Is 2016 The Turning Point For Energy Storage?
In the future, when investors look back at the year that represented the turning point for clean energy, 2016 may be it. The industry overall is growing at a breath-taking pace, but perhaps not for the reason that some investors think. Energy storage rather than solar power and wind power are the real factors that are driving a revolution across the electrical power industry.
Energy storage changes the equation, not only in the renewables space, but in the conventional utility space as well. The concepts of spin/non-spin reserve costs, peaker prices, and a variety of other conventional concerns for utilities, lose meaning in the context of efficient and cost-effective energy storage. While energy storage was available previously, it’s only today that costs are coming down substantially. Tesla’s economies of scale on battery storage are well-known, but small start-ups like Orison are finding ways to lower costs in innovative ways as well. The graphic below from a recent EPRI presentation highlights the role that multiple layers of costs savings can play in creating economical battery storage.
Investors have often been disdainful of energy storage in the past. That’s a crucial mistake. Like many ultimately revolutionary industries, energy storage was overhyped initially. The technology was not cheap enough initially to be ready for mass consumption by utilities either for in-front-of-the-meter or behind-the-meter storage previously. That’s not uncommon though – biotech first started getting a lot of attention immediately after the dotcom bubble, but it took a decade before investors started to see major profits from the industry. Today, biotech is one of the hottest sectors in the market.
Energy storage appears to be taking the same path. Tesla is looking to vertically integrate with the Solar City acquisition for instance. This is a risky play that may or may not work given the sporadic growing pains in Tesla’s core business. Outside of household names like Tesla, many small energy storage companies are developing rapidly as well.
Take my favorite energy storage story, Orison. The company has developed a plug-and-play battery which requires no installation, and is cheap enough to be attractive to either utility customers or residential adopters. Orison’s battery is inexpensive enough that it makes sense in many areas of the country simply as a way to arbitrage differences in peak and off-peak electrical prices regardless of whether the user has solar power or not. That’s a crucial point – if energy storage makes sense economically independent of renewables usage, it creates significant incentives for mass adoption.