Energy storage is hitting its stride.
Data from the latest GTM Energy Storage Monitor reveals that the U.S. storage market grew 245 percent in 2015 over 2014 (albeit from a small base). By 2019, America's storage market could amount to 1.7 gigawatts and be valued at $2.5 billion.
Through my 20-plus years of experience developing storage technology and storage power plants, I believe the best way to understand the future of storage is to view the evolution of the industry through a series of phases.
Until 2013, our industry was in a phase that I term “Storage 1.0.” In my view, this phase began in the late 1970s and early 1980s when the wind andsolarindustries began to rise and storage technologies such as redox-flow batteries were conceived to spur broad deployment. Before this time, lead-acid and other types of battery systems were in wide use for backup and off-grid applications. However, the late '70s and early '80s mark a period where storage became widely recognized as a potential key component of the electrical grid’s generation sector in addition to networks and load.
Accordingly, this period also saw increased allocation of resources and development funding from government agencies and corporations. Investment and interest in storage further increased in the early '90s when technologies that had been originally developed for electric transportation (e.g., sodium-sulfur, zinc-bromine, etc.) pivoted their development focus toward stationary applications in the face of lithium-ion’s growing commercialization.
During this phase, the focus was primarily on the development of bankable storage systems, the definition of the value proposition(s) that storage provided, and the cultivation of early markets through incredible efforts by several pioneering companies and individuals.
As Storage 1.0 evolved in the late '90s to mid-2000s, we saw an expanding array of companies racing to develop systems in virtually every subclass of storage technology -- including lithium-ion, supercapacitors, redox flow, aqueous sodium, flywheels, compressed air energy storage, liquid air energy storage, and ice.
The Department of Energy’s 2009 ARRA storage demonstration program provided the largest amount of funding by far to demonstrate value propositions for over 530 megawatts of “shovel-ready” systems in large-scale use cases, as well as several new storage technologies with promise to catalyze new use cases. Market reforms like FERC Order 755 in 2011 opened up ancillary services markets for energy storage and required system operators to recognize the value that resources like energy storage create. In California, the incorporation of advanced energy storage into the Self-Generation Incentive Program (SGIP) put behind-the-meter storage on par with other new distributed generation technologies. And the passage of AB 2514 in the state provided a precedent-setting pathway to have the system-wide value of storage defined and embedded into the planning process through its resulting procurement targets.
As the markets evolved, lithium-ion emerged as the de facto choice for commercial deployments largely because the combination of technical maturity, product availability, declining cost, and warranty backing by large-balance-sheet entities made project risks manageable for developers.
We are now entering the Storage 2.0 phase, where more sophisticated markets are quickly growing the stock of deployed systems both in front of and behind the meter. The use cases have, for the most part, been more suited to storage systems with high power-to-energy ratio configurations. As it takes a couple of years to develop and commission energy storage power plants, the uptick in installations seen in 2015 can largely be attributed to the modification of market rules to comply with FERC Order 755 in late 2012. Though project deployments are on the rise, the use cases are mostly limited to either frequency regulation and similar grid services or behind-the-meter demand management. Other use cases such as ramping capacity, reserves, solar integration, and T&D deferral have been demonstrated, but tariff structures have limited their commercial viability to this point.
According to the latest data from GTM Research, 92 percent of the power capacity and 87 percent of the storage capacity have been installed in PJM (front-of-meter) and California (behind-the-meter, nearly all funded in part by the SGIP). But we are finally seeing new markets and use cases emerging that will form the basis for growth over the next couple of years.
International markets are at a similar stage. Thousands of behind-the-meter residential units have been deployed in Germany, while large-scale, front-of-meter energy storage power plants are increasingly being deployed for frequency control. Since local opposition is forcing new transmission lines underground, front-of-meter energy storage could soon become the most cost-effective option for German grid operators to balance renewable generation.
Across the board, vendors, developers, independent power producers, and utilities are now gaining valuable experience in designing, developing, financing, building, and operating energy storage power plants. Commercial structures such as defect warranties and performance guarantees, which reduce project risk to levels that financiers and utility customers find acceptable, are now becoming available.
Successes and shortfalls from Storage 2.0 will unearth value streams that open markets for systems with high energy-to-power ratios (e.g., peaker replacement) while providing concrete differentiation for alternates to lithium-ion.
Storage 3.0 will see wide availability of new technologies and total U.S. deployments exceeding many gigawatt-hours per year. Green shoots of Storage 3.0 are already appearing. As utilities begin to develop their storage strategies, the number of RFPs and project announcements for long-duration storage systems is increasing. Given these signs, I expect we will be fully immersed within this phase by the end of 2017 or early 2018.
Concurrently, we are seeing initial signs that rising levels of renewables deployments across the United States and Europe are leading to export constraints, as neighboring grids within these regions reach their own saturation points. This will become an important market driver in Storage 3.0. Markets will emerge that leverage the multiple benefits that long-duration storage provides due to a combination of regulatory changes, evolution of the generation mix, and falling storage costs.
The value propositions for technologies with decoupled power and energy configurations, like redox-flow batteries and compressed or liquefied air storage, are going to further resonate with investors, developers and financiers. Aqueous integrated-cell and hybrid flow battery technologies that provide integration and operational advantages will find their stride in markets such as the behind-the-meter and off-grid spaces. This will help them achieve high-volume manufacturing costs as we reach the end of this decade.
With the emergence of lithium-ion alternatives and a wider array of use cases, levelized cost of storage (LCOS) will outweigh capital expenditure as a barometer for cost-effectiveness. Consequently, we will see centralized and aggregated storage systems deployed providing combinations of investment deferral, congestion relief, local capacity, frequency regulation/frequency control, and backup as primary, secondary and tertiary services. A key component in operation of these increasingly complex projects will be the availability of software that controls and manages dispatch of these storage assets to deliver forecasted revenue without compromising their state of health.
While new technologies will find their places in the global storage market, lithium-ion will still dominate deployments and overall market share. It is also likely that hybrid storage power plants pairing different technologies that can stack benefits and improve LCOS will become more prominent. As we exit Storage 3.0 in late 2020 or early 2021, I believe we will see solar- and/or wind-plus-storage projects in the 10- to 100-megawatt range reaching LCOE levels below $200 per megawatt-hour on an unsubsidized basis -- making them commonplace in island and weak grids around the world.
The Storage 4.0 phase will begin in the early 2020s. During this period, a spectrum of available storage system products, their associated low LCOS, and fully evolved market designs will create an environment where deployments exceed 50 gigawatt-hours per year. Storage will be ubiquitous.
By this point, storage will have fully matured as an energy technology, making this a prolonged phase compared to the previous two phases. Standalone storage power plants located throughout urban areas will improve infrastructure utilization, maintain stability within the local network, and provide reliable backup. These systems and plants will mostly be aggregated to provide system operators with the capabilities of today’s central thermal generation plants, which they will replace.
As we transition fully into Storage 4.0, we will see one or more technologies spawn product lines that provide LCOS levels below $70 per megawatt-hour from a 6-hour storage system. Accordingly, the LCOE levels of wind and/or wind-plus-storage projects (i.e., fully dispatchable renewable power plants) in a wide range of regions will approach $120 per megawatt-hour and below $100 per megawatt-hour in areas with high resource capacity factors. Storage will have created a true plug-and-play grid, obviating interconnection studies, and enabling broad deployment of clean, dispatchable renewable systems. Consequently, multi-100-megawatt, multi-hour duration storage projects in both standalone and renewable-tied varieties will become commonplace in the U.S. and abroad.
As the early phases of industry growth have already shown, energy storage is evolving into a technology that could become the most significant engineering achievement of the 21st century.
Craig R. Horne is the vice president of business development for energy storage at Renewable Energy Systems. RES is a global leader in the deployment of renewable energy and energy storage power plants. Horne is also a board member of the Energy Storage Association and has worked in the battery industry since 1993.