2016: The Dawn of Energy Storage - at Home

February 10, 2016 | 00:00
2016: The Dawn of Energy Storage - at Home
2016: The Dawn of Energy Storage - at Home
This year will be the watershed for energy storage. Falling prices for rooftop solar PV as well as for battery systems are about to create a market for residential buildings and small and medium enterprises (SME’s) to go - almost - off-grid. Australia, a rich and sun-stricken nation, is taking the lead. It will alter all utility business models.

Renewable sources like wind energy and solar rooftop PV are gaining momentum in our energy mix worldwide. Big institutions have been taken by surprise. The International Energy Agency, for instance, has underestimated its increase year after year. Particularly the added capacity of rooftop solar PV is hidden from view, as a 2015 report of Energy Watch Group, an independent scientific watchdog, eloquently shows.

Continuing growth of renewable resources poses challenges to the grid operators and opportunities to end-users (like households and SME’s). By nature, renewable resources provide a fluctuating supply of electricity that has to be balanced on the grid. End-users, on the other hand, are reaping the benefits of rooftop solar PV until the point of too much supply. Both parties, therefore, have to deal with these imbalances, whether when rooftop solar PV is abundant for residential buildings or, in case of grid operators, to peak shave and improve resource adequacy (like Southern California Edison and Pacific Gas and Electric have been doing).

The fastest way to implement and secure the growth of renewable resources is to store energy locally, at home or at energy junctions where congestion will take place, now or in the foreseeable future. Until recently however, battery storage systems were too big, too complicated and – above all – too expensive. That has changed the last few years. According to the Climate Council of Australia, since 2007 the kWh (kilowatt-hour) price for home battery systems have dropped 14% annually, making it possible to reach a return on investment (ROI) of ten years by the end of this year.

The price drop will be a harbinger of ‘a perfect storm’ for big utilities that generate electricity centralised. Combining rooftop solar PV with batteries systems will shift ways of distributing electricity the next few years. Storage is about to grow exponentially. With ever-falling prices for batteries – not only for home storage systems but also for battery arrays in electric vehicles - an increasing percentage of residential buildings in sun-stricken regions can be so-called ‘semi-auto prosumers’, i.e. consumers that produce electricity with the grid as a backup option.

Nowhere this is more obvious than in Australia. According to the website Reneweconomy.com, quoting the Australian Energy Market Operator (AEMO), the nation is on the verge of a revolution equal to the solar rooftop PV sea change five years ago. Just take a look at the forecasts of AEMO: the market for home storage systems is expected to grow from its present 1.9 Megawatts (MW) to 44 MW by the end of 2016 culminating to a staggering 800 MW installed capacity in 2020, worth over $ 2.5 billion. Within two decades, 40 percent of all Australian homes will be connected to battery systems. Thereafter the battery market will continue to snowball to 11.200 MW by 2035.

It is not difficult to recognise why Australia is taking the lead. Half a year ago, the Australian Renewable Energy Agency came to the fore with its Energy Storage Study. Its population is spread across a vast landmass that makes it expensive to deliver small kWh loads (like households). Australia has a high solar uptake and possesses one of the highest behind-the-meter solar PV penetrations of any nation. High electricity prices and, until recently, generous feed-in tariffs have caused a massive growth in the solar PV market since 2011.

New customers, however, cannot profit from generous feed-in tariffs for rooftop solar PV as early adopters could. Moreover, present-day feed-in tariffs for Victoria, New South Wales and South Australia will end by December 2016. An energy democracy is at hand, according to Reneweconomy.com. Increasingly more customers, old as well as new ones, are investigating energy storage options for maximising consumption of solar self-generation to offset high electricity prices (rather than selling their electricity at a low price to the grid).

In the coming years, home storage with solar PV systems, when properly aligned, are thus becoming a ‘real, near and present threat’ to the way utilities do their business, as a report of the Rocky Mountains Institute Cohn Reznick and Homer Energy has pointed out more two years ago. They are not the only experts to see this threat. Others such as Navigant Research, a Californian marketing and consultancy bureau specialised in emerging technology markets, and Bloomberg New Energy Finance have provided similar forecasts.

How can home storage be competitive with fossil generated energy when wholesale electricity prices for coal and gas are approximately 7 cents per kWh whereas electricity from energy storage costs over 25 cents per kWh nowadays? According to Ramez Naam wholesale prices are quite misleading: it’s not about base load but about peak load, first and foremost at its most expensive hours, upon which the penetration of home energy storage is based. That may place fossil fired plants for peak load out of operation when battery systems will reach grid parity.

This way of viewing will change the entire picture. In California, for instance, the price difference between load hours and peak hours is almost 20 cents per kWh, from peak-of-days of 35 cents to night-time power of 12 cents per kWh (the so-called ‘duck’ curve). The cheaper battery systems get, the longer they can provide for storing surplus energy in micro- and macro-grids, first minutes, then hours, eventually even for days.

The true driver in storage is the automotive industry, mainly due to regulations concerning emissions. Though it might be a big step for big utilities to change its business models from energy generated by fossil fuels to renewable resources, it’s far less for car makers. Their electric vehicles already contain a battery array. So why not develop bigger ones for residential buildings? Elon Musk of Tesla Motors, an electric carmaker, saw this opportunity last year, as well as others. Tesla introduced its ‘PowerWall’ in Australia, a home storage system of 7 kWh, mid 2015. Others like BMW and Mercedes launched ‘My Reserve’ and ‘Energiespeicher’ in Germany. Just as the ‘Power Wall’ these are battery packs to withstand outages of twenty minutes to hours, packs that can be stored in a barn, shed or garage.

Meanwhile, Australian utilities generating electricity by fossil power plants are pushed against the wall. As more customers demand less power because they have rooftop PV, business models for operating their plants are increasingly under pressure (although still heavily subsidised). Every time utilities raise their tariffs, customers start to install rooftop PV or change their provider, in effect creating a self-enforcing loop (a very recent survey of IPSOS-Mori state that just 22 percent of Australian residents have a favourable view of the energy industry. Only the UK and South Africa fared worse).

Before the first commercial storage systems (Tesla will introduce its ‘PowerWall’ 2.0 by mid 2016) entered the market, big utilities were spending considerable time and resources to fight renewable energy targets, both local and national. That strategy has changed the past six, seven months. Instead of fighting a losing battle they now want to profit from solar and batteries: ‘if you can’t beat them, join them’.

So what have big utilities been doing? They’ve teamed up with parties already active in the residential area, a vast and upcoming market in home storage systems in Australia. A significant number of project developers look to install such systems in new buildings while a very recent petition to mandatory rooftop solar panels on new homes have been signed by over 10.000 citizens within just a week. Now that’s an attractive market with favourable responses that might offset their increasingly difficult old business models (in Australia there’s hardly any incentive for grid-scale storage).

The big three power utilities - Ergon Energy, AGL Energy and Origin Energy – have already announced energy storage offerings for their customers. Partnerships are mutually beneficial: on the one hand electricity retailers can unlock new revenue streams, on the other hand storage system vendors can gain access to a large customer base and mature marketing channels. Widespread rollout of those systems is expected by mid-2016. Having learned lessons from the recent past, those utilities do take their old and new customers into account. For instance, recently AGL Energy diversified its offerings, a ‘large’ 5 kW/11.6 kWh storage system and the ‘extra large’ of 5 kW/19.4 kWh system (since the first rooftop solar PV systems were often oversized and bigger storage systems permit a greater uptake of self-consumption).

That being said, it is far from clear how new distribution channels will take shape. According to Greentech media, Panasonic (which won the contract to supply Tesla’s Gigafactory in the US last year) favors utilities and retailers as a channel to the residential market, rather than selling direct to homeowners. There’s a wide range of opportunities but also much at stake in this energy transition: a fast an ever-expanding residential market, not only in Australia but also in the US and Europe.

Technology is just part of the challenge for the emerging battery sector. Rules of organisational change, added value and governmental regulations are far more decisive. Those are the real hurdles for implementing home energy storage systems nowadays. In Part 2 of this series about energy storage I'll address these particular issues with a focus on Europe.

Image: Tesla Powerwall. Source: Tesla Motors.
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