The Companies That Are Trying to Solve the Energy Storage Riddle
The energy storage industry is positioned for some huge growth in the coming decade, but it’s already starting to take off in some surprising places.
In this week’s episode of Industry Focus: Energy, Sean O’Reilly talks with Motley Fool contributor Travis Hoium about the budding market for energy storage. Tune in to find out where the energy storage industry is the most active today, where it might grow in the future, a few companies that investors can look into if they want exposure to the space, how power pricing in the continental U.S. is affecting the growth of residential power storage, and more.
Sean O’Reilly: Welcome to Industry Focus, the podcast that dives into a different sector of the stock market every day. Today is Thursday, Feb. 23, 2017, so we’re talking about energy, materials, and industrials. I’m your host, Sean O’Reilly, and joining me today via phone is Motley Fool energy and industrials contributor, Mr. Travis Hoium. What’s up, Travis?
Travis Hoium: Hey, Sean! How are you?
O’Reilly: Very good! How’s life in Fool Land for you?
Hoium: Going well, it’s busy in solar and energy storage, as always. I’m excited to talk about this a little bit.
O’Reilly: We’re not talking about it today, but what did you think of Tesla’s (NASDAQ:TSLA) earnings release? Did they shed enough light on SolarCity for you?
Hoium: They didn’t give us a lot of insight into SolarCity, and now they’re bunching solar in with their energy storage business. Just a quick look at it, it looks like margins are pretty low, although they did say that the SolarCity side was cash positive. We’re not getting a lot of information as to what they sold to generate that cash. It’s a little bit murky right now. But we’ll see how that plays out. Manufacturing will be really big in the next six months. If they get their Gigafactory 2 online, that’ll be really big. We’ll see how that plays out.
O’Reilly: Very good. I wanted to have you on the podcast today because you’re kind of my solar guy. That lends itself, of course, to something we don’t hear about a lot in the cultural nexus, even here at The Fool, because it’s going to be a big deal, we think, but, it’s energy storage. I wanted to talk to you about the companies that are trying to solve the riddle of energy storage. For the last 10 years, ever since renewables started their ramp up, I remember, even when I was in high school and Buffett started investing in those wind farms, and you realize that it sounds like a great idea to build a bunch wind turbines, to put them in the middle of nowhere and transport the power to the East Coast or the West Coast, but you lose a lot of energy. It’s not terribly efficient. T. Boone Pickens had that Pickens plan, and you just lose all this energy. Really quick, can you give us a bit of background on how you view energy storage, and lead in what a listener might need to know at this point?
Hoium: Yeah. To put it into three different buckets, we have residential, commercial, and utility scale energy storage right now. Those are developing in different ways. Residential would be things like the Powerwall that Tesla introduced a couple years ago. That’s going to be storing energy for your use at home. There’s not really a financial justification yet. There’s a lot of ways that could be used, but there’s not a lot of them in the field yet. Commercial energy storage is something that would be at a commercial building, maybe a factory. What they’re going to try to do is reduce their demand charges. Commercial buildings have a little bit different rate structure than the typical homeowner has. So, they’re charged based on their peak demand. If they can lower that peak, they can save money, therefore justifying an energy storage system. Utilities is really the big market that’s growing right now. They have a lot of justifications like grid reliability, frequency regulation, they can delay capital expenditures that they might have to put into place. So, that’s a big one to watch right now. Everybody is pretty much using batteries as it stands right now. What you’re talking about with transporting energy from the middle of the country to the coast may or may not be something that batteries would help with. That might be something that’s a little bit longer term, like hydrogen. But, right now, batteries is pretty much dominating this market, and residential, commercial, and utility are really the three different places that I’m watching right now.
O’Reilly: So, with the commercial — commercial/residential, I remember when Elon Musk did the big press conference about the Powerwall, and he came out on stage, and this whole thing? Then there was the surprise, they’re like, “Oh, by the way, the building has been running on a bunch of Powerwalls.” Is that what you’re talking about with commercial? Or is that too small? That’s what I’m wondering right now.
Hoium: You could do that on a limited basis. You would have to install a ton of batteries.
O’Reilly: There are a bunch of them behind them, as I recall.
Hoium: Yeah, and you can do it for a short amount of time. But it’s very unlikely that the building they’re in is running 24/7 on energy created just for that building. The idea would be, you combine solar with storage, you can cut your ties to the grid. That’s not quite where we’re at today. You may be able to, if you have a factory and you’re running full bore between 12 and 4 every day, and that’s when your peak electricity consumption is, that’s when you might use energy storage. So, you might store some energy overnight, and use your energy during those hours to reduce your peak charge for your facilities. So, that’s really, in the commercial space, the applications that we’re looking at right now.
O’Reilly: Awesome. So, how big is this market? I was surprised when you said that utility energy storage is really where it’s at right now.
Hoium: Yeah. According to GTM Research — they do the best work in this space —
O’Reilly: That stands for Green Tech Media, right?
Hoium: Yeah, Green Tech Media. They said that in 2016, we put about 260 megawatts of energy storage into place. That’s expected to grow to 478 megawatts in 2017. So, if we compare that to the solar industry, the solar industry put in about 14.6 gigawatts. So, this is a really small market. Most of what was installed in 2016 was really just a couple of very large project. The Aliso Canyon, remember that natural gas leak they had, they basically had energy storage come in, Tesla and a couple other companies were involved in putting in some energy storage that would be able to allow them to hit their peak demand times. But you take out that project and a couple other big ones, and the market almost doesn’t exist anymore. So, it’s really small, but it’s expected to grow by almost 10X in the next five years. So, this is something that’s really on the horizon, we know it’s coming, it’s just sort of undefined, what exactly it’s going to look like. Like you said, utilities are the ones that are seeing the most financial justification today, but that’ll be coming down the line with commercial and residential projects, as well.
O’Reilly: Got it. So, as things stand now, it’s entirely utility-scale installations. Just for the layman, what does this look like? Is it a building with a bunch of batteries in it, and it’s right behind a field of solar panels? What does it look like?
Hoium: That can be the case. Tesla has built, and I think is building another project in Hawaii where they’re combining a large solar installation with energy storage so they can provide energy that looks a little bit more like a baseload energy source than the existing peaks and valleys that come out of solar or wind farms right now. What they’re doing mostly at the utility scale is basically locating transformers at their bases of infrastructure. So, it’s being tied into the grid, and then becomes part of the grid asset. I think that’s really the way that utilities are going to look at this.