Observing the dawn of the modern energy storage industry requires a constant toggling between credulity and skepticism.
It’s easy to articulate the massive potential for this technology to reshape the electric grid and help clean energy grow. And accomplishing something truly novel, like replacing a gas plant with a battery, is a step into the unknown, a recognition that prior experience doesn't tell you everything.
Surveying the scant field of storage action today, though, forces an acknowledgement of the dragging pace of progress, making one wonder if all these glowing VC-backed change-the-world efforts might be overstating the case.
The events of 2018 instantiate both a bull and a bear case, which I’ll enumerate before delving into the key stories of the year. The goal here is to arm our loyal Squares with rhetorical flourishes to win a cocktail-party debate in either direction, or deploy both cases at once to confuse your audience.
For additional food for thought, check out the latest episode of The Interchange podcast for my Oscars-style roundup of the year's storage developments, recorded live with Stephen Lacey at GTM's Energy Storage Summit in San Francisco.
You know that storage is winning because:
- The U.S. market is poised to nearly double megawatts deployed between 2018 and 2019, and more than double from 2019 to 2020, according to the latest Energy Storage Monitor. Measured in megawatt-hours, the growth is even more dramatic.
- California regulators voted to reduce dependence on natural-gas power by building the two largest batteries in the world at Moss Landing, one of which will occupy the turbine hall of a retired gas unit.
- Residential batteries had a string of six consecutive quarterly deployment records, and outgunned the larger format commercial sector in megawatts deployed each quarter this year. Home batteries out-deployed utility-scale batteries in the first two quarters.
- A barrage of supporting policies in Northeastern states will open up the commercial storage market in the coming years.
- A growing roster of states has committed to zero-carbon electricity, which all but guarantees a robust market for storage. These include California, New York, New Jersey, Hawaii, Washington and Washington, D.C.
- Major utilities are voluntarily incorporating storage into their planning, even when nobody is forcing them. Xcel Energy and NV Energy impressed with their solar-plus-storage solicitations, and Arizona Public Service has gained a deep understanding through multiple utility-scale projects. Duke Energy quadrupled its storage forecast in a year, highlighting the technology before it even deployed at the megawatt scale in regulated territory.
- Wholesale markets are about to open up. ISOs and RTOs filed their compliance plans this month for FERC Order 841, which told them to adapt their rules so storage can participate based on its unique operational characteristics. Step 1: value-stack with wholesale markets. Step 2: profit.
To the contrary, you know that storage is overhyped and underdelivering because:
- Hardly anyone in the U.S. buys utility-scale storage. Several recent quarters saw no more than four projects get built. The whole year was lackluster for large projects. How can you call this a real market if the only steady customers are California utilities forced by law to acquire it? The segment’s best showing came in response to the largest natural-gas leak in U.S. history, but that’s not a dependable revenue opportunity.
- Despite a few early-adopter utilities, recognition of energy storage as a grid resource remains highly uneven. Most utilities have no idea what to do with storage and no concrete plans to use it anytime soon, even if their neighbors have already bought in.
- Ample hype notwithstanding, home batteries lack a compelling economic case almost everywhere in the U.S. They’re expensive, and where electricity is cheap or not differentiated by peak hours, there’s no way to recoup the investment. You can convince some upwardly mobile homeowners to pay big bucks for clean backup power, but how big is that addressable market, really? The segment blew its six-quarter winning streak in Q3, delivering 11 percent fewer installations than the previous quarter.
- Commercial storage has failed to prove itself outside of California, which currently holds 92 percent market share of C&I megawatt-hours deployed. If there’s a real opportunity in demand-charge management coupled with grid services, and it’s not totally reliant on California’s subsidies, why hasn’t it scaled anywhere else? And where are the other competitors eager to seize some of the pie from early entrants like Stem, AMS and Green Charge/Engie?
- Texas has proven all but impenetrable for storage, keeping one of the largest state energy markets off the table for the industry.
A few hurdles remain for the industry, to say the least. Though 2018 was easily the biggest year ever for energy storage, it was very much another build-up year, and efforts underway now won’t pay off until 2019, 2020 or later.
The infancy stage may soon come to an end. WoodMac’s storage analysts foresee 2019 delivering a full gigawatt-hour installation increase over 2018, with 2020 yielding an additional 3 gigawatt-hours on top of the 2019 number. Then it’s off to the grid procurement races.
In addition to the items above, the following developments from 2018 stood out amid the grow pains and early successes.
Tesla loses its luster
Enough has been written about Elon Musk’s “funding secured” blunder and the Model 3 production delays, from which the company later recovered impressively.
I’d like to flag a more parochial story: the reputational slide of the Powerwall.
Tesla largely popularized the idea of home batteries for American audiences, and drove the Powerwall to the front of the pack with a mix of charisma and insanely low price per capacity. The company pegged its price far below any competitor, and promised that further discounts would arrive as battery manufacturing scales up.
Two years of manufacturing growth later, Tesla jacked up the Powerwall price twice this year, from $5,500 to $5,900 and then $5,900 to $6,700. It also raised the price of the supporting hardware by $400.
The implication there is that the much-lauded price tag had nothing to do with a business case. As Model 3 production lagged, the company couldn’t afford to keep subsidizing its side hustle. In typically opaque fashion, the company explained the change as an effort "to best reflect what we’re offering to customers and the value of our products."
So what value is that? Mostly the thing sits around waiting to back up nice houses in a blackout. Tesla only added time-based controls, which should be the bedrock of any intelligent operations of home batteries, in May.
Long and unpredictable delivery timelines complete the package, exacerbated by the decision to reallocate a Powerwall cell production line to Model 3 this summer.
In sum, Tesla finds itself the spiritual leader of the home battery industry, even as that business forms an insignificant and frequently neglected part of its electric car empire. The onus is on any other manufacturer to seize the throne, probably with some combination of sophisticated controls, quick and predictable delivery, and stable pricing structure.
It’s taken a while for viable competitors to warm up. 2019 could be the year competition gets hot.
Big year for state policy
Hawaii already had its 100 percent renewable goal, which kicked off some of the first big solar-plus-storage projects. But it’s hard to apply Hawaii's unique experience to other states.
California contains multitudes: 40 million people, the world’s fifth largest GDP, major cities and sparse rural tracts, forests and deserts and mountains and estuaries. If this microcosm of human society can achieve a functional zero-carbon grid, as the recently passed SB 100 demands, it will tank the credibility of any other jurisdiction that tries to argue it can’t be done. As the gas plants shut down, storage will have to step up.
But California wasn’t alone. New York set a goal of 3 gigawatts by 2030, and New Jersey passed a law calling for 600 megawatts by 2021 and 2 gigawatts by 2030. Massachusetts passed the first Clean Peak Standard, which requires a growing share of peak-hour electricity to come from clean sources, likely through storage.
What we have here is a three-stage evolution in energy storage policy.
The first, most basic step is to mandate a hard number of deployments, forcing a market into existence. Massachusetts’ more nuanced variation pegs the storage need to a policy objective: cleaning up the peak hours, which tend to be a grid’s most expensive and most carbon-intensive. The Clean Peak gives industry leeway to build what it needs to deliver clean power at the times of highest demand.
California went even further by requiring clean energy not just during some of the peaks hours, but all of them, and all the other hours too. This is the boldest market signal yet for storage: In less than 30 years, all those gas plants to balance wind and solar in this massive state will need to stop emitting carbon. Utilities won’t be deploying to hit an arbitrary number, they’ll be deploying whatever it takes to run a grid without releasing greenhouse gases.
These early adopters make it much easier for subsequent states to pass their own market-enabling policies: They have a policy buffet to peruse, selecting what best suits their tastes.
(Some) utilities step up
Setting aside all those leading policy states, it speaks well of energy storage that, in some places, utilities are choosing to buy it in the absence of external coercion.
Arizona Public Service has awarded contracts where storage is economical without any policy support. Duke Energy in the Carolinas has piloted storage at small scales, and upped its planning forecast for storage deployments from 75 megawatts in the 2017 document to 300 megawatts this year, with a scenario reaching as high as 1,440 megawatts.
NV Energy awarded bids to multiple solar-plus-storage projects at competitive prices. Xcel Energy also made waves with low-priced hybrid storage in its all-source solicitation.
The Midwestern utility followed those headlines with a plan to retire 660 megawatts of coal generation and replace it with $2.5 billion of renewables and batteries. Regulators approved the plan, which is expected to save ratepayers between $213 million and $374 million.
Then Xcel pulled off an even bigger coup: This month, it pledged to take its eight-state territory carbon-free by 2050, the first utility to make such a promise voluntarily.
For every utility that regularly shows up at clean energy conferences to talk about its cool battery pilot, there are several peers with no concrete plans to do anything with this technology.
The early utility adopters serve a crucial role in vetting the technology in ways that their peers can trust. If batteries clean up the grid while giving utilities a new asset class to build and rate-base, then everybody wins, right?
Actually, the Moss Landing approval fight showed that not everyone is happy to earmark ratepayer dollars for massive battery projects. As utilities get bolder in their storage procurements, they'll have to get better at explaining and justifying their value to the public.