by Julian Spector
January 12, 2018

Wind and solar developers' interest in storage has finally translated into actual project bids in a big way.

Xcel Energy's Colorado subsidiary released median bid data for its latest all-source procurement, and the numbers are simply wild. Jason Deign covered the different records broken by the procurement, but for this week's edition of Storage Plus I'm going to dig into how the industry could actually pull this off, and what it would mean if that happens.

Keep in mind that none of these rates have actually been borne out in the field; Xcel is still narrowing down which bids it will choose, and even then the resources aren't required until 2023.

It's possible that companies are taking a gamble on declining costs that will turn into a loss down the road, but the sheer number of bids -- 358 with renewables, accounting for 91 percent of megawatts proposed -- coupled with the aggressively low median prices, suggest the confidence is widespread throughout the industry.

First, the basics

The bids made waves both because they beat out mainstream projections and because they knocked out the previous lowest solar-plus-storage PPA that Tucson Electric Power set only seven months prior. Here's a taste:

  • Solar-plus-storage at $36 per megawatt-hour
  • Wind-plus-storage at $21 per megawatt-hour
  • Wind, solar and battery storage at $30.60 per megawatt-hour

Keep in mind that the prices listed are median, meaning half of the bids for each category came in below that level. For all the astonishment at the available pricing, many developers offered even more aggressive rates than what we're seeing so far.

The utility received 87 solar-plus-storage bids from 26 different bidders. That level of participation is notable as a benchmark for the number of companies actively developing this type of resource, but it also means 43 or so bids came in cheaper than $36 per megawatt-hour.

The presence of wind paired with storage should raise eyebrows as well, because that pairing has only been deployed in a handful of cases. Granted, only two individual bidders proposed wind and storage, the same number that bid wind with solar and the triple package. That could be a coincidence, or there are two firms that have the expertise to stick wind together with these other clean resources.

Optimistic, but not implausible

At first glance, it's hard to imagine how the industry's expectations of cost declines could accelerate so much since the Tucson Electric Power (TEP) record last May. But the 26 bidders for solar-plus-storage in Colorado offer a more comprehensive sampling of where the industry stands today.

"The industry is definitely in the glass-half-full bucket with respect to expectations," said Ravi Manghani, energy storage director at GTM Research.

Industry observers suspect storage companies are bidding aggressively and taking losses on early deployments to bolster their record for future contests. That could be the case here as well.

That said, Manghani's research suggests battery cost declines will continue through 2023, and lithium-ion cost declines have consistently outperformed expectations.

There haven't been any major technological breakthroughs since May to drastically alter price projections. The most powerful differentiator between this solicitation and TEP's is time itself. The Colorado projects will have an extra three years to ride the cost curve.

It's the premiums that matter for storage

Standalone solar and wind beat hybrid systems on cost, hands down. Keeping costs low will be essential for getting storage into the mix, given that few markets value storage appropriately.

At some point, market forces and energy policy will have to grapple with the intermittency problem; if states want clean energy around the clock, they'll have to find a way to value clean, dispatchable energy, which batteries can provide. Until that point, the storage industry has every reason to make the addition of storage as painless as possible. 

We don't have the details yet to know how that was achieved with these particular bids. Undersizing storage duration or capacity relative to renewable generation lowers the price. TEP's project has a solar-to-storage capacity ratio of 10 to 3, for instance. 

Going too far down that route, though, limits the actual dispatchability of the resource. Xcel awards capacity credits to standalone storage on a sliding scale based on their duration. Four-hour storage gets 75 percent and 10-hour storage gets 98 percent. It seems unlikely that Xcel would invest in a firmed solar plant that would struggle to get through the evening peak.

Trouble for lithium-ion alternatives?

Every battery technology bid into the solicitation was lithium-ion technology, Xcel noted. 

Flow batteries, saltwater batteries and their unconventional comrades have a major challenge in proving their technology is as trustworthy as lithium-ion, which dominates 97 percent of U.S. deployments. If they pass that hurdle, they still have to grapple with the low prices lithium-ion can offer thanks to its massive scale of production.

Case in point: When the NextEra solar-plus-storage deal with TEP at $45 per megawatt-hour went public, zinc-iron flow battery maker ViZn Energy countered that it could provide 20 years of firmed solar for $40 per megawatt-hour.

The median Colorado bids undercut that price point by $4, meaning half the bids fell even lower. If ViZn can make good on its promise a few years earlier than 2023, it could feasibly scale up production and cut its prices lower by that time to stay competitive.

The danger here is clear: the sales pitch for lithium-ion alternatives hinges on better economics for longer-duration storage. But lithium-ion keeps surprising everyone with lower prices, forcing the alternatives to scramble to maintain their alleged advantage.

It's increasingly reminiscent of the plight of thin-film solar aspirants in the late 2000s, right before PV pricing fell through the floor. Even Solyndra had a business case for beating polysilicon on price, but by the time it spent the cash building out its production, Chinese mega-producers had it beat.

With that bloodbath in recent memory, the upstart storage companies should work hard to avoid such a fate. They should also take note of an ominous sign: Tucked away in the redacted footnotes, Xcel reveals that at least some of the standalone lithium-ion bids feature durations as long as 8 and 10 hours. 

Looks like lithium-ion won't give up the long-duration market without a fight.

While we're on the topic of unconventional storage, I want to flag that a single bid came through for compressed-air energy storage, clocking in at 317 megawatts. This technology has been deployed so rarely that Xcel considers it "not commercially demonstrated."

Compressed air projects thus far have used massive underground caverns to store pressurized air. Efforts to adapt the concept to aboveground tanks have ended in failure, as in the cases of LightSail and SustainX