Recently it’s become fashionable to talk about the disruption brought on by the powerful combination of falling renewable energy and battery prices. In fact, it’s fast becoming conventional wisdom that energy markets worldwide are about to be drastically reshaped. As anybody familiar with Younicos knows, it was precisely this notion that storage in general – and batteries in particular – would be a crucial driver of the transformative potential of renewables. That conclusion led us to investigate just what sort of technologies and business models would be needed.
Ten years later, a number of business models are emerging. Many will become reality. However, the combination of utility-scale PV and batteries to provide a new kind of solar base-load is what excites us at the moment. Why?
Disruptive price trend
For a start, there’s the obviously disruptive price trend for both solar PV and battery storage. This year we saw PV record chasing record with prices as low as US$0.07 per kilowatt-hour in India. Even if not all places are as sunny, recent German utility scale tenders have dropped as low as EUR0.085 - even in cloudy northern Europe.
Add to that Tesla’s promise to sell “naked” lithium-ion batteries at US$250 per kWh at utility scale, which implies about US$500 for a plug-and play system complete with the latest software and controls. Over the battery system’s lifetime, that translates to a levelised cost of storage of US$0.15 per kilowatt-hour – or less.
As it’s neither economical nor necessary to store every kilowatt-hour of solar energy, particularly at a cost of only a few cents, sensible investors will choose to install (significantly) more solar than storage. Storing about a third to a quarter of all kilowatt-hours produced by a given PV power plant will suffice to smooth intermittent generation so as to provide predictable, and thus tradable, energy blocks during the day – as well as at night, when consumption is much lower in any case. Add it all up and you reach about EUR0.12 - for dispatchable solar base-load.
But doesn’t the same math pencil out for distributed (residential) solar plus storage? Well, we think many business models will flourish, but we’re convinced that there’s particular scaling potential in utility-scale solar plus storage.
Utility-scale is closer to competitive edge than residential
Residential PV plus storage is exciting, too, but demand here does not have the same price sensitivity as the utility case and thus won’t grow quite as rapidly as prices fall. Of course, economic considerations are certainly also important in the residential case, but not quite as much. High prices will deter some people from making an investment, but the primary motive for getting rooftop solar plus storage is the seemingly universal desire to become “independent”, even if all of these homes, very sensibly, still rely on the grid for final backup.
On the other hand, co-located utility-scale solar and storage will exploit economies of scale through better location, as well as lower investment and financing costs. It’s also better suited to tap into the Swiss-Army-knife-like versatility of storage by exploiting various revenue streams for the provision of system services, whereas residential customers will have to add the cost of being grid connected to their calculation.
Finally, utility-scale solar PV and battery storage has a seemingly endless market to exploit. While increasingly attractive in already industrialised energy economies, it has even more to offer in fast-growing markets with rapidly rising energy needs, but poor infrastructure. Rather than build large and expensive thermal power plants that will only pay back over 30 years, along with the centralized grid infrastructure to match, why not spend months and put in place a clean solar-powered grid, backed up efficiently by batteries that also stabilize the grid far more effectively than inflexible thermal units?