trivialize the challenges ahead. It took decades, if not a century, to build the modern energy system. We still lack solutions for the nearly 1 billion internal combustion vehicles on the road, for the manufacture of steel and concrete, for growing meat without methane release, and for numerous other issues. This transition will be long. But the trends in the core technologies for electricity are extremely promising.

There’s more about the exponential pace of renewables in my book on innovating to beat climate change and resource scarcity and continue economic growth: The Infinite Resource: The Power of Ideas on a Finite Planet.

 

Solar Power Prices Dropping Faster Than Ever

In 2011, I wrote a piece for Scientific American on the exponential price decline in solar power.

I haven't had a chance to fully update that piece, but two quick notes.   First, the price decline in solar cost per watt has, if anything, accelerated since then.  

The above is on a log scale. The Y-axis is price per watt of solar modules.  And you can see that since 2010, prices have plunged.  Over the last 30 years, in total, solar module prices have dropped by a stunning 95%.  You can now buy literally 20x as much wattage of solar power for a dollar as you could when Ronald Reagan started his presidency.  And the trend shows every sign of continuing.

Second, since many have asked about storage costs, I'd note that there is a long term exponential decline in the cost of energy storage as well.  Energy storage is still far too expensive to be used to store substantial amounts of wind or solar energy, but the price decline, if anything, is steeper than the price decline in solar power itself.

Here's the original piece on the exponential decline in the price of solar power.

I write much more about solar, wind, energy storage, and why the pace of innovation in them is critical – and hopeful – for both fighting climate change and for long term economic growth in the book I originally did this research for, The Infinite Resouce: The Power of Ideas on a Finite Planet