As BNEF has forecast 81GWh of storage capacity to be installed by 2024, what are the main drivers spurring this global deployment?
It really depends on the country. If we look at some markets such as the UK for instance: National Grid has been fairly vocal that they believe they will struggle to continue to balance the grid in the future due to high levels of renewable energy penetration and falling system inertia, and that energy storage is a crucial tool for them to start managing this.
If we look at other drivers - total system costs are falling, and they are falling quite rapidly. That is making many of these other applications more attractive. Peaking capacity doesn't play a huge role as part of the forecast; we believe that up until 2024, it is not one of the larger applications - purely because we have flat or falling demand in a number of countries.
A final big driver is that energy storage is increasingly being viewed by transmission distribution operators as a useful tool and an alternative to additional investment in traditional network reinforcement. There are a few really interesting examples; ConEdison has a programme at the moment where they are looking at energy storage among other technologies to offset or to defer the need for investment, in a US$1 billion substation. They have a choice there, where they can either add or upgrade their substation or they can turn to energy storage. They found that energy storage and demand response can provide a reliable service for them. In California over the last month or so, we've seen the regulator approve utilities to do very rapid procurement of energy storage for basically crisis management because of the Aliso gas canyon storage facility leaks. They turned to energy storage and demand response in a time of need because the regulators were concerned that the utilities would not be able to cover peak demand in winter, and this is a very rapid deployment where a significant amount of capacity is part of that rapid tender.
53% of that new capacity to be installed is coming from Asia Pacific. Why is this the strongest region?
You've got two really big dynamics in the Asia Pacific region. If we group the four main countries into two groupings, we have firstly Japan and Korea, who are both relatively further ahead in terms of deployment at the moment than most countries globally. Japan has had a subsidy programme in place for small-scale storage since 2012. Korea has a mandate up until 2020 to procure 1.7GW of energy storage and has also already commissioned over 200MW of energy storage for frequency regulation. Those two countries are already leading the field in terms of energy storage deployment. Japan in particular we expect to continue to build on that strong start.
The other group is India and China, where, for somewhat different reasons, renewable energy integration is an important driver in both markets. The Indian government has recently launched a number of tenders where we are looking at tens of megawatts of utility-scale solar, where they are also looking at energy storage to accompany that. They are clearly looking at energy storage to help them meet their renewable energy targets without causing disruption across their grid. Similarly, China is a huge potential market, and there are plans under discussion to mandate energy storage alongside any new-build intermittent renewables, because of issues of curtailment, grid-integration etc.
So you've got some markets which are already some way down the line in terms of storage deployment remaining strong and these other two huge potential markets where they are beginning to feed storage into pilot projects, and we expect that to become more commercially driven over the next few years.
Alongside Japan, you identified the US as one of the best countries for storage policy support. What has gone on in the US apart from recent reforms in California?
In the US, part of this is not just about policy, it is also willingness to adapt regulations in order to encourage new technologies. FERC earlier this year asked for comment from all of the independent system operators (ISOs) and regional transmission organisations specifically on what the barriers to energy storage were that would prevent storage resources from participating in capacity, energy and ancillary service markets. This is part of a process to encourage energy storage participation in the wholesale markets and so what that means is that FERC is eager to understand if the current market structures are distorting competition and whether they are providing the best value for consumers. They are specifically looking at energy storage and demand response to understand whether regulation does need to change in order to allow equal access for these new technologies. It is unclear at the moment what the outcome of this consultation will be, but the very fact that FERC is exploring this is a positive sign because it indicates a potential willingness to change regulations, and this is something we haven't necessarily seen elsewhere.
In addition, in May, the Energy Storage Act was introduced in the House of Representatives in support of having the investment tax credit for energy storage as a standalone asset. That is certainly a positive. There have been a number of attempts to pass that over the past few years, and whether this succeeds or fails, it is indicative that there are policy makers in the US who are eager to provide more support at a national level for energy storage in line with the PTC or ITC that wind or solar and some other assets receive.
What are your thoughts on the recent UK storage tender?
The National Grid storage tender is the latest in a number of procurements from network operators across the world for frequency regulation and for grid-balancing. Energy storage has shown in markets such as the Pennsylvania, Jersey and Maryland region (PJM), in Korea, in Italy and Germany that it can be used to provide a very precise service National grid has looked at that and has taken a very significant step in terms of the size of its procurement. The 201MW that national grid procured is the largest contract we have seen in Europe for energy storage and the largest single contract since KAPCO awarded 200MW last year.
UK Energy union GMB recently dismissed the National Grid’s approach to energy storage and demand response as ‘fanciful nonsense’. Is this a fair assessment or has energy storage fully ‘arrived’?
It depends on the case, there are many applications where storage may not be the best technology or may not provide the best service. However, I think if we take National Grid as an example, they have clearly come out and said we believe that procuring storage and this scale helps us solve a problem and ultimately will save money for the consumer. 200MW is not a small pilot project that is being promoted; this has major utilities bidding on a tender being run by a national system operator, and 200MW of capacity being awarded with the intention that this is not a one off; it is the first of a number of procurement rounds for energy storage for this service.
What is likely to emerge as a global winning technology in the future?
The forecast deliberately is not a technology forecast because there is a huge amount of uncertainty on how some of the earlier stage emerging technologies will be able to scale up because for some of these, if they can scale up, then they could potentially offer interesting alternatives to lithium.
Our view at the moment is that lithium-ion will remain the preferred technology at least up until 2020 and this is really because the stationary storage market is somewhat being dragged to where it is today by developments in the transportation space. The demand for lithium-ion batteries that are going into electric vehicles is a much larger market segment than the demand for stationary storage globally, and to give a number; if 100% of annual demand for stationary storage in 2024 is lithium-ion, even if there are no other technologies involved, that makes up only a 10% of demand for lithium-ion for electric vehicles. That has profound implications for the manufacturing scale for some of these players, because it means that you can get very large manufacturing facilities being built to supply both markets. If a manufacturer was only able to supply a slice of the stationary storage market, just by default, they would have a smaller market, so they are operating at a smaller manufacturing scale than companies that have access to multiple different market segments.
We are forecasting tremendous growth between now and 2024 in the stationary storage segment. In terms of whether this is realistic or not, annual installations are still relatively small compared to annual installations of PV or wind in a given year. From a stationary storage perspective, this is still a huge growth story and part of a much bigger transition towards increasing levels of distributed generation, notably from cleaner energy resources.