Storing electricity at scale

Previously, we introduced Elon Musk’s recent power projects: storage for South Australia; and solar+battery for Hawaii. We also considered his Powerwall battery, for the home. The aim of this was to work out where it’s best to invest in energy storage – one of the most exciting markets for the 21st century.

Today, we’ll be finishing off our analysis by looking at power storage that’s near neither producers nor consumers. It’s the role of the dedicated grid storage facility – similar to Musk’s planned South Australia gig. He’s promised to fix the state’s notoriously flaky grid, in just 100 days, using his Powerpack technology. At its heart, this is just a rebranded and scaled-up version of the Powerwall solution, which Musk sells to consumers.

Revolutionising energy storage

This is a radically different approach to storing electricity near generators or consumers. Storage becomes an industry, in its own right – and suddenly, the economics change completely. A single turbine, or a small solar farm, is a relatively modest generator of power. Accordingly, some of the most economical storage techniques may not be available to such producers.

The advantage of having storage in specialist locations on the grid is that you can use approaches that only work well at scale. For example, some battery technologies run at very high temperatures. That’s not particularly practical, for your garage! Another obvious candidate is pumped storage. This is relatively simple: store some water in a lake at the top of the mountain, and some more in a lake at the bottom. When electricity is cheap, you pump water up the hill. When it gets expensive, you let it flow down – generating power on the way. It’s basic, it’s cheap – and it works best at large scale, largely due to fluid friction in the pipe.

Another technique which works best at scale is hydrogen production. It’s not that you can’t generate hydrogen in small quantities, but it’s hard to sell. Generating H2 at scale means it can easily be plugged into the gas pipeline network. In small proportions, it’s barely noticeable on the gas grid. Alternatively, local chemical manufacturing infrastructure can turn it into a huge range of useful products – notably including liquid fuels. Neither of these approaches works well, if you’re generating your hydrogen in a wind farm off the coast of north Wales. That’s why it makes sense to put hydrogen on the main electricity grid, not out near generators.

Where will we expect to see storage located in future?

Well, I’m afraid I’m going to sit this one out. I think there’s an economic case for all storage locations. Householders get resilience, and price-picking. In developing countries, there is a generally unreliable or non-existent grid. So, for much of the world, power outages are part of life. Accordingly, there’ll be an inevitable market in energy storage. We’re seeing distributed storage becoming integral to a self-contained supply infrastructure in the developing world.With grid-connected houses in developed economies, we could see things unfold very differently. Here, storage is a choice, not a necessity. Price incentives will be needed. A cheap battery is worthwhile, if night and day power costs differ widely.

From a producer’s point of view, price arbitrage again is also an attractive carrot. Backup makes some difference for them – they need to be able to point turbines into the wind, even if they’re not spinning. Turbines are hefty things, so the backup batteries are beefy. It makes sense for this reserve power to be scaled up for price-management work. Technologies such as containerised batteries don’t have a particular scale advantage. Accordingly, they make sense for generators to deploy, even at medium scale – as in Tesla’s Hawaii example.

Centralised storage

For large-scale technologies such as pumped storage, and hydrogen manufacture/distribution, it makes sense to have large centralised storage nodes on the grid. Nevertheless, there are limitations to these technologies. Pumped storage is, broadly speaking, limited by the number of lakes available. Hydrogen production relies on having ready local markets, a grid gas connection, or huge underground seasonal storage. These are needed, before hydrogen can make commercial sense. Furthermore, hydrogen production economics doesn’t necessarily favour intermittent production – if you’ve bought an electrolysis plant, it makes sense to keep it running 24/7. I think the jury’s out on the precise economics of the hydrogen market, as the tech is still nascent.

Alternative storage technologies may compliment batteries well, even the ones that require scale. There’s no clear reason to think that any of the proposed energy storage locations can’t work well or can’t attract investment in future. I genuinely think they all have a place – at appropriate scale. And while Tesla’s batteries are way too expensive for seasonal storage, that strategy is a long way off yet. Meanwhile, the flexibility of batteries’ deployment location makes them a very attractive play.

However, in the longer term, I’d expect hydrogen and capacitors to win out – not Musk’s li-ion tech. Capacitors will have lower costs per watt of power delivered, and hydrogen will have lower costs per joule of energy stored. But neither of these technologies is widely available, yet. Those are really research investments, not deployment investments.

Road-hauled electricity

Finally, I like to finish off with a curious idea I recently read: it’s possible that a market for road-hauled electricity may exist. Your electric car is pretty much a battery with wheels. If you live in a location where there is local energy generation, it makes a lot of sense to go off-grid – thus avoiding connection costs. This would ordinarily mean you get no electricity, at times when you’re unable to generate on-site. However, owning an electric car changes everything. You can go and pick up electricity from your local solar farm, then run your house from your car – potentially transferring energy to a domestic battery, for when someone needs to take the car out. I’m unsure if that’s going to be economically viable, but it might get utilities worried. It’s certainly an interesting thought.

I love to hear your thoughts on whether you think storage will be located, after the end of the fossils age. Do write in to andrew@southbankresearch.com.

Best,

Andrew Lockley
Exponential Investor

Category: Energy

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