Looking ahead, the industry appears to be adding both scale and expertise to take it forward, Cosmin Laslau of Lux says. Image: NEC ES.
In the simplest terms, if 2014 was the year of test deployments and proving storage can work, 2015 was a year of getting things done. But what are the big trends likely to drive the space on in 2016? Lux Research closely tracks the energy storage industry, in combination with solar, in terms of its synergy with EVs and in its own right. Andy Colthorpe spoke with Lux analyst Cosmin Laslau to get his views and predictions on what we can expect to see this year.
What do you think 2016 will bring for solar-plus-storage?
On the solar side, we’re seeing a tremendous amount of activity, from players within energy storage becoming interested in pairing their batteries with solar. So there’s a couple of key players that stand out here, there’s Tesla and SolarCity, Sonnenbatterie (now rebranded as Sonnen) and Sungevity, ['intelligent' commercial storage provider] Stem and SunPower. So these kinds of partnerships that are emerging are tremendously important to track.
That’s already been happening over the past year or two, they’re picking up momentum. More and more battery developers are looking to find solar partners, but one of the biggest questions looking to 2016 and beyond is the amount of vertical integration and cost curve savings that these guys can pull off. Is it sufficient just to have two large companies collaborating with each other? Or is somebody going to have to bring an acquisition and effectively bring one half of the equation in-house? So a solar player could buy a battery developer, or vice versa and offer a fully-integrated product that shaves a lot of costs off.
So what will the dynamics of this year's activity really look like, broadly speaking?
When we look at the use cases for storage, the things that stood out for our analysis is that in most cases, if you look at most geographies or most use cases, there’s not a killer application, there’s not a single thing to justify solar-plus-batteries with a single use case. This is where benefit stacking between multiple services [i.e. configuring systems to provide more than one service] is tremendously important.
That kind of points to a couple of things, one of them is the importance of clever software, so in 2016 and beyond, we expect even more activity to be driven in terms of investment into start-ups, developing software for solar-plus-storage integration and use case management as well as potentially some acquisitions in this space or some serious internal R&D by the larger corporations in this space targeting software for solar-plus-storage.
In terms of software, another analyst [Sam Wilkinson at IHS] recently told me he didn’t expect standalone software providers really thrive going forward into the long term. However, at present we are seeing some big deals, like European utility E.On investing in storage system provider and software company Greensmith. What’s your take?
It's a good point. What is a five or 10 person company really going to do long term in a field that’s crowded with the likes of GE, Tesla and Siemens?
It’s a very hard space to compete in. So really long term the best bet for these companies is to sign a couple of high profile deals, prove their technical ability and then be acquired by somebody who might be looking to bolster their internal know-how and IP in this space. Long term, small companies are probably going to struggle in the energy software space, but that doesn’t mean that they’ll have unfavourable exits. They’re still doing some valuable work, they just at some point in time will probably be acquired by a much larger company.
There’s a lot of companies out there, large corporations that do need help, so there’s no shortage of potential purchasers of these companies.
When we look at the use cases for storage, the things that stood out for our analysis is that in most cases, if you look at most geographies or most use cases, there’s not a killer application, there’s not a single thing to justify solar-plus-batteries with a single use case. This is where benefit stacking between multiple services is tremendously important.
Utilities are not just taking notice of energy storage now, they are taking an active role. Image: E.On.
How might cost reduction proceed across the whole energy storage space over the next year?
We’re not seeing any major breakthroughs coming up in the near term that will rock the industry in terms of cost reductions for energy storage, probably the much more important thing will be financing arrangements and realising that in certain geographies, you want to deploy as many batteries as possible with financing because these are projects that can make sense for everybody involved in that deal and start to generate some pretty good revenues. So although things like the Tesla Gigafactory are going to do great things for cells and packs and then we’ve got some balance of system (BoS) and installation costs that are also going to be more on the soft cost type things see some reductions, what’s really going to drive the bulk of activity in getting to the next level of deployment is going to be financing and new business models.
So it’s borrowing money or attracting investment contingent on making returns, say, over 20 years and finding an investor who believes in it?
Yeah, and it kind of brings us back to the importance of analytics [and software] which is: can you really pinpoint what is the geography, what is the customer profile, what is their utility – does it make financial sense? Can you put that argument together and approach someone who can finance it and say “this is a pretty bullet-proofed investment for you”?
Do you think we will start seeing that this year? And could it be as transformative as the third-party owned, rooftop leasing model has been for PV in the US?
What we’re seeing are handful of companies like Stem and Green Charge Networks that are focused on some pretty specific applications at the start that make a lot of sense in terms of payback. You might be limited to California, you might be limited to a commercial customer of a certain size, so that means that you’re probably talking about a couple of hundred million dollars in terms of financing.
So this is shifting gears a little bit but another example is United Wind, lined up about US$200 million in financing to target sites where small wind does make sense to have that deployed with very long financing periods. So we’re starting to see this, 2015 and 2016 was really the start of it and I wouldn’t be surprised to see the activity pick up in 2016 and 2017.
The next level, if we’re talking an order of magnitude large investment – when are we going to see billions of energy storage financing be available and be taken up? Then we probably need to start thinking about residential, will a company like SolarCity start to deploy massive amounts of solar-plus-storage for its customers, financed, when is that going to happen? It might not be 2016, we might need to see some cost reduction, we might need to see some more expansion of scale and some more track record but there’s a definite point in the future when that will be achieved.
I’ve heard an expectation that more aggregated or connected smaller platforms are coming but it might not be happening at scale in 2016 and might take longer than that? It seems like a pretty cool idea.
It does, I would agree. As we go more towards distributed storage, connecting these is definitely one of the most important things to develop. Developing the protocols, the software, the ability and just the sheer base of deployment to enable that. At the moment, we’re seeing tremendous amounts of development in the Internet of Energy if you will.
Finally, another thing we're interested in is the interest from utilities in laying the groundwork for virtual power plants. [For example] California utility San Diego Gas & Electric (SDG&E) want to pay behind the meter customers for access to their batteries when they’re not using them. They want to aggregate the batteries in concert for grid needs.
Volume 6 of PV Tech Power, available now, includes a feature with exclusive 2016 predictions and hopes for energy storage from leading commentators and companies including Tesla, Sonnen, Lux, Imergy and more. Download/read for free here (subscription required).
...Although things like the Tesla Gigafactory are going to do great things for cells and packs and then we’ve got some balance of system (BoS) and installation costs that are also going to be more on the soft cost type things see some reductions, what’s really going to drive the bulk of activity in getting to the next level of deployment is going to be financing and new business models.