Recent Developments in Grid Storage Investing
Where Grid Storage Investing Is Right Now
In the United States, utility-scale electric power generation totaled more than 4.1 trillion kilowatt-hours in 2019. Of that total, about 18% was from renewable sources such as wind, solar, and hydroelectric dams. The proportion of renewables is growing rapidly. Experts expect it to account for almost 40% of the U.S. energy market by 2050.
Continued growth in the renewables market depends heavily on the widespread implementation of effective energy storage technologies. That's because the most promising renewables, such as solar and wind, are not steady-state suppliers of energy. When the sun isn't shining and the wind isn't blowing, these facilities simply cannot produce electricity. To ensure that power from renewable sources is available all the time, grid energy storage is necessary to fill in the gaps.
That's why investment in energy storage technologies is rising alongside the increasing investment in renewable energy production.
At the end of 2019, pv magazine reported, "Energy storage was finally set to come of age" in 2020. Between that year and 2025, energy storage investment was expected to more than double, from about $4.2 billion to $9.5 billion.
But the events of 2020, principally the global COVID-19 pandemic, have had a distinctly negative impact on the renewable energy marketplace. Energy transaction volumes have suffered a significant decline. Still, according to a report from Ernst & Young, investments in renewable energy technologies have remained strong despite the pandemic.
Why Grid Storage Investing Is Critical
The current global electrical grid system actually boasts a far greater capacity than we can effectively use. That's because it accommodates peaks in demand, even though those peaks may occur only intermittently. For example, the grid system in a hot climate must be able to handle the cumulative demand of air conditioners running during the hottest part of a summer day, even though much of that capacity goes unused in other seasons of the year or at night.
Widespread use of grid storage can save utilities and their customers large amounts of money by evening out demand across time. They allow the baseline generating capacity to be much lower than that required to accommodate demand peaks.
That's why grid storage has been called the "holy grail" of renewable energy – it makes solar and wind practical on a 24-hour basis. Only when augmented by affordable grid storage can these renewable technologies successfully compete with fossil fuel-based energy production.
The Energy Storage Association sums up the value of grid storage this way:
"Energy storage is a critical hub for the entire grid… It can save consumers money, improve reliability and resilience, integrate generation sources, and help reduce environmental impacts."
Several Promising Grid Storage Technologies Are Currently in Play
The good news is that a number of different grid storage technologies are already proving their usefulness.
Pumped hydroelectric storage systems, for example, store energy by using the electricity produced by a renewable source to pump water into a raised reservoir. The water flows into a lower level reservoir through a turbine to distribute energy back into the grid. Pumped hydroelectric installations have historically accounted for as much as 97% of the grid energy storage capacity in the United States. Now, new technologies are superseding them. In 2019 wind-based energy production outstripped hydro for the first time in history.
Compressed Air Energy Storage
Compressed Air Energy Storage (CAES) systems store energy by using pumps to compress air into underground caverns. Electricity is fed back into the grid by heating the pressurized air and expanding it through a turbine. A current forecast for the CAES market is that it will experience a Compound Annual Growth Rate (CAGR) of more than 42% in the period of 2020 to 2025.
The U.S. Department of Energy (DOE) notes that "pumped hydro and CAES can provide long-duration storage. However, deployment feasibility is limited to specific locations with favorable geology, topology, and hydrological resources."
Flywheel Energy Storage
Flywheel energy storage works by using electricity to spin up a large flywheel. Energy is recovered to the grid by using the kinetic energy of the rotating flywheel to drive a generator that produces electricity. Flywheel technology can boast high energy densities, quick ramp-up speeds, and low maintenance costs.
The global flywheel energy storage market is expected to grow to more than $550 million by 2027, with a CAGR of 7.4% over that period. However, the widespread use of this technology will be limited by its relatively high costs and short discharge durations.
Other technologies include kinetic or gravity-based and thermal technology. In gravity-based systems, cranes and wires move large concrete blocks up and down. Thermal storage systems store energy as heat in a liquid or solid medium, such as sand, stones, water, or molten salt.
But the clear frontrunners in the race for preeminence in the grid storage investing marketplace are high-tech batteries.
Batteries Are at the Forefront of Grid Storage Development
According to the U.S. Department of Energy:
"For the past decade, battery storage systems have been the fastest-growing segment of the grid storage market and are expected to be largely responsible for its continued growth."
The advantages of batteries for electrical grid storage applications include:
- Rapid response
- Low cost
- Long lifetime
- High power
- Energy efficiency
Two major battery types are now receiving the greatest attention: lithium-ion batteries and flow batteries. Let's take a quick look at each.
Lithium-ion (Li-ion) is currently the dominant battery technology in use for grid storage today. It receives the lion's share of global venture capital (VC) investment. VC investment in the Li-ion sector reached almost $2 billion in 2019. According to Wood Mackenzie, as of 2018, Li-ion batteries were in 99% of all new grid storage projects. A good example is Tesla's Powerall batteries. They were deployed in Australia and supply the grid with enough power for 30,000 homes.
Alternatives to Lithium-Ion Batteries in Grid Storage Investing
However, as the Wood Mackenzie report notes, Li-ion technology suffers from some significant disadvantages. These include safety concerns. In 2019, the Arizona Public Service utility experienced an explosion and fire at one of its Li-ion battery installations. They also have a relatively low discharge duration (about four hours) and a relatively short lifetime (about ten years.
Flow battery technology avoids many of these issues. For example, there's no danger of the spontaneous combustion sometimes experienced by Li-ion batteries. In addition, flow batteries can boast longer energy storage durations, life spans of up to 30 years, high energy efficiencies, and lower costs. Flow batteries currently comprise less than five percent of the battery market. But because of these advantages, they have become prime candidates for an expanded role in large-scale grid storage.
Flow battery projects require higher up-front capital investments than similar Li-ion installations. But they become highly competitive over a 20- to 30-year project lifespan. According to the market research firm MarketsandMarkets, the market for flow batteries is expected to approach a yearly total of $1 billion by 2023.
The Impact of COVID-19
According to the International Energy Agency (IEA), COVID-19 has caused the largest drop in global energy investment in history. Power sector spending will probably decrease by about 10% during the year. But, says IEA, "Renewables investment has been more resilient during the crisis than fossil fuels."
Other analysts concur that grid-connected energy storage investment will buck the trend and actually increase during the pandemic. For example, Julian Jansen, a research manager at IHS Markit, declared in August of 2020 that:
"The energy storage industry is proving resilient and has resumed a growth trajectory during the pandemic and subsequent economic shock."
IHS Markit has actually increased its forecast and now projects a "fivefold rise in annual installations from 2019 to 2025."
Grid Storage Investing Will Continue to Grow
VC funding for energy storage projects actually increased significantly during the first three quarters of 2020. According to a report by the Mercom Capital Group, global VC funding of companies in the battery storage, smart grid, and energy efficiency sectors increased from $605 million in Q2 2020 to $1.1 billion in Q3. The COVID-19 pandemic didn't cancel any large-scale projects. In fact, several new projects were announced.
So, what's the outlook for VC funding in the grid storage investing space going forward? The industry faced some headwinds in 2020 due to the COVID-19 pandemic. But it already seems to be recovering well. The long term outlook appears quite positive, and we should talk about what the future holds. Even with the pandemic seemingly poised to linger on into 2021 or beyond, the fundamental imperatives affecting the world's approach to energy production in the 21st century have not changed. The necessity of decarbonizing the generation of electric power on a global basis will continue to drive both technological advances and VC funding initiatives in the grid storage space for the foreseeable future.d