Why Battery Storage is Already Unstoppable, and Will Be Huge

April 16, 2015

A few years ago I met with a group of middle-management types at a local company – one that makes raw materials that go into, among other things, solar panels.
I guess they wanted some kind of outsider perspective.
In any case, surprisingly, they found it hard to get their heads around the already-apparent unstoppable momentum of solar that was, even in the pre-Solar City/Elon Musk moment, picking up steam

Their block was that they didn’t get that solar did not have to wait until it was cheaper than baseload coal or nuclear. The magic milestone was when solar became cheaper than the most expensive power out there – peaking power.

Utilities have to build, fuel, and maintain “peaker” plants, usually gas turbines, sometimes even large diesel generators, for those few afternoons during the year when everyone has production revved up and all air conditioners are running, the “peak demand” moments. That electricity is several times, maybe even 10x, more costly than normal baseload power.
Sometime in the last 5 years, solar energy crossed that cost line and began to outcompete gas turbines for that purpose, ideally suited to solar because it occurs mostly at times when the sun is blazing.

As I described that situation to them, there was a quiet moment as lightbulbs went on all across the room.
Solar now being bought in utility scale quantity, production ramps up, costs drop, market forces kick in.
Econ 101.

We’ve reached, or will shortly reach, that moment with electrical storage.


Next generation technologies—such as those being developed at Eos—are designed to be low-cost, a key criterion for the grid, as opposed to light-weight, a key attribute for portable electronics and electric vehicles. As the industry drives increasing scale and cost reduction, batteries ranging in size from dorm refrigerators to giant shipping containers will be deployed on the electricity grid.

Just in the last year, California, New York, and Texas utilities alone announced plans to procure more than 6GW of energy storage on the grid by 2020—that’s almost 50% of New York City’s peak load. These states alone are creating a $10+ billion market opportunity and are driving widespread adoption of grid-connected battery storage. In short, this transformation is happening today and will forever change the way we generate, deliver, and consume electricity.

How do the economics work here? Can batteries really compete?

Until now, it has been cheaper to overbuild and underutilize power generation and delivery infrastructure than it has been to store electricity. Thus for batteries to be a compelling solution for the grid, they have to out compete this entrenched incumbent on an economic basis. At an installed cost of less than $300/kWh, long-lasting batteries begin to displace marginal generation used for peak power requirements; at less than $200/kWh, batteries essentially replace most peaking generation and a substantial portion of distribution investment.

But to create a true apples-to-apples comparison, you have to evaluate the cost of these competing solutions over the life of the asset and the amount of electricity delivered under normal operating conditions. Known as levelized cost of energy, gas peakers set this cost threshold somewhere between 20 and 27 cents per kWh.  For the sake of comparison, the levelized cost of energy of an Eos battery is approximately 12 cents per kWh.

Batteries can be charged at night and discharged during peak hours to reduce system load and facility demand charges—allowing utilities to reduce their cost of service while minimizing customer electricity bills. In broader terms, batteries simultaneously replace both expensive peak generation capacity and expensive distribution infrastructure.


But the dropping price of storage isn’t inherently biased towards consumers. Utility operators can deploy storage as well, Two recent studies have assessed the economics of just that. And both find it compelling.

First, Texas utility Oncor commissioned a study (pdf link – The Value of Distributed Electricity Storage in Texas) of whether it would be cost-effective to deploy storage throughout the Texas grid (called ERCOT), placing the energy storage at the ‘edge’ of the grid, close to consumers.

The conclusion was an overwhelming yes. The study authors concluded that, at a capital cost of $350 / kwh for lithium-ion batteries (which they expected by 2020, but which we may have now), it made sense across the ERCOT region to deploy at least 15,000 MWh of battery storage. (That would be 15 million KWh, or the equivalent battery capacity of nearly 160,000 Tesla model 85Ds.)

The study authors concluded that this additional battery storage would slightly lower consumer electrical bills, reduce outages, reduce the need to build added capacity (by shifting the peak, much as a home battery would), and similarly reduce the need to build additional transmission and distribution lines.

The grid has to be built out to support the peak of use, not the average of use. Part of that peak is sheer load. Earlier I mentioned natural gas ‘peaker’ plants. Peaker plants are reserve natural gas plants. On average they’re active far less than 10% of the time. They sit idle, fueled, ready to come online to respond to peaking electricity demand. Even in this state, bringing a peaker online takes  a few minutes.

Peaker plants are expensive. They operate very little of the time, so their construction costs are amortized over few kwh; They require constant maintenance to be sure they’re ready to go; and they’re less efficient than combined cycle natural gas plants, burning roughly 1.5x as much fuel per kwh of electricity delivered, since the economics of investing in their efficiency hardly make sense when they run for so little of the time.

The net result is that energy storage appears on the verge of undercutting peaker plants. You can find multiple articles online on this topic. Let me point you to one in-depth report, by the Electric Power Research Institute (EPRI): Cost-Effectiveness of Energy Storage in California (pdf).

This report specifically looked at the viability of replacing some of California’s natural gas peaker plans.

While the EPRI California study was asking a different question than the ERCOT study that looked at storage at the edge, it came to a similar conclusion. Storage would cost money, but the economic benefit to the grid of replacing natural gas peaker plants with battery storage was greater than the cost. Shockingly, this was true even when they used fairly high prices. The default assumption here was a 2020 lithium-ion battery price of $528 / kwh. The breakeven price their analysis found was $842 / kwh, more than twice as high as current li-ion battery prices.

Rocky Mountain Institute:

If you want to see where the grid is heading, follow the money. And by that measure, the banks have spoken loudly.

A 2014 report by leading investment bank UBS noted, “Our view is that the ‘we have done it like this for a century’ value chain in developed electricity markets will be turned upside down within the next 10–20 years, driven by solar and batteries.” UBS surmises that less-expensive batteries, solar PV, and electric vehicles will empower customers to make their own energy decisions, and effectively make traditional power plants irrelevant by 2025. HSBC, in its report Energy Storage: Power to the People, suggested that deployment of energy storage will accelerate the utility revenue decay trend already started by rooftop solar. And a Morgan Stanley report stated that, “Over time, many U.S. customers could partially or completely eliminate their usage of the power grid. We see the greatest potential for such disruption in the West, Southwest, and mid-Atlantic.”

Though each bank’s analysis has a different cost projection, market focus, and means of comparison—it is clear they expect solar-plus-storage to present a threat to the traditional utility/customer relationship as we have known it until now.

7 Responses to “Why Battery Storage is Already Unstoppable, and Will Be Huge”

  1. Gingerbaker Says:

    ” UBS surmises that less-expensive batteries, solar PV, and electric vehicles will empower customers to make their own energy decisions, ”

    Empower? Here in the good old U.S.A., we are frequently told that we are being “empowered”.

    We are “empowered” by having a plethora of increasingly shitty medical plans to choose from – instead of having a national health plan.

    We are “empowered” by having a ‘right to work’ – instead of having a liveable minimum wage.

    We are “empowered” by having student loans – instead of having low-cost or free college.

    Etc, etc, etc.

    Why in the fracking world do I, as a consumer, want to be “empowered” to have to buy my own energy equipment?? I thought we had public utilities – was I wrong?

    Why is it MY responsibility to solve AGW, and to finance that solution out of my pocket, and not my government’s responsibility?

    Perhaps next I will be “empowered” to have to drill my own well if my Water Department decides it doesn’t feel up the job. Or perhaps I can be “empowered” to build my own water tower so I can douse the flames if our Fire Department decides to fold up shop. Maybe I would feel more “empowered” if I was forced to buy some picks and shovels and concrete mix, so I could have the option of repairing the city streets , you know, My Way.

    This empowerment bull is Republican-speak for “you have no right to expect actual useful services in return for your tax dollars”.

    • dumboldguy Says:

      Whine, whine. whine. Are you just waking up to the fact that “empower” means to fill your place in the brave new world of the corporate feudal state and help the rich get richer? Without questioning or whining?

      Yep, it’s all Repugnant-speak, but DO remember that humans DID provide for all their own needs themselves or in small groups up until we became “civilized”, and that everything really started to go over the cliff only when we started relying on the “energy slaves” in fossil fuels ~250 years ago.

      That’s you, me, and everyone else in the developed world not living in the woods like a hermit that’s responsible. And the undeveloped world only wants to do just what we did.

      I am heartened by the small bits of good news in this post, but I keep returning to COAL-INDIA-CHINA and the time line for CAGW. Will we make it? So many other recent Crock posts have been full of such bad news.

    • While I agree that since we’re paying taxes for the purpose of having energy grids, fire departments, et cetera, the part about the well is already true. If you don’t live in a town or city, you pay for any wells you have to drill. It’s always been that way.

      • Gingerbaker Says:

        Yes, but here in the U.S., we live in a country that already has a Dept. of Energy, that already has an energy production and distribution system – and that system is already quasi-public. It is already the least corporate-dominated sphere of our economy.

        And another thing – this whole conversation is unproductive. Let’s assume for argument’s sake that we all embrace this “empowerment”, and every single homeowner spends their own money and builds enough PV or whatever to power their home. That still leaves the vast majority of people in the U.S. who will have nothing – because they don’t own their own home. I suppose they will just have to pay ever more and more for their electricity as the power companies lose sales to all those “empowered” folks?

        And we still won’t make much headway to solving AGW. Because to solve AGW, we will need to generate at least six times (600%) more electricity than we do right now. So what is the point of all this “empowerment”? It won’t do anything significant to address our energy needs. Which are of such a scale as to only be addressed by the government. Who is going to have to, by necessity, build huge energy farms and move huge amounts of juice long distances for distribution. The exact opposite of “empowering decentralization”.

        All this hoop-la about self-generation of power, “empowerment”, decentralization of power is a complete waste of time, and nothing less than a romantic corporate ad campaign to take our public power system and convert it to a for-ever for-profit private enterprise.

  2. petersjazz Says:

    People here asumes that energy is somehow a govenment responsability. Its not in Sweden any more than i USA. And the possibility to put up PV is for getting electricity cheeper. Only way to stop this is by banning it. Like in Spain and Florida where its not legal to store electricity from PV

  3. […] the most important article is not about wind or solar, it is about batteries.  This article is complex and it takes the form of a tutorial in energy economics.  It includes […]

  4. […] Why Battery Storage is Already Unstoppable, and Will Be Huge […]

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