Lithium-ion battery-based energy storage for commercial and industrial customers in the US lies on the cusp of becoming “viable” over the next three to five years, according to international credit rating agency Moody’s.
Peak shaving, integrating renewable energy into networks and providing grid or ancillary services are all applications that the technology could be suitable for in this regard by then, the agency said in the report, “Regulated and unregulated utilities: batteries charge up for the electric grid”, which it published last week.
However, the report, issued by Moody’s Investors Service, said the economic viability of pairing rooftop solar with batteries for these applications is “a long way off”. In a report on that topic back in January, Moody’s had cited the prevalence of net metering in the majority of US states and relatively high costs at residential scale as barriers to adoption, while conceding that the rooftop solar sector was nonetheless “growing rapidly” in the US.
Crucially, the feasibility of storage depends on Li-ion prices continuing to fall. This has already happened since 2010 by around 50%, Moody’s said. The document appeared to take prices cited by Tesla Energy as a benchmark. The EV maker-turned energy services company is shooting to hit prices below US$200 per kWh by 2020, from a current level of US$350 to US$400 per kWh.
For prices to continue to fall, Moody’s highlighted that “regulatory support will be key”. The firm considers this to encompass mandates and subsidies such as AB2514 in California to macro-level planning in Hawaii and New York, to market design in regions such as the service area of regional transmission organisation (RTO) PJM, which rewards batteries for their ability to respond quickly to signals in the grid-balancing frequency regulation market.
In other words, measures that encourage the volume deployment of storage will lead to lower system prices.
First past the post: peak shaving
The first uses for battery storage to reach the promise of viability will be for higher value applications, with peak shaving for commercial and industrial (C&I) customers tagged as the “most promising” application. Peak demand charges are levied on these utility customers in the US, which can add as much as 50% onto electricity bills. Providers such as SolarCity (with Tesla-Panasonic batteries) and Stem are already offering storage to the C&I market for this purpose directly to businesses. The battery is charged at night when power is cheaper and is then discharged during times when the load hits its peak.
Moody’s quoted prices for SolarCity’s peak shaving product from GTM Research’s US Energy Storage Monitor report at US$700 per kWh installed cost. While, at the moment, this price is only viable with subsidies, installed costs not related to the price of the battery could also fall as the market ramps up and policy landscape adapts to become more amenable.
Due to high demand charges, the report’s lead author Swami Venkataraman said, "New York City stands out as the most promising economic market for peak shaving… followed by California, Hawaii and the northeastern states”.
"Current battery prices are only about 20-25% greater than breakeven levels for peak shaving applications in New York City,” Venkataraman, who is a VP-senior credit officer at Moody’s, said.
This lowering of peak prices across the board is likely to have a knock-on effect for generators in merchant markets over the long term if both demand for peak power and peak price volatility are dampened by the use of batteries. This would be credit negative for the merchant generators long term, as it would result in lower capacity prices and lower energy prices.
For regulated utilities too, Venkataraman and his team found, batteries will be credit negative “but less so”. There will be a shifting of costs between utility customers as C&I customers reduce their demand charges with storage and utilities seek to recover revenues by levying higher charges on other customers.
Ultimately however, the report said, many of these kinks in the market will be solved long term through changes to tariff structures on the part of regulators.
The report concludes with a series of analyses of different regions and applications, calculating the breakeven cost in each scenario. For instance, the installed cost of a battery system used to replace 100MW of capacity on the network provided by a peaking gas plant in New York, without also being used for energy arbitrage, would be US$248.3 million, requiring annual revenues of US$18.6 million to break even over a 10-year lifetime. At a capacity price of US$510 per megawatt a day in New York City, a 100MW peaker plant would hit exactly that level of revenues, making storage a viable merchant investment.
This week, the chairman and CEO of US utility group Nextera Energy, Jim Robo, said in a speech that it was possible to foresee a time "post-2020" when batteries could replace new peaker plants completely.
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