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Energy Storage is winning - WHAT WILL BE THE NEW EXCUSE?


Photo- Energy Storage (Vox)


Before COVID-19, the Renewable Energy transition was well on the way. The prices of both wind and solar technology have become competitive in most of the global energy markets. Some authors identify these changes as far back as 2018, “Dramatic fall in costs of renewable energy in the last 24 months has not only accelerated the replacement of fossil fuels by renewable energy in electricity generation. The low cost of renewable electricity is now starting to replace fossil fuels in other sectors” Kaberger (2018). This transition continued to accelerate in 2019 and was expected to break records in 2020. In the United States Renewable Energy technology, Energy Efficiency and Demand Response systems have been cost-competitive with coal, fuel oil and recently with natural gas for the power industry. In 2019 the EIA identified that for the first time in 130 years Renewable Energy power generation surpassed power generation from coal (EIA 2020). Unfortunately, in 2020 the globe has had to face the catastrophic COVID-19 pandemic.


One of the consequences of the current pandemic, which may be the only upside, is the reduction in pollution globally. Countries such as Germany have recorded a 50% increase in solar uptake from existing installed solar panel capacity because of pollution reduction. The current pandemic has put a pause on industry development. While many projects have been paused, recently there have been several exciting announcements. Dr. Fatih Birol, Executive Director of the International Energy Agency, said it best on one of his publications, “Large-scale investment to boost the development, deployment and integration of clean energy technologies – such as solar, wind, hydrogen, batteries and carbon capture and storage (CCUS) – should be a central part of governments’ plans because it will bring the twin benefits of stimulating economies and accelerating clean energy transitions” Birol (2020). This unprecedented tragedy can also be the engine of growth for global economies. There has been a renewed support for this strategy within many countries. There was a major announcement made by the Minnesota utility cooperation Great River Energy, a US Generation and Transmission Cooperation, that once it is completed and operational will cause the majority of critics of Renewable Energy technology to pause around the perceived issue of intermittency and long-duration storage.


Photo- Form Energy Founding Team


Who is Great River Energy? They are an electric transmission and generation cooperative in Minnesota, U.S.A. It is the state's second largest electric utility - based on generating capacity, and the fifth largest generation and transmission cooperative in the U.S. Great River Energy was formed in 1999 when Cooperative Power Association and United Power Association merged (Great River Energy 2020). They provide wholesale electricity to 1.7 million customers. They have joined forces with Form Energy, an energy storage company started in 2017 by a career of storage industry veterans, MIT scientists and they are backed by former CEO of Microsoft Bill Gates (Spector 2020). Great River Energy confirmed that it will pilot Form's technology, identified for the first time as an "aqueous air" battery system. This system will support an 1100 MW wind farm with 1 MW of long-term storage. Form's 1-megawatt project will do so for up to 150 hours or 6.25 days of energy storage, an unprecedented achievement for the storage industry (Spector 2020). For the deniers, the inevitable 1 MW will not seem as a major accomplishment. However, there are some economic principles that are always underestimated by incumbent businesses in a market:


1) The Power of Disruptive Technology- Clayton Christenson who died in 2019 (may he rest in peace) gave a great framework to understand why long-term storage being commercialized is critical for incumbent market players to be concerned about. The first concept is to understand what disruption is - “Disruption describes a process whereby a smaller company with fewer resources is able to successfully challenge established incumbent businesses. Specifically, as incumbents focus on improving their products and services for their most demanding (and usually most profitable) customers, they exceed the needs of some segments and ignore the needs of others. Entrants that prove disruptive begin by successfully targeting those overlooked segments, gaining a foothold” Christenson (2015). This is happening in the power and utilities space. Traditional oil and gas companies and electric turbine manufacturers are only recently realising that an improvement in energy sources for power is an underserved market that is open to be disrupted by delivering more suitable functionality—frequently at a lower price. In his work Dr. Christensen has said that organisations’ focus on customers on the higher end of the market are not paying attention to companies that offer niche products and services on the lower end of the market. See figure 1.


Based on the model above, Form Energy is on the lower end of the market, but as they improve on their technology and experience they have the potential to take over market leaders (passing the incumbent- fossil fuel generation technology). If you want historical evidence for this trend read about what happened to Kodak who contributed to the digital camera development but kept invested heavily polaroid technology and did not realise that the market was shifting - then lost all market share.


2) Experience Curves - What is it?The use of log-linear experience curves (or learning curves) relating reductions in the unit cost of energy and environmental technologies to their cumulative production or installed capacity has become a common method of representing an endogenous technical change in energy-economic models “ Yeh and Rubin (2011). The experience curve measures the improvement in the operational performance of a business as a function of cost. In simple words the longer I run a technology, the cheaper it becomes to operate and the better I get at it the less it will cost me to operate over time. This can be seen with both solar and wind technology that is currently competitive with Natural Gas power generation in most global markets. This is another microeconomic principle that aligns with disruptive technology that incumbent firms do not understand about their competitors. A great example of this is the Tesla Battery pack installed in South Australia that paid for itself in two years! Apply this concept to this technology of long-duration storage. Computer technology in terms of machine learning combined with cheap sensor technology speeds up experience curve learning and efficiency from years to months. So, if this is built and operated in 2023, I will not be surprised that by 2024 this technology will be so efficient that it will scale exponentially for the next decade across the world.


3) Low Marginal Cost of Battery Technology – Definition, “A lower marginal cost of production means that the business is operating with lower fixed costs at a particular production volume. If the marginal cost of production is high, then the cost of increasing production volume is also high and increasing production may not be in the business's best interest” Investopedia (2020). This simply means that improving the production output from a utility-scale battery system has a lower fixed cost (using machine learning and other software technology) and additional battery systems that are significantly cheaper than natural gas turbines (using Levelized Cost of Energy analysis because of low Operations and Maintenance cost). So, utility-scale battery systems, in the long run, can be much cheaper to run and maintain than traditional hydrocarbon-based power generation technology. What makes this even more impressive is that the new battery systems do not rely on precious metals like Cobalt and Lithium which are controlled by a few countries. Form’s aqueous air battery technology uses water, sulphur iron, magnesium and other metals that are abundantly available.


We need to start having real conversations about where this is heading. Traditional Power generation technology is having a “Kodak” moment and not all companies get it. Every obstacle and excuse given for not adopting Renewable Energy into the energy mix is being blown out of the water. This is a transformational moment and COVID-19 is expected to supercharge investment in Green technology as countries will use fiscal policy to push their economies out of a recession. Utility-Scale Battery Storage is winning!



Author

Brendon James,

BA Geography, MBA Occupational Health and Safety, MSc Process Safety Management, MBA Sustainable Energy Management

LinkedIn: https://www.linkedin.com/in/brendon-james-94332a18/

"I am a lover of Economics, Energy, Stoic Philosophy, Crix and Milo in that order."


References:

1. Birol, Fatih. 2020. “Put clean energy at the heart of stimulus plans to counter the coronavirus”. [Online]. Accessed 20 May 2020. https://www.iea.org/commentaries/put-clean-energy-at-the-heart-of-stimulus-plans-to-counter-the-coronavirus-crisis

2. Christiansen, M. Clayton, Michael E. Raynor and Rory McDonald. What Is Disruptive Innovation?”. [Online]. Accessed 30 May 2020. https://hbr.org/2015/12/what-is-disruptive-innovation

3. Energy Information Administration (EIA).2020. U.S. renewable energy consumption surpasses coal for the first time in over 130 years. [Online] Accessed 8 June, 2020. https://www.eia.gov/todayinenergy/detail.php?id=43895

4. Great River Energy. 2020. “Powering what’s Possible”. [Online]. Accessed 20 May 2020. https://greatriverenergy.com/

5. Kaberger, Tomas. 2018. “Progress of Renewable electricity replacing fossil fuels”. Science Direct. Volume 1, Issue 1. pp, 48-52.

6. Spector, Julian. 2020. “Long Duration Breakthrough? Form Energy’s First Project Tries Pushing Storage to 150 Hours”. https://www.greentechmedia.com/articles/read/form-energys-first-project-pushes-long-duration-storage-to-new-heights-150-hour-durationAvailable online [24 May 2020].

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