Battery-based ESS can be classified into two categories: “Behind-the-meter” and “Before-the-meter” systems.
On the generation side, ESS is typically combined with power generation turbines to regulate the production flow of electricity whenever new energy is used by consumers. On the transmission side, ESS is used to ease grid congestion and help to adjust power generation peak and valley curve. Energy storage solutions include independent energy storage power plants, substations, and mobile power vehicles. On the consumption side, ESS allows consumers to save money by reducing the peak-to-valley differentials while saving energy.
Before-the-meter
In fact, there are already several energy savings solutions available. They can be classified into five broad categories including mechanical, electrochemical (or batteries), thermal, electrical, and hydrogen storage technologies. The suitable duration of storage, scale of systems and response time are technology dependent. The choice of the most appropriate technology depends on the application requirements and constraints.
Among all technology routes, pumped storage hydropower plants remain the most proven electricity storage solution. It was invented in Switzerland in the 1890s and first used in 1930 in the United States. It is a clever and relatively inexpensive electricity storage solution that was until recently the only way to store power on a large scale.
Battery storage systems is far more recent and remains a relatively expensive solution as batteries can only support a limited number of charging cycles. In the future, electric car batteries could also be used as temporary storage solutions for households: in the so-called vehicle-to-grid solution, excess energy produced through solar power and wind power could be stored in the batteries of electric cars, and fed back into the household when needed, most likely at night.
Sunrun recently partnered with Ford Motor to do just that. It is now possible to plug a charger into a Ford F-150 Lightning, which will reverse the flow of electricity and draw energy from the battery that is then used by your home. Although restricted by the life of battery, this system is only suitable for power in emergencies. Details are available here.
The conversion of electricity into various products has been gaining momentum lately. Energy can now be stored on a large scale in the form of hydrogen (gas or liquid) by using solar power or wind power to split water into hydrogen and oxygen.
In July 2022, China announced another 1.3GW of Concentrated Solar Power (CSP) project in Xinjiang province, which made China eclipse both Spain and the United States in terms of CSP deployment. In a CSP system, the sun rays are reflected through mirrors onto a receiver, which creates heat that is used to generate electricity through a turbine. This electricity can be used immediately or stored in sodium for later use. This enables CSP systems to be a flexible option to provide clean and renewable energy. As the investment amount of CSP is as high as RMB20bn/GW, CSP is usually combined with large energy generation sites that are typically using wind power and/or solar power.
By the end of 2021, the global installed capacity of ESS solutions was 209.4GW, up by 9% YoY. New types of ESS (i.e. excluding pumped storage hydropower) was 25.4GW, up by 67.7% YoY.
In China alone, installed capacity of ESS solutions was 46.1GW (i.e. 22% of global capacity) at the end of 2021, up by 25% YoY. New types of ESS was 10.5GW, up by 74.5% YoY.
Share of different energy storage routes
|
|
China |
Global |
|
86.3% |
86.2% |
|
|
Lithium-ion batteries |
11.2% |
11.1% |
|
Lead batteries |
0.7% |
2.0% |
|
Compressed air |
0.4% |
0.3% |
|
0.0% |
0.2% |
Source: China Energy Storage Alliance
Energy storage solutions can generate revenue in four different ways:
In China, Shandong province (a province located in the Northeast of China, halfway between Shanghai and Beijing) is the most active when it comes to ESS investments. It has the largest installed ESS capacity within the country. Shandong’s independent energy storage power stations can help regulate the power grid volatility and are getting paid RMB 200 (USD29) /MWh for doing so. The Internal Rate of Return for such investments is typically around 6% per annum. As independent energy storage power stations in other provinces have not entered the power spot market yet, their project IRRs is typically lower, around 3-4% per annum.
More provinces require wind and solar power plants to be connected to the grid, with minimum requirements to be met (typically 10 to 20% of the installed capacity must be made available to the grid for 2 to 4 hours per day). These requirements are such that grid parity has not been reached yet. In other words, it is only viable if the ESS operator receives government subsidies.
Behind-the-meter
For households (i.e. Behind-the-meter), the business model for ESS is relatively simple. Households can only generate revenue through energy arbitrage and by reducing the electricity purchased from the grid. The greater the difference between peak and valley electricity prices, the higher the local electricity price, and the more cost-effective the household ESS will be.
In China, more than 80% of the ESS installed capacity is on the power generation and transmission side (i.e. Before-the-meter) as household ESS is not economical yet.
Things are different in Germany: In 2021, 94% of the ESS installed capacity is within households, and almost 70% of home solar systems comes with energy storage solutions attached. This is because household electricity prices in Germany is the highest in Europe because of taxes and levies accounting for 40% of the electricity price (see the graph below). With the recent fear of natural gas shortages, household demand for home electrification has surged. The sales of household ESS solutions by US manufacturer Enphase Energy to German clients is up by 69% YoY. Still in Germany, the payback period for ESS installations is 7.6 years on a stand-alone basis.
Future technologies
Similar to the situation experienced by EV car battery makers, the rising price of lithium limits the economics of using it for energy storage. Sodium-ion batteries are emerging as a viable alternative to lithium-ion technology, especially for utility-scale energy storage where size is not really an issue. Na-ion and Li-ion battery technologies have much in common in terms of structure and working principles and can often even use the same manufacturing lines and equipment.
Sodium is cheaper and much more abundant than lithium, but its energy density is very low, it takes more space than Li-ion batteries. CATL has unveiled its first-generation sodium-ion battery solutions in July 2021 and plans to form a basic industrial chain by 2023. On 28th July 2022, the world’s first GWh Na-ion battery production line was inaugurated by Hina Battery, in Anhui province.
Battery makers are also working on the development of Solid-State Batteries that will no longer use chemical elements in liquid form, hence providing greater stability, as well as batteries using manganese as well as different types of organic materials.
Supply chain
For lithium-ion battery energy storage solutions, battery packs using cells still account for 60% of the total cost. Power Conversion System (PCS) accounts for 20%, Energy Management System (EMS) accounts for 10% and Battery Management System (BMS) accounts for 5%. The top three cell producers in the world are CATL (from China), LG Energy Solution (from Korea), and Samsung SDI (also from Korea), the three of them controlling 60% of the global market.
However, system integrators which assemble and sell the final products are fragmented, with dominant suppliers existing in each region. Tesla and Enphase Energy dominate the US market while Sonnon and E3/DC are strong in Germany. Chinese players mostly act as upstream suppliers of cells, batteries and inverters and sell to local integrators.
Outlook
Despite the recent surge in demand for ESS solutions across Europe, we should still be cautious about market players’ aggressive expansion plans. The manufacturing barriers for energy storage systems are not high, and the storage inverters are basically the same structure as photovoltaic inverters used in solar panels. In the long run, there is a possibility that the household ESS market space becomes too crowded, with oversupply abound. ESS is designed to address the imbalance between electricity generation and consumption, but other solutions exist, some of them being more economical. The flexibilization of thermal power plants, the use of new energy vehicles as power carriers, and the use of virtual power plants to participate in scheduling and trading of renewable energy can achieve similar goals.