Falling battery prices unlocking new opportunities in electric grids, says Deloitte

04 December 2018 Consulting.us 4 min. read
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Battery storage prices are coming down, resulting in changes to the business model for consumers in the electricity market. The technology has a broad breadth of possible uses, including the enabling of distributed energy and grid frequency regulation. While prices are coming down, barriers remain – including poor standardisation, fast-changing market conditions, and uncertain regulatory frameworks.

Battery storage offers access to a range of benefits, from more efficient electric vehicle charging to grid optimisation and backup. Yet the trajectory of the market remains a key uncertainty. Growth is expected, though the rate is debated: optimistic analysis points to 46% CAGR to 2022, when the market will be worth $26 billion, while more pessimistic analysis suggests 16% growth with a market valued at $7 billion by 2025.

Deloitte recently released a report, titled ‘Supercharged: Challenges and opportunities in global battery storage markets,’ into the industry to examine how nations across the globe are approaching energy storage in electric power grids.Price changes for lithium-ion barriersEnergy storage is decades old technology, although the in-vogue medium has changed throughout the period. Recent years have seen rapid advances as various applications drive the need for high-density energy in small packages. Lithium-ion batteries are now the main form of energy storage for devices, though other forms exist like pump-hydro and energy-to-gas.

The lithium-ion battery is the main source of battery technology in everything from user electronics to electric vehicles; high demand, scale, and innovation have seen the price per kw hour fall by 80% in eight years, from $1,000 per kWh to $209 per kWh. One estimate found that once the price hits $170, expected before 2022, the technology becomes highly competitive in a total cost of ownership model for electric vehicles. Meanwhile, cheaper home battery packs can provide the opportunity to create distributed energy systems or off-the-grid systems with solar or wind.Global energy storage battery capacity by primary useDemand from users and vehicle owners is but one driver of increased focus on batteries as a means of overcoming various system limitations. Frequency regulation is one area of demand, with around 50% of expected demand for the technology, followed by electric supply reserve capacity, at close to 10%. Electric bill management related to home battery storage is projected to account for around 8% of demand, with a similar figure for electric energy time shift.

The market is being driven by a number of factors, including the aforementioned increase in scale and maturity in the space – resulting in lower costs. Modernisation efforts of the wider grid are also implicated in driving demand for storage, with a host of projects aimed at creating smarter energy systems that are more resilient to various shocks that have in recent years affected poorly planned grids.

A global shift to renewables has also resulted in increased demand for storage as part of the increase in distributed energy systems, particularly at the household and business level, as well as the local authority level. With more people seeking to be off-the-grid with solar systems, local shifts to renewables are made more practical with localised energy storage.Energy storage value streamsThe report also considers various barriers to the deployment of storage systems. One major issue is price perception – with the rapid drop in prices is not being factored into decision making; a six-month delay, for example, is already significant in terms of cost reduction. The firm notes that there are likely to be further savings as auxiliary components of the storage system, such as inverters, come down in price on the back of scale and innovation.

Furthermore, a lack of standardisation in the industry, and across regions, creates increased costs for varying types of compliance. As such, industry standardisation could help reduce wider costs related to regulatory complexity and adherence.

The study notes that various new value streams are set to come online through the development of battery-related models across the consumption and production ecosystem. The relative recency of the technology, as well as the rapid development of new applications, means that there can be a lack of knowledge about how to assign value to them and compensate providers. In areas where policymakers haven’t created specific battery storage targets, mandates, and incentives, a lack of a specific definition on energy storage and compensation means that utilities tend to remain in only a ‘demo’ mode.