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Batteries Challenge Fossil-fuel Generation

June 6, 2019
Low cost of renewable generation/battery storage mix most likely to beat out fossil-fuel generation.

Everyone loves a good story, so titles like these draw a lot of attention from folks across the energy and environmental spectrum. Utility engineers know this title reveals half a thought. Do batteries challenge fossil-fuel generation? No, they don’t. Last time we checked, batteries do not generate electricity. They store it and the charge-discharge cycle results in a net loss. However, we never see the title “Batteries are Net Losers”. Even though this title may be more accurate, energy industry stakeholders realize batteries will likely play an increasingly significant role in the power industry as their attributes improve and prices decline.

Earlier this year we saw a spat of articles in the media rehashing the implications of a 2018 study that revealed the cost of lithium-ion battery storage has dropped by 76% since 2012. That’s good news, but let’s put that news in terms non experts can understand: the price of energy from lithium-ion battery storage has gone from stratospheric to very high. Coming in at a levelized cost of electricity (LCOE) of US$187/MWh according to Bloomberg New Energy Finance, that’s three times the LCOE from a gas combined cycle plant at about US$50/MWh. Plus, we are not factoring in the cost of production or the losses involved with that battery supplied electricity.

The competition gets more interesting when we compare lithium-ion battery supplied electricity with the LCOE from a gas peaker, which ranges from US$150 to US$200/MWh. It is within this context where battery advocates correctly argue we may have a horse race between battery storage supplied electricity and peaker supplied electricity. The outcome depends on details such as the peaker’s heat rate, the US$/BTU for fuel, the efficiency of the charging cycle and generation cost of the battery stored electricity. However, the stored electricity must come from somewhere. If it comes from “excess” renewables production, we could have a winning situation.

There is no question that bulk battery storage combined with correctly sited wind and solar capacity can compete with even modern gas combined cycle facilities and today’s lower gas prices. That’s because the renewables industry has been very effective in reducing the LCOE from these sources to the point where they can compete head to head on electricity cost. However, delivering capacity whenever needed is another issue and that is where batteries come in. Plus, by removing fuel escalation from the equation for renewables/battery capacity additions, utility planners can de-risk their generation portfolios and not have the worries inherent with intermittent renewables alone.

So, let’s be honest, it is really the low cost of the renewable generation/battery storage mix that is most likely to beat out fossil-fuel generation. Are there situations where battery storage alone consistently does the trick? This issue came up during a study conducted by National Renewable Energy Laboratory (NREL) several years back. The study focused on customer cited behind-the-meter (BTM) battery storage coupled with photovoltaics (PV). Various dispatch strategies, including manual scheduling and automated peak-shaving, were evaluated in several states with different incentives, electric tariffs and site-specific load, and PV data. Detailed analysis using the publicly available System Advisor Model (SAM) tool was employed to use the storage system to increase the system value and mitigate demand charges. One scenario identified batteries without PV as yielding a more positive net-present value. That scenario involved high demand charge utility rate structures and dispatching the batteries using perfect day-ahead forecasting. All other scenarios considered cost the customer more than the savings accrued, indicating BTM storage would not consistently beat fossil fuel generation in a head to head competition.

While some of the inputs to the NREL study may be dated, there are some important take-aways from this analysis and any front-of or BTM economic comparison of storage with other options. Having a framework for analysis and consistent financial assumptions are very important. Otherwise, location specific issues can mask or overly influence valuable insights. Headlines will continue to extol that batteries and other advancing technologies are “challenging” fossil fuel generation. Effectively exercising our analytical skills and tools will tell us the rest of the story.

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