COVID-19 has led to lock-downs. That, in turn, has led to less energy use, creating an opportunity for renewables to shine. They are becoming the lowest-cost energy source on sunny days, although during the evening when electricity demand is high, power prices are spiking.
But there is a fix: utilities and onsite generators are using energy storage to harness the electricity during the day and release those electrons at night. Those batteries not only can limit the price spikes but they can also add value to solar farms. The twin goals are to increase renewable power usage and to provide electricity during peak demand. But the main obstacle is the high price of storage. The options?
“If low electricity prices remain, what will it mean for future the grid and the electricity market?” asks Matt Harper, the chief commercial officer for Invinity Energy Systems that makes “flow batteries.” “Battery storage can take advantage of abundant and low-cost power: it consumes excess power during the day and redeploys that electricity during the peak periods when conventional power generation would be turned on.”
Harper explains that “flow batteries” are different from “lithium-ion batteries.” The former provides long-term storage that can deliver power for up to 15-hours while the latter supplies electricity for shorter periods of four-hours or less. The better performance, he adds, means that renewables have more leverage in the market — something that will eventually mean that power can be stored in the summer and used in the winter.
At the same time, he says that “flow batteries” are positioned between short-term “lithium-ion” batteries and long-term hydrogen tanks. Hydrogen storage, he adds, has limitations because of the fuel’s efficiency rate, which is about 50% — the ability to take a unit of energy input and convert it to electricity. In comparison, he says that the efficiency rate for battery storage is between 70-90%.
When comparing the value of short-term battery storage to long-term battery storage, Harper says that a key difference is that long-term “flow batteries” can be charged and recharged multiple times a day for decades at a time. Short-term lithium-ion batteries, in contrast, will wear down and lose their function in 10 years. That means the value of flow batteries over a lifetime is worth more, Harper adds, even though the lithium-ion batteries are less expensive upfront.
“The COVID-19 pandemic shows what electricity markets will look like 3-5 years from now,” says Harper. “The drop in demand means that the market-clearing prices have, correspondingly, gone down. The result is that the renewables are winning because they have the lowest cost of production.”
But if solar power producers are gaining market share because their fuel costs are so low, what then is the incentive to build capital-intensive plants? Harper says that the same question applies across the board — from solar plants to shale-gas facilities to nuclear energy generation. Solar plants are typically built under long-term power purchase arrangements whereby a utility or a data center will agree to buy the output at a set price over many years. And an increasing number of those contracts require storage, which provides a hedge for developers.
That is, the storage device allows solar producers to capture the solar power when it is cheap and to sell it at higher market prices to other buyers not under contract — but for less than competing fuels. “There is a huge amount of value delivered by battery storage,” says Harper.
To be sure, the cost of battery storage remains a sticking point. At the same time, flow batteries are used for large scale, grid-connected installations and they require speciality materials that may not be easily accessible. They also do not scale well, says Chris Allo, founder of ElektrikGreen, which may require users to install entirely new systems.
Harper counters that lithium-ion batteries are used to replace expensive “peaking” gas plants, noting that any technology that has a short lifespan will be hard-pressed to compete against conventional plants that run all day. He adds that while “flow batteries” have a greater upfront cost, they have more value because they deliver four-times more energy long-term, which makes them competitive with other fuel options.
Meantime, economies of scale are building: Tesla Inc. TSLA +13.2% is investing $5 billion in a battery storage manufacturing facility while utilities such as Xcel Energy XEL +2% have received hundreds of bids to help it integrate energy storage into its wind and solar energy networks. It shows that battery technology is becoming competitive with conventional generation and that those prices, generally, are falling.
To boot, the Federal Energy Regulatory Commission issued an order in 2018 that allows storage resources to participate in wholesale markets — where electricity is bought directly from generators before selling that power to homes and businesses. Under the ruling, storage operators are paid the same as traditional power suppliers. A federal appeals court just upheld the commission’s order.
“We’ve come to a fork-in-the-road during this energy transition,” says Harper. “We can continue to use centralized generation to balance renewables when the sun is not shining or we can fully embrace renewables. The former offers a bandaid approach. The latter provides the lowest-cost source, especially when coupled with long-term battery storage.”
Getting to 100% renewable energy levels will be challenging under the best of circumstances. But utilities like Berkshire Hathaway BRK.B +0.3%, NextEra NEE +2.7%, and Edison International EIX +1.7% are betting heavily on wind and solar and that rely on energy storage. As storage prices continue to fall, it will be easier to meet peak demand with clean energy sources — a transition that is happening now in parts of the country but one that could grow nationally as renewable energy becomes more pervasive.