2021 is here, and that should be cause enough for rejoicing. But the energy storage industry, with its critical role to play in shaping the transition to clean energy, weathered 2020 with surprising panache.
Instead of setbacks, delays and bankruptcies, battery projects hummed along with minimal disruption. And the record-breaking activities of the past year set things up for an even more momentous performance this year.
In the spirit of measurable, specific commitments, Storage Plus is kicking off the year with some predictions for what's to come. Let's check back in over the last 12 months to see how we did.
Biggest year ever
This isn’t even close. Wood Mackenzie expects U.S. storage installations to basically triple from 2020 to 2021, as measured in megawatt capacity. In megawatt-hour terms, we’re looking at a 3.7x rise. So even if some of the expected projects don’t come through, the market will be unlike anything the world has ever seen.
That said, we have an unusual amount of clarity into upcoming installations because there are so many massive contracts coming due in California and other sunny locales across the U.S. West.
2020 was the year of record-breaking contracts being signed; 2021 will be the year they start to be delivered. Case in point: Southern California Edison’s 770-megawatt collection, finalized last May, is due online in August. And several mega-projects from previous years are wrapping up construction any day now, like Moss Landing, Strata Solar’s project near Ventura, and the long-awaited AES Alamitos project.
It’s not just in California, either. Florida Power & Light is supposed to deliver its 409-megawatt Manatee battery this year, a project big enough to redefine Florida’s stature as an energy storage market. Look for big things in Arizona, Nevada and Texas too. Massachusetts and New York don’t have much of a market, per se, but dedicated policy support is starting to move projects that add up to substantial numbers. And Hawaiian Electric is expecting several massive solar-plus-storage systems to come online.
There will also be some modest growth from the residential segment and a less substantial contribution from commercial and industrial installations. But the direct-to-consumer approach of distributed storage has yet to unlock anything like viral growth. The bulk of the record 2021 installations will be from big front-of-the-meter projects serving utilities or a few plucky independent developers.
Congress offers a mild boost, leaves hard questions unsettled
Congress suddenly became an energy policy body again. The stimulus legislation that outgoing President Donald Trump eventually signed last month includes some $35 billion for clean energy research and deployment. That’s the good news. The bad news, as far as energy storage is concerned, is that the last-minute compromise does relatively little for this industry in particular.
The most pronounced near-term boost will come from the two-year extension of the solar Investment Tax Credit, which applies to batteries that are built alongside and mostly charge from solar. That doesn’t help the massive standalone batteries that are driving growth this year, but it covers pretty much all residential batteries, plus an increasingly broad swath of commercial-scale storage as well. And, as noted above, numerous states are building truly massive solar-plus-storage plants now.
Tax credit extensions are not transformational. They give already-sound projects an extra boost and can help business plans that don’t quite pencil out shift into money-making territory. We could see some projects that were already happening bump up their capacity — the credits allow for buying more equipment at the same effective price. Deployments should tick up, but tax credits don't substitute for a missing revenue stream.
The Energy Storage Association industry group broke down the funding dedicated to storage technology innovation, which added up to $1 billion over the next five years. That includes $355 million for competitive energy storage demonstration grants and $150 million for long-duration storage demonstrations. The legislation will no doubt bring peace to all those who believe the thing standing in the way of solving our grand energy system challenges is a dearth of storage technology demonstrations.
This points to a systemic challenge for storage: While some states build and operate batteries at a globally unprecedented scale for commercial benefit, other states still consider this technology untrustworthy and in need of years-long piloting to vet its efficacy. And that’s for the exact same lithium-ion technology that’s already serving grid needs elsewhere. The funky technologies this new funding will pay to demonstrate are even further from commercial adoption.
The deeper barriers to storage adoption are the boring procedural steps like resource planning, interconnection policy and market rules that arbitrarily block storage from competing in vast areas of the country. Congress can be forgiven for not wading into such matters during a last-minute push to fund the government and stimulate the economy.
In the absence of tackling those structural problems, the deal promises a short-term boost for solar-paired systems, $200 million a year for storage tech innovation, and potential upside if those grants unlock some fantastical new technology that has eluded the industry thus far.
More, and bigger, finance deals for storage companies
The U.S. storage market has officially become a billion-dollar annual market. That, plus a receptive incoming presidency and a belatedly attentive financial sector, is creating a ripe environment for unprecedented corporate investment in storage companies.
This trend became apparent in the waning days of 2020. Fluence, the storage integrator co-owned by AES and Siemens, closed a surprise deal in which the Qatar Investment Authority will sink $125 million into the company in exchange for a 12 percent stake. That figure means that an outside entity values Fluence at more than $1 billion.
That deal also appears to take the trophy for the largest equity investment in a dedicated grid storage company.
The last comparable investment came in the summer of 2019 when SoftBank promised block-stacking startup Energy Vault $110 million (at which point, Energy Vault went mysteriously quiet with regard to announcing projects it was supposed to have completed). Some battery companies focused on electric vehicles have netted larger investment rounds. And others have raised larger investments for project financing, as opposed to direct corporate investment. But among those companies building stationary storage, this Fluence deal is now the one to beat.
“There’s a broad belief in the investment community that the energy grid is at the edge of disruption,” said Marek Wolek, Fluence VP for strategy and partnerships. “They see some of those plays may have an opportunity for potentially outsize growth, which was not appreciated as much 12 or 24 months ago. […] That is being reflected in the numbers being raised.”
In a parallel track, storage companies are raising hundreds of millions in capital from the public markets via special-purpose acquisition companies (SPACs). Zinc battery maker Eos wrapped up its SPAC in November and has since doubled its share price. Stem, the storage software startup, will pursue its own SPAC early this year with a target valuation of $1.35 billion.
And on the smaller end of the battery spectrum, Swell Energy landed a deal in December to provide up to $450 million in project finance investment to build out tens of thousands of home batteries to fulfill utility contracts. Once rooftop solar became a bankable asset, the national installers could securitize rooftop solar contracts to raise capital for new installations. Home storage is a newer, and therefore riskier, asset class, but Swell got infrastructure investors to sign up, and that could open the doors to more deals of this kind.
Notably, these deals came together in the midst of a historic recession marked by pandemic-related uncertainty. As 2021 continues, the pandemic may recede and the storage market will certainly grow, and more investors will want a piece of the action.
“We’re just scratching the surface of what is possible,” Wolek said. “Where could the market go in the next two, three, four years?”
Flow batteries lose ground to other emerging technologies
We’ve been closely watching the flow battery sector for years here at Greentech Media, and the long-awaited market breakthrough has remained comfortably in the hazy near-future.
Like a rental home that’s been on the market for a suspiciously long time, flow batteries have been kicking around as a technology for decades, with numerous serious attempts at commercialization in the last 10 years. Many have fallen. Some are still standing, like the venerable Lockheed Martin, which has yet to debut its proprietary take on flow batteries, originally slated for 2018 and then 2019. A 2020 update from the company said it had built its first “commercial product variant” — as an internal testing asset.
The promise of flow batteries is that they could outcompete lithium-ion with cheaper active ingredients, better fire safety, longer cycle life and more efficient scaling for long durations. Instead, lithium-ion keeps getting cheaper, integrators keep upping their game at mitigating fire risk (not that they’ve managed to eliminate it), and there’s still a vacuum where the long-duration market is supposed to be.
In the meantime, we’ve seen a raft of newer and more outlandish long-duration technologies enter the market and make better progress toward megawatt-scale deployments. Liquid air storage innovator Highview Power, for instance, already operates a megawatt-scale demonstration plant in the U.K. and recently broke ground on its first full-scale power plant there. Form Energy won a utility contract for a 1-megawatt/150-megawatt-hour plant with its still-undisclosed aqueous air technology, slated for delivery in 2023.
Outside of the U.S., flow batteries have gained more traction, nowhere more so than in China. Rongke Power is building a 200-megawatt/800-megawatt-hour behemoth in Dalian, using vanadium redox flow technology. But that effort has been under development for years and apparently stalled due to a spike in vanadium pricing, with construction picking up more recently. If that plant eventually succeeds, it’s hard to see a government-backed project in China having an outsize effect on what gets built in Western power markets.
Invinity, which combined Avalon and RedT Energy, expects to make profitable flow projects this year. It has commercial projects signed in the U.K. as well as grant-supported projects in Australia and California.
California’s grid mess means good business for batteries
This is a continuation of a hot 2020 theme. California’s transition from firm power to solar power left the clean energy policy leader short of electricity for a few days during last August’s heat wave. To be clear, this was a very bad thing, both for Californians and for the state’s credibility as a clean energy leader.
But if you were a forward-thinking storage developer who happened to have capacity coming online in the state, the unforced grid-planning error presented a lucrative opportunity. The rewards come in the form of scarcity pricing during the shortage itself, and in the more enduring form of utility contracts rushed out to anyone who can deliver in the next few years.
Several hundred megawatts of new battery capacity are slated to arrive before summer 2021, which may be enough to prevent a repeat of the rolling blackouts. But it’s hard to tell, especially with climate change dialing up the extreme weather and more legacy power plants shutting down. That’s why state regulators recently launched an effort to procure emergency resources — with a timeline that allows just a couple of months between awarding contracts and delivering on them.
We don’t know what exactly will come of that. But it’s clear that the only feasible options will be either larger battery projects that are already pretty fully baked, or smaller, more nimble projects, like networks of home batteries or other distributed flexibility.