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January 27, 2016
By Peter Maloney, Contributor
Last year was big for battery energy storage.
Technology prices continued to fall. Milestone projects got under way, and the sector gained wide media visibility in May when Elon Musk, CEO of Tesla Motors, unveiled the company’s sleek new Powerwall, a rechargeable lithium-ion battery designed for residential use.
The lithium-ion battery has, in fact, been the technology of choice over the past year or so thanks to more pronounced price declines and uses in a wide array of applications, all of which will pave the way for further gains in the coming year.
Pricing is a key element in the outlook for energy storage. A recent report from Deutsche Bank estimated that the cost of lithium-ion batteries could fall by 20 to 30 percent a year, bringing commercial or utility-scale batteries to the point of mass adoption before 2020. The bank noted that lithium-ion battery costs fell roughly 50 percent, to about $500/kWh, between year-end 2014 and year-end 2013. And analysts at Citibank and Moody’s Investors Service see Li-ion prices halving again over the next five to seven years, to about $230/kWh, at which point Li-ion batteries could be competitive with conventional generation for certain uses in many regions.
The Tesla Powerwall for residential battery storage
But while storage technology does not vary across borders and even prices are relatively stable across regions, the policies that make energy storage economic vary widely from country to country and from region to region.
Among the top trends in energy storage are solar + storage and an increase in mandates for utility-scale storage.
Solar + storage applications are often predicated on price arbitrage, that is, a difference between peak and off-peak prices that allows the user to store cheaper, off-peak electricity and consume or sell more expensive peak power.
Solar + storage and utility-scale mandates also divide in another way. Solar + storage applications tend to occur behind the meter, while utility mandates are most often front-of-meter applications.
The two different use cases also fall into broad geographic distinctions. At the moment, solar + storage applications are more attractive in parts of Europe and Australia, while utility mandates are strong in the United States, particularly in California.
But while use cases or applications for energy storage often follow geographic or political divisions, even policies and incentives within countries can vary by state, province or region. That makes the outlook for energy storage best viewed from the perspective of potential applications.
In the coming year the biggest market for energy storage in the United States will be opportunities to respond to utility solicitations, which in most cases are installed in front of the meter.
“2016 will be an in-front-of-the-meter year,” Colette Lamontagne, a director in the energy practice at Navigant Consulting, said. And, as is so often the case, California is leading the way.
One of the biggest steps in that lead was taken in November 2014 when Southern California Edison selected 263 MW of energy storage resources as part of a solicitation that sought a total of nearly 2,800 MW of resources.
As large as the SoCal Ed award is, the state has much further to go to meet the requirements of AB 2514, which calls for the state’s three investor owned utilities to procure 1.3 GW of storage by 2020, a mandate that will increase the state’s energy storage capacity sixfold.
Stem’s 54 kW PowerStore solution operating at the base of the InterContinental San Francisco. Credit: Stem.
California also has the Self-Generation Incentive Program that works mostly behind the meter by providing incentives for small-scale renewable energy plants, as well as energy storage devices.
California may have been the first to create mandates for energy storage, but other states are following suit. In June 2015, Oregon passed energy storage legislation, Bill 2193-B, which requires the state’s two main utilities to have 5 MWh of storage in service by Jan. 1, 2020.
In New York, the New York State Energy Research and Development Agency in May 2014 implemented the Demand Management Incentive Program, which provides incentives, mostly for commercial and industrial customers, who install batteries to reduce peak load.
In Canada, Ontario has also mandated the procurement of energy storage through a two-part solicitation that concluded in November. The province’s Independent Electricity System Operator (IESO) has awarded contracts for 50 MW of storage to 10 companies. Most of the contracts were designed to support or improve grid functions by providing frequency regulation service or voltage support.
The province is using contracts because IESO does not have market mechanism such as a capacity market to compensate those resources. But IESO is using the solicitation to test the waters for the economic viability of using storage to balance its grid and to aid in integrating an expected influx of intermittent renewable resources.
Ontario already has 4 GW of wind capacity and a project pipeline of 2.3 GW. Energy Minister Bob Chiarelli in October 2015 announced changes to the province’s wind energy procurement mechanism. Details are still to be announced, but mandatory bundling of new intermittent renewable resources with storage systems is one option under consideration, according to eviacon international’s World Energy Storage Markets Report 2015.
Projects in Texas and California, such as Duke Energy’s Notrees and SoCal Ed’s Tehachapi, combine wind power with storage and could serve as a business model for similar combinations.
As solar and wind power grow and come to represent an ever greater proportion of grid-connected resources, more governments, regulators and utilities are likely to implement incentives for energy storage in order to firm up those intermittent resources, enviacon argues. Citing a 2015 report from the Australian Renewable Energy Agency, the consulting firm notes that China has already introduced a requirement to install capacity firming batteries alongside any new intermittent generator in order to receive permission for grid connection. A similar requirement was introduced by the Puerto Rico Electric Power Authority in December 2013.
Mandated offtake provides a relatively straightforward opportunity for developers of energy storage projects, especially large projects, but there are many parts of the world where electricity prices are set in a competitive market. The largest wholesale power market is the PJM Interconnection, which has operations in 13 Midwestern and MidAtlantic states.
A 31.5-MW lithium-ion battery system that serves the PJM market. Image Credit: Invenergy.
The physical requirements of the grid in PJM are the same as any other grid, but instead of working by mandate PJM, under the auspices of the Federal Energy Regulatory Commission (FERC), has a market-based approach to solving operational challenges.
Since FERC implemented Order 755 in 2011, which put energy storage on a more equal footing with traditional resources, the use of battery storage to provide frequency regulation in PJM has grown dramatically.
In 2014, two-thirds of the 62 MW of storage deployed in the U.S. was deployed in PJM for frequency regulation. But that rapid growth came at a price; it saturated the market.
PJM has put a temporary halt on how much frequency regulation it procures from battery storage while it studies the issue. But opportunities could open in other competitive wholesale markets such as the Southwest Power Pool and the Midcontinent Independent System Operator where energy storage has yet to play a role in frequency regulation, says Lamontagne at Navigant.
In addition, storage’s success at providing frequency regulation services is aiding in expanding its adoption for other services. In markets outside of PJM, storage is being deployed to provide voltage support, reliability and islanding capabilities and to firm renewable, noted Ravi Manghani, senior analyst, energy storage, at GTM Research. “We expect that in coming years, a bigger share of deployments will provide reliability and capacity benefits compared to frequency regulation,” he said.
Mandated opportunities for energy storage can occur in any jurisdiction and they represent the lion’s share of the market, but over the next several years several analysts see that scenario changing.
In the United States, Navigant sees behind-the-meter (BTM) applications for energy storage overtaking front-of-the-meter applications by 2020.
In other countries BTM applications already represent the major market opportunity. The deciding factor in determining a market ripe for BTM storage applications is electricity price differentials that make it attractive for consumers to defer or shift their electricity consumption by using an energy storage device.
Australia is a good example. A combination of rising electricity prices, declining feed-in tariffs (FiTs), and high solar penetration is likely to lead to a boom in the BTM storage market down under, according to a recent report by GTM Research. GTM predicts Australia’s storage market will reach 244 MW of annual installed capacity by 2020 from a base of about 7 MW in 2015. “The market is growing quite substantially. It is about a 37-fold increase,” report author Brett Simon said.
Simon noted that Australian electricity prices have risen between 75 percent and 125 percent over the last seven years, but in many states that had attractive FITs, such as New South Wales and Victoria, those rates are being phased out or reduced.
In those states, customers can combine energy storage with their solar systems and store energy during the heat of the day and self consume the stored power in the evening, thus deferring the purchase of higher priced on-peak power.
A similar arbitrage play presents opportunities in countries with high demand charges. In Taiwan, for example, where demand charges can amount to as much as 62 percent of a typical residential electric bill, there is an incentive to use batteries to avoid high demand charges, according to enviacon’s report.
Even in the U.S., where FiTs are rare, there are growing opportunities for energy storage to offset changes in net-metering policies, which provide payments for homeowners whose solar panels generate more power than they can use.
Hawaii recently ended its net-metering program for solar power, and that is spurring vendors to offer solar + storage options as a way of making renewable energy alternatives economically attractive. “It’s increasingly likely that new customers in Hawaii looking at PV will install storage as well,” Simon said.
The Combination of the Two
The combination of storage with other devices and systems represents another trend likely to gain traction in 2016. As mentioned, vendors are pairing storage with solar power in areas where arbitrage makes the combination economic.
The Sonnenbatterie Pro for large residential or commercial battery storage. Credit: Sonnen.
In Germany Sonnen (formerly SonnenBatterie) is combining solar with storage and with digital controls to create microgrids that allows members to share renewable power in a way that the company says will make conventional utilities obsolete.
Sonnen has also thrown down a challenge by pricing its system competitively with Tesla’s Powerwall, even in the company’s home court. In December, Sonnen said it was shipping its first 1,000 storage systems bound for American homes.
Tesla is also facing competition in Australia where Origin Energy has begun offering a combined solar + storage system to customers in December.
In the coming year it may turn out that Tesla’s Powerwall announcement ignited a technology race that not only spreads the uses for energy storage, but begins to disrupt the traditional utility business model.
More Storage Technologies To Watch
Other energy storage technologies are poised for growth in 2016 as the world continues its shift to greener grid powered by more intermittent energy forms, like wind and solar. Keep your eye out for news about these other energy storage technologies:
Pumped hydro: The oldest, cheapest and most established of the storage technologies. Pumped hydro works by pumping water from a lower elevation reservoir to a higher elevation reservoir and then releasing it and allowing gravity to pull the water through a turbine and create energy. Pumped hydro represents 99 percent of the bulk energy storage capacity in the world today.
Flow batteries: Using a variety of different chemical combinations, a typical flow battery is made up of two tanks of liquids that are pumped past a membrane held between two electrodes. When the chemicals combine with the electrodes they produce electricity. Flow batteries are generally used in larger stationary applications, such as the grid for balancing or off-grid for power supply.
Lead-acid batteries: Made up of plates of lead and lead oxide that sit in a bath of electrolyte solution, the batteries are able to give quick short bursts of energy. These are the oldest types of rechargeable batteries.
Deep-cycle batteries: A type of lead-acid battery that uses a thicker lead plate and requires less maintenance. These are used in off-grid situations for charging, for example, cell phone towers or for backup power. Deep-cycle batteries can also be used for grid energy storage. Trojan’s Smart Carbon batteries (pictured) are an example of a deep-cycle battery.
Power-to-Gas: A technique that uses hydrogen fuel cells to produce energy. The benefit is that the hydrogen can be created from excess wind power and stored in tanks to be used days, weeks, even months later.
Compressed Air Energy Storage (CAES): CAES plants use ambient air that is compressed and pumped into a tank and are used when excess power is available. To deploy the energy, the air is heated and released, which turns a turbine to produce electricity. A very large CAES project has been proposed outside of Los Angeles, California.
Flywheels: A flywheel is a rotating mechanical device that is used to store rotational energy that can be called up instantaneously. Flywheels contain a constantly spinning mass which, when called upon to produce energy, turns a device similar to a turbine to produce energy thus slowing down the spinning mass. To be recharged, the device uses a motor to bring the mass back up to its rotational speed again.
Thermal: Using heat or cold to store energy such as in ice or in heated molten salt. Molten salt energy storage is sometimes a component of concentrating solar power plants. Ice energy is being used for air-conditioning in some pilot projects in California and elsewhere.