Energy storage systems are being installed to meet a variety of electrical grid challenges that are mostly related to the growth in installations of renewables.
Despite an economic slowdown, renewables integration continues to grow faster than ever. Looking into a crystal ball at electrical grid developments over both the short and long terms, it is important to understand the drivers and challenges facing the renewables markets and the opportunities to optimize these resources.
Amid this renewables transition, it’s critical to keep an eye on broader aspects of the market that impact short- and long-term planning. For example, during the COVID-19 lockdown, commercial and industrial load dropped, but consumer load increased by about 15% as many began working from home. If this trend continues, flatter demand could lessen the need for peaker resources. Coupling renewables with storage could extend solar energy usage much further into the evening hours.
On the other hand, the economic slowdown has also affected the number of rooftop solar installations, residential storage installations and new electric vehicle purchases. While activity may rebound with the economy, utilities that were either counting on or having to deal with these installations will have their plans impacted.
Technology Wild Cards
It is understood that decarbonization efforts encompass many technologies, each with its specific set of drivers and challenges.
Battery storage, for example, will be a long-term player in the grid of the future. Lithium-ion pricing continues to decline rapidly, and solar costs are likely to decline as well. Solar plus storage is a powerful combination that is already competitive with natural gas in certain parts of the U.S. and could approach universal competitiveness in the near future.
The current state of energy storage, though, is not perfect. Lithium-ion, which really dominates the battery storage market, has some challenges, including safety, country of origin and degradation. But lithium-ion technology continues to improve, and batteries are getting more energy-dense and more cost-effective. The industry is learning how to select, plan and engineer them to be safer.
Another technology wild card is how quickly electric vehicles are adopted. The rate of adoption will definitely affect how, when and where utilities invest in transmission and distribution infrastructure. As with other major investments, the cost will have to be justified and utilities will need to figure out how to fully monetize as they move forward.
Economics of Evolution
Coal-based generation faces significant headwinds in the U.S. and around the world. This has little to do with renewables and everything to do with the abundance of affordable natural gas and the efficiency gains of natural gas plants versus typically older coal plants. This makes it easier to justify the move away from coal based on economics alone.
Also helping the economics of renewables are various production tax credits and investment tax credits. The amount of wind, solar and storage coming online in 2020 will set records, in part because of these tax incentives. Regardless of what happens in the U.S. elections in November 2020, renewables will continue to be incentivized in the tax code. It’s just a matter of the extent of the incentives, depending on who wins.
How renewables are monetized differently in various markets around the U.S. is another piece of the puzzle. Consider energy storage: In some parts of the country, like California and New York, there are clear market rules that provide a way to monetize a battery. In other regions, like the Midwest and Southwest, that is not necessarily the case. There are efforts underway to address that — thanks to FERC Order 841 — but those rules need to be in place to deliver the necessary growth in this market.
It is abundantly clear that renewables will play a part in short- and long-term plans for the power grid. The questions are how much (driven by economics), where (driven by things like EV adoption) and which technologies (driven by a variety of advances). Foresight and flexibility will continue to be the name of the game as we continue along the decarbonization path.
Familiarize yourself with the rapid advancements being made in battery storage technologies, as explored in our Energy On Demand webinar series.