We had to do a coronavirus energy storage roundup at some point.
The virus and ensuing stay-at-home orders hit the solar industry hard and fast. Some of those impacts carry over to storage, but battery-centric companies have dodged direct business losses pretty well so far.
Pure-play storage companies haven't had to formally toss out their business forecasts, like SunPower and Sunrun did, or fire hundreds of people, like the reconstituted Sungevity. There hasn’t been a rash of formal delays to landmark battery projects (if you hear of any, I’m at firstname.lastname@example.org). But both COVID-19 and the broader economic downturn are sculpting the landscape that storage companies have to operate in, and we’ll spend this week’s Storage Plus unpacking those shifts.
Battery supply, customer demand, permitting and installation, operations — all of that is in flux. Here’s what we know and don’t know.
The top-line numbers
The analysts at Wood Mackenzie have been racing to quantify market impacts with the preliminary data available. The top-line analysis for energy storage predicts a 20 percent drop in global storage deployments compared to the base case.
The good news for the industry is that even with that slowdown, the market will still grow this year. Activity is expected to be back on track again in 2021; compare that to solar, which is set to see 18 percent less installed capacity than initially forecast in 2020 and 2021 deployments slightly below what was in store before the pandemic.
As a rule of thumb, front-of-meter projects with contracted cash flows are going to move forward but may experience delays in execution. The more customer-driven residential and commercial segments have to worry more about lost demand as their customers cope with financial turbulence.
Battery supply: A reversal?
Early on, it looked like the main risk to the storage industry would be battery cell supply. The outbreak in Wuhan, China prompted a province-wide lockdown and rippled throughout China’s manufacturing centers.
By mid-February, WoodMac predicted that factory closures would eliminate 26 gigawatt-hours of battery cell production for the year — roughly 7 percent of global production capacity. The vast majority of cells go to consumer electronics and electric vehicles, so the worry for grid storage would be that larger contracts for EVs take precedence and squeeze the stationary battery contracts.
By now, this worry is dissipating. China’s early response proved effective at containing the spread, and even Wuhan has emerged from lockdown. Instead of constrained supply, grid storage developers could face an entirely different dynamic: cell oversupply.
WoodMac now expects global electric vehicle sales in 2020 to drop 43 percent compared to 2019. That’s a staggering turnaround for an industry that was supposed to be on the up and up. But it's hard to buy a new car while preparing financially for a downturn of unknown duration, especially a car that’s expensive and needs to be plugged in. And coronavirus-imposed isolation means there’s not much to drive to for the foreseeable future; a jalopy can match a Tesla’s fuel economy if neither is moving.
So, after a global race to erect battery gigafactories to support electric car production, sales of EVs, which consume far more battery capacity than stationary grid storage, have collapsed.
That leaves batteries in production with nowhere to go, and potentially factories that would have to idle if they can't find a buyer outside the stagnant EV sector. It's too early to know for sure, but this has the makings of an oversupply moment.
The grid battery market has shown itself to be susceptible to swings, as when the surge in demand from South Korea created tight supply conditions in 2018. A sudden surge in available supply would work in favor of developers, lowering prices and allowing them to bid more aggressively. This would happen in parallel to solar module price declines, which are already unfolding in the U.S. and Europe due to slackening demand.
Do people still want batteries right now?
In the case of utilities that contracted for large front-of-meter systems a couple of years ago, yes, they still do. But the customer-sited forms of storage have to grapple with the tumult their would-be customers are experiencing.
Residential storage hardly exists without residential solar, and that sector is hurting. It doesn’t help that solar installers somewhat perversely persisted in relying on in-person meetings to close almost all of their sales; now they’re forced to shift to virtual sales meetings in a matter of days to keep business moving.
I spoke with a cadre of younger, tech-savvy solar companies that reported solid early results from that shift. Business is still down relative to status quo ante corona, but it’s closer to normal thanks to an aggressive move to digital sales. Sunrun, the largest rooftop solar installer and a major storage provider, confirmed Monday that it had gone digital too. It even launched a $1-per-month solar-storage special for new customers stuck in their homes and looking to cut down their utility bill.
COVID-19 seized the spotlight, but California wildfires linger in the wings, awaiting a dramatic return this fall. Homeowners worried about losing power again have good reason to schedule a virtual sales chat and get things moving on the state's hefty fire resilience rebate before the landscape dries out again. Being stuck at home with minimal outside contact is as good a time as any to explore the solar-storage options.
Delayed permitting and installation
Energy construction work typically counts as essential; therefore, it is permitted to continue even when stay-at-home orders have been imposed. But if nobody’s in the municipal office to process permits, there’s going to be a problem.
Indeed, the storage industry’s most tangible impact from coronavirus response policies may be the uncertainty and variance in local jurisdictions’ approach to permitting and inspecting projects.
Some jurisdictions have stopped taking new permit applications; others stopped processing active applications. Similarly, finished projects in need of inspection may not be able to get one as utilities or local governments scramble their workforce around the highest priority activities.
Some sites aren’t allowing work to continue, even if it’s technically lawful to do so. Commercial storage projects have to deal with installing at customer buildings that are locked down. Where work advances, it must proceed with workers adhering to social distancing, which can be difficult if not impossible to observe in the confines of an electrical room.
In some cases, staff efforts are moving forward with safeguards like sanitizing tools and limiting work to only that which can be performed outdoors, said Brian Baird, the Southern California-based director of energy and sustainability at engineering firm Core States. Despite the tumult, new business is still flowing, though.
“We are seeing consistent movement on new projects,” Baird said in an email. “The challenge remains that the due dates are not adjusting (yet) due to COVID-19. Time will tell, but the permitting and construction delays will begin to create a glut of work to be completed post-pandemic under a compressed timeline.”
The coronavirus pandemic has changed electricity consumption patterns, depressing commercial consumption as people spend more time at home.
California’s grid operator reported weather-adjusted weekday load declines of 5 to 8 percent compared to the previous year. New York is looking at 4 to 5 percent declines. WoodMac calculates that the summer peak in Texas will fall 4.6 gigawatts below pre-crisis levels, alongside “significant price erosion” in the typically heady summer months.
Whether these changes have any effect on storage development or dispatch is another matter. Development cycles take long enough that any attempt to capitalize on these conditions now really needs a fully operational project. So, what could you do?
Renewables curtailments are way up as demand falls — it’s like the shoulder-month phenomenon on steroids. That sets up a natural experiment: When presented with massive curtailments, do any storage operators think it’s worthwhile to arbitrage California solar curtailments for peak hours? Does the general reduction in peak prices dash that plan against a wall?
Some longer-term impacts are visible already. Gas prices tanked and are likely to stay that way for a while. That will incrementally reduce the operating costs of natural-gas-fired peakers that some battery plants compete with. But gas was already pretty cheap, and not the determinative cost for whether a plant should fire up. The shifts in peak demand will have more of an effect: Merchant plants that count on revenue from blistering summer peaks may miss out on some of their paydays this season.
In sum, it’s not a great time to be a gas plant in the market. Insofar as four-hour-duration battery plants are edging in on the territory of gas peakers, the COVID-19 disruption could leave the competition battered and low on cash. If their operators get hit with significant maintenance costs right after this, they may be more inclined to throw in the towel.
But batteries are only starting to compete with gas in a handful of markets, including California, where the state is behind them, and New York, where an air quality rule will encourage peaker replacement. Some developers are talking a big game about Texas, but not much has happened there yet. Any potential advantage relative to the peaker incumbents would be marginal and geographically limited.
For years the storage industry raced to make big things happen. Now it's not looking so bad that the biggest developments are yet to arrive.