Grid-Scale Energy Storage Faces a Darwinian Market

March 24, 2011
A select few storage technologies will find their niche in specific applications, while most others will fail, according to a new report from Lux Research.

Increasingly congested electricity transmission, intermittent renewable generation, and grid-connected vehicles all threaten the already delicate balance of supply and demand on today’s power grid. While introducing energy storage can certainly help restore the grid’s balance, the available technologies all face challenges, from high capital costs to competition from inexpensive and established natural gas plants. As a result, a select few storage technologies will find their niche in specific applications, while most others will fail, according to a new report from Lux Research.

Titled Grid Storage – Islands of Opportunity in a Sea of Failure, the report explores a broad range of storage scenarios, comprising 23 applications within commercial and industrial on-site storage, distribution support, transmission support, transmission/distribution capacity, ancillary services, and renewable generation integration. It also looks at the potential of storage technologies targeting customers such as utilities, transmission operators, independent power producers (IPPs) and commercial and industrial building operators in three regions: California, Germany and China.

“Grid storage technologies only make sense under very specific certain scenarios, such as a lack of natural gas peaker plants or an abundance of renewable generation,” said Lux Research’s Steve Minnihan, the report’s lead author. “And even within those scenarios, customers will need to select technologies carefully. Finding a successful solution isn’t as simple as plugging in a battery.”

To conduct its analysis, Lux Research examined the lifetime economic benefits for storage technologies in each scenario, and presents benefits in a standardized net present value calculated from the capital cost of the technology along with the annual revenues, cost savings and operational costs over its lifetime. Among the report’s key findings:

  • Compressed air gives strong economic benefit, but barriers remain. Compressed air energy storage offers favorable payback to utilities and IPPs for wind shifting, as well as transmission operators for the deferral of investment in new transmission hardware. However, logistical constraints will limit its penetration.
  • Select battery technologies offer an acceptable business case in select applications. Advanced lead-acid and lithium-ion batteries both give industrial building operators a favorable payback, but battery costs remain too high to give them much traction among residential and commercial building operators.
  • California and Germany look appealing under the right conditions. Scenarios including renewable penetration above 20% or a CO2 price greater than $45/ton can stimulate storage adoption in California and Germany – but otherwise the low cost of natural gas will allow it to continue dominating the grid support market.

“Of all the emerging storage technologies we examined, seven failed to give even a 10% internal rate of return (IRR) in any scenario, challenging tech developers to slash capital costs or throw in the towel,” said Minnihan.

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