Tell me about Rocky Mountain Institute and what you do
Garrett: Rocky Mountain Institute is an environmentally-focused non-profit. We’ve been around for about thirty years. Our chief scientist and co-founder Amory Lovins started it in the early 80’s and we work in three primary practice areas building transportation electricity to drive market-based solutions to transition off fossil fuels to a more reliable and renewable electricity and energy future. What we really do is direct consulting engagements with companies, corporations, governments or communities to try and find innovative ways that they can use existing technologies to lower their carbon footprint in an economic way today.
Jesse: About half of what we do is put out reports like the one we’ve just released. The other one is what Garret just talked about – collaboration, consulting and engagement with lots of stakeholders to help them experiment and move to renewables and efficiency in transport, buildings and the electricity sector.
Garrett: We started this work looking at batteries that would just be used to supplement solar PV and so we put out two reports that were about the economics of grid defection, looking at when it is they become cost-competitive to either defect from the grid entirely and use solar plus storage or remove part of your load from the grid and use batteries and solar to self-generate. We moved from there about a year ago realising that energy storage can do a lot more than just that and provide a lot more value when its connected to the grid and providing additional services to the grid. So about a year ago when we started looking at that, it turned into this report that we’ve now published in which we try to understand what all the really great things that storage can do. We can think of about 13 really great things that are services to provide, but with all those things we’re looking at stationary storage which in reality, all of them can be provided by provided by electric vehicles (EVs) when they are plugged in. From our perspective it’s good to think about mobile storage EVs as a subset of storage that is stationary when plugged in, but becomes a little more complicated because it’s not always plugged in.
Jesse: This paper is primarily focused on stationary but we also identify that as you move closer to the customer, as you move away from central power plants, that’s where all 13 of those services can be delivered by EVs, although we don’t really go into that in the paper. We just didn’t end up doing all the modelling on that because that added another layer of complexity and batteries are already complex enough.
Garrett: This particular report is only really focused on the electricity sector and particularly how batteries can play a role in that sector. So we’re really only focusing in on one particular aspect of RMI’s larger area focus.
What’s the current state of the battery market in the US?
Garrett: Right now, everyone’s talking about how quickly the cost has come down for energy storage over the past year. Mainly driven by larger volume production driven by EVs. The problem with that is the biggest barrier to the adoption of batteries isn’t necessarily cost, it’s more around how we fully utilise the battery so that it provides the most value that it can. What we found in the report is that when you fully utilise the battery by stacking it, providing multiple services to the customer and the electricity grid it is in fact cost-effective today. However, there are a fair amount of regulatory and market barriers that don’t allow batteries to provide those stacked services. So we think that two things need to happen. We need to better understand how to fully utilise the battery and overcome the barriers that currently inhibit the battery from providing multiple services. This comes out in our report where we looked at four different use cases where a battery was providing a primary service, there would be demand charge reduction, and looked at what additional value it could bring if it was allowed to bring an additional set of services.
So today, most batteries are currently used for just one application. So in California, batteries are installed in commercial buildings to mitigate or minimise commercial demand charges. They only use somewhere between 5 and 50 percent of their useful life for that service, which means that your battery can be sitting there unused for anywhere between 95 to 50 percent of the time. So if you used the battery during that time to do other services you can generate enough additional revenue to make it cash positive.
Jesse: As Garrett said, most of the market is driven by these demand-charge business models in California and New York. Outside of those places, we’re really not seeing batteries being put in behind the meter. The other place where batteries are used a lot in the US is in the North-East, the mid-Atlantic region, around New Jersey and southward and PJM where they do frequency regulation on the wholesale market. Those are the two major stationary storage markets right now. The paper says we should unlock all these other primary markets across the states because batteries can unlock a lot of value when they are allowed to do these fat business models where we utilise a 105 percent of the battery instead of 55 percent of it.
Garrett: If you consider a battery to be like a utility-knife and someone was only using the knife part of it, and not the other 4-5 other components such as the pliers, the nail file, the scissors, you’re really under-utilising that tool. So energy storage is a bit like underutilising the utility knife where you’re not using the 4-5 other tools you keep in your pocket.
You mentioned barriers just now, is it just particular states that are imposing those or is it something else?
Jesse: With a few exceptions, the states are not necessarily erecting new barriers, the problem is the way in the US in which the existing market is regulated, gets in the way of this. So for example, my offices are in Colorado, I cannot utilise a battery to do three different services, I can’t use a battery for a certain investment and at the same time use the battery to do frequency regulation. The way in which we’re regulated in some of the states just prevents us from doing that in the first place.
Garrett: If you think about storage and the way in which it is different to anything else that’s ever been connected to the grid, this thing provides electricity to the grid but it also takes electricity to the grid so historically, when you connected an asset to the grid it was either a load or a generation storage and we have set up rules in order to understand how those work and the markets they can play in. But now this can do both, a lot of those regulatory bodies or the utility commissions have to re-evaluate something that can do both the load and the generation.
Is it mostly lithium ion or are new technologies like flow batteries starting to have an impact as well?
Garrett: For this particular report we focused on lithium ion batteries, mainly because they are getting most of the media attention, they’re getting most of the decline in costs and improvements in technology. That being said, flow batteries probably will have their role in the energy storage space. They provide a different set of services, typically providing longer duration discharge for 6-8 hours whereas typical lithium ion batteries are somewhere between 1 and 4 hours of discharge at their rated capacity. That allows them to provide other services.
Jesse: You see a lot of articles now, stateside, looking at them almost as the new silicon where a couple of fairly prominent investors are saying that lithium is going to be the dominant chemistry and things like flow batteries are reaching out to new applications but are not going to beat the economies of scale that lithium ion with the help of EVs. I don’t think we’ve reached a position to comment on that but the point is when you have the power electronics and the business model to aggregate thousands of different customers batteries and deliver all these different services, I couldn’t care less what the chemistry is as long as it’s able to deliver those services. So a lot of the investment action is going to be directed towards these people innovating on the business model side, just like what we saw five or ten years ago in the states with excitement around solar power purchase agreement and meeting the model. That was the big innovation, it wasn’t necessarily about the silicon or thin-film.
How important is energy storage to renewable energy projects in Nth America right now?
Garrett: It’s not being utilised in the way that it could to help integrate intermittent renewables. I am not going to say that energy storage is critically important but it is a potentially very important tool that we can use to help integrate renewables alongside of flexible and controllable load and better understanding of when and by how much renewables are going to come online.
Jesse: With wind and solar renewables, most places we’re still well below 20 percent on an annual basis, even though on certain days they’ll go very high. With that kind of reality, in the way our market is regulated and structured, you don’t necessarily need energy storage to avoid curtailment, but you have states like California that has just said that 50 percent of electricity has to come from renewables on an annual basis by 2030. In regulators minds they are thinking that batteries are going to be one of the dominant technologies in order to meet that target. So, right now not a huge need for it, except in Hawaii where 13 to 20 percent of residential and commercial rooftops have solar systems on them and they’re facing some pretty serious constraints at meter level, the neighbourhood level. So the utilities are saying “there might be a way in which we might be comfortable with any new solar system that’s paired with a battery, we’re going to go right ahead and expedite that system and approve it and install it on to the grid.” For them, it’s a simpler way in which they can achieve higher levels of integration of renewables.
Can you tell me more about what is driving declining costs?
Garrett: We originally got into batteries trying to find a way to drive down the costs. We had a history working with the solar industry on the Balance of System costs, non-module costs. We thought we might be able to do something similar to that with batteries because in the media we saw drastic decreases in the cost of lithium ion cells but we didn’t see the same decline in the system, the power electronics. So right now, we see a lot of progress due to things like the Giga-factory in driving down the costs of cells that might have gone from say $500 per kilowatt hour to less than $200 dollars per kilowatt hour in the past year or two. Right now, the balance of system costs aren’t being driven down by anything, in my opinion.
Jessie: The cells, the $ per kilowatt component of any energy storage system, is coming down dramatically, and that’s what you see all the cost quotes about in the media. That’s great, we’ve seen projections recently for like $100 to $150 per kilowatt hour by 2020, which is just astounding. But on the other side, you have all the inverters, you have the cost to interconnect the thing. When you’re doing all the things we talk about in our paper, aggregating thousands of batteries to participate in wholesale electricity markets you got some pretty serious metering requirements. All that costs money, and there’s not a ton of pressure being put on current energy storage developers, either in the US or internationally, to reduce those costs, because it’s such a young market. So those costs need to come down. We think as the market matures they will naturally come down as companies compete with each other. Right now it’s definitely an aim point though.
I understand that states right across the US are steadily changing their policies to adopt renewable energy, and thus also energy storage presumably, which states are in the lead right now?
Jesse: I would say, in order, California, Hawaii and New York. California has the most batteries deployed, New York’s close behind with the regulatory reform that’s going on there and the same in Hawaii.
Garrett: I think Jesse might be referring to the behind-the-meter batteries, because in the PGM market or the New Jersey-Connecticut area, there are a fair amount of larger scale batteries installed. From the perspective of behind-the-meter, then I would agree California is in the lead and then Hawaii and New York, and the driving force of that is 90 percent because California put out an incentive programme called the Self-Generation Incentive Programme in which energy storage could get up to, I think, $1600 per kilowatt, up to 60 percent of their total system costs. Really, the incentives cuts the price of batteries in half in California, and that’s really what’s driving the large deployment over there. In Hawaii it’s driven by the fact that there’s so much PV trying to come online that storage is a great way for them to allow that PV to come online without adding a lot of stress to the grid. That of course is driven by the fact that the electricity rate is very high in Hawaii which makes solar a lucrative economic investment.
Where are battery storage systems being deployed, is it mostly solar plus storage or is it more diverse than that?
Jesse: In the US there are some large centralised projects that are being paired with energy storage. They’ll have a large wind farm and they’ll pair it with a battery to do a lot of renewables firming and to participate in the wholesale electricity market. On the behind-the-meter side, SolarCity in the US has said that every new solar system in 2016 is going to have a battery with it. They’ve said that, I’d like to see that, but that’s the hypothesis anyway. It’s a little bit of both. I will say the batteries by themselves are also being deployed. A lot of the commercial demand charge reduction driven batteries that are being deployed in the California market, they don’t have solar systems with them. They are generally larger buildings and it’s a lot easier for a building owner to say, “Hmm you want to take over one of my parking spaces, put a battery in there and reduce my electricity bills? Sign me up!”
How do you see the market growing from here on?
Jesse: These things we’ve been talking about, I think, are really going to crack the nut on the distribution level market that will enable distributed energy resources to participate in them and that will do a lot for the renewables we’ve just mentioned. I see things in California happening on a much bigger scale in the next two years. We’ve recently had the first instance of behind-the-meter batteries being aggregated and participating in the wholesale California electricity market and getting paid for it. That just happened, on a pilot scale. I think in the next few years we’ll start to see things like that happening in California, with New York being a little bit behind that. With Hawaii, this is happening now. I would optimistically guess that by 2020 a few more states will have some of these distribution level markets opening up.
We haven’t spoken to anyone about the European market yet, to our knowledge batteries are only really being deployed behind-the-meter in places like Germany because self-consumption is quite lucrative there. In our modelling, self-consumption takes 30-50 percent of the batteries capacity and those batteries are not cost-effective in Germany without help from the government because there’s a subsidy there. So if you could re-dispatch those batteries that are out there doing self-consumption for German systems, the economics of those things will improve. But I don’t think there’s a distribution level market for those behind-the-meters to be delivering other services.
Image: Jesse Morris (Left) and Garrett Fitzgerald (right) of Rocky Mountain Institute
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