Energy storage ‘will wipe out battery storage’

There are quick bucks to be made from battery storage. But in three or four years, many assets will be in the bin, reckons redT chief Scott McGregor. He claims sustainable energy storage that can handle multiple functions for decades without degrading is now viable. Brendan Coyne reports

Predictions for battery storage penetration vary wildly. UK Power Networks recently reported it had received 12GW of connections requests in little over a year, much of it for batteries, much of it “highly speculative”. Western Power Distribution has 1GW of storage connections agreements on its network, with a further 1GW offered.

National Grid meanwhile, sees up to 18GW of all forms of electrical storage on the system by the 2040. Government predicts around 4GW of batteries by 2033.

But Scott McGregor, CEO of energy storage firm redT, believes market sizing predictions and the recent rush to secure frequency response contracts obscure fundamental truths. He says battery storage as opposed to energy storage is unsustainable – and many of today’s frequency response “arbitrage exploitation” opportunities may not exist in three years’ time.

Neither, he says, will some of the assets.

“The returns [for frequency response] are currently good. That’s nice, but they are batteries which will degrade and have to be thrown away – and that revenue opportunity will also run away pretty quickly.”

McGregor points to California, which he suggests is suffering a lithium hangover. Battery owners that piled into frequency response now spy other revenue streams. But, says McGregor, “they can’t access them because the battery is only warrantied to provide one service – and if they do more it will burn out”.

Yet most battery providers offer ten year warranties.

“Lithium is very good if you focus it on a short cycle, not very often. Do that and it will last you ten years,” he says. “But if you try to frequently perform multiple functions, the lithium will be gone in a few years.”

That poses a problem, given the need to ‘stack’ revenue streams together to build business cases and secure finance.

McGregor thinks the solution is flow-based energy storage, potentially in tandem with lithium or lead acid as a hybrid.

“The energy technology, such as a flow machine, is your workhorse. It will handle 60-80% of the work all day long: shifting solar, providing long duration services. Your lithium will provide short spikes of power. Combine the two and the lithium will last ten years, potentially even 15,” says McGregor.

Flow to grow?

Flow batteries store energy in liquid form. McGregor claims the electrolytes in his firm’s machines “never degrade”, making them “infrastructure assets”. He believes that will bring debt finance into the storage market.

“It is very hard to finance a battery. If your battery degrades, you have to throw out 100% of that capital cost. So it is not a long-term asset.”

“Utility industry debt finance is what expanded the renewables industry significantly. Storage will be the same,” says McGregor. “All of it is equity financed at the moment. Once you prove that storage is around for 20 years, debt will pile in.”

Moreover, when investors realise there are assets that can provide multi-services over decades without degradation, “they will wipe out those short return assets,” says McGregor. “That is starting to happen.”

McGregor claims current flow paybacks are “seven to nine years, which in terms of an infrastructure asset, is a pretty good return”.

Solar and storage

At a large-scale, solar and storage can deliver power “at around half the cost of Hinkley C”, claims McGregor. For industrial and commercial (I&C) firms – particularly those with expiring power purchase agreements (PPAs) – the combination is also complementary.

“They can [instead] use that solar to handle overnight demand load – it’s a massive commercial opportunity,” says McGregor. Equally, he says businesses that can no longer secure PPAs due to daytime export limitations on distribution networks, should consider storage.

Private wires are another significant market opportunity, McGregor believes.

“If you are an I&C firm with a lot of roof space, solar and storage means you can sell power to all the businesses within your estate,” he says. “We are seeing a lot of interest there, it’s a very exciting area.”

Policy void?

As well as finance issues, firms surveyed by The Energyst about battery storage suggest policy uncertainty is hindering investment. But McGregor is sanguine.

“Irrespective of whether government does anything or not, the policy of increasing renewables is going to drive storage,” he says.

“People are concerned, but while good policy can make markets more efficient, that’s actually irrelevant. The increase in solar and wind is going to make storage mandatory.”