How Batteries Will Change the Power Business
STERLING, MASS.—Until recently, this tidy, quiet town in central Massachusetts was best known to outsiders for its eight-acre corn maze out by Davis Farmland, and for a little statue near the corner of Main and Park immortalizing the lamb that is said to have followed young Mary Sawyer to school one day in 1812, inspiring a well-known poem. Lately, however, Sterling welcomes visitors from far away who don’t come for outdoor fun or nursery rhymes.
“As soon as it came on-line, they started rolling in—Japan, Switzerland, Sweden, Brazil, Colombia—13 different countries so far,” says Darren Borge, operations supervisor at the town’s light department. The visitors come to peek inside a single shipping container placed in late 2016 at the power substation on Chocksett Road. There, twin rows of what look like post office boxes pack lithium-ion batteries that together can hold two megawatts of power. That’s enough to make Sterling, population 8,000, the country’s per capita energy-storage leader—and a glimpse of the future of the electricity business.
High-power batteries have already infiltrated the chain-saw aisle at Home Depot and are poised to disrupt the car industry in the decades ahead. Now, they are quickly multiplying across the U.S. power grid. In Sterling, those two megawatts are enough to provide savings and resiliency—to smooth out power demand and avoid peak charges, and in the event of an outage, run the nearby police department and fire dispatch for more than a week.
Last year, the nation installed half a gigawatt of energy storage—equal to 250 Sterlings. Over the next eight years, the country will add more than 35 gigawatts of storage, or 17,500 Sterlings, predicts the Energy Storage Association, a Washington, D.C., industry group. That’s enough to save $4 billion in yearly operating costs. Stephen Byrd, a utility analyst for Morgan Stanley, calls that storage forecast credible. He reckons the U.S. storage market will eventually be worth at least $20 billion, and $35 billion under more bullish assumptions.
That’s excellent news for many stakeholders. Consumers stand to save on power and see fewer disruptions. Towns can cut pollution and add jobs. Some utilities will enjoy lucrative growth opportunities by, for example, combining renewable power with storage, while others could be left behind, generating costly coal and nuclear power while prices fall around them. Right now, stock valuations across the utility sector aren’t especially differentiated, providing an opportunity for investors.
How Batteries Will Change the Power Business
Sterling is one of a few dozen Massachusetts towns that operate their own power companies rather than rely on investor-owned utilities, and it was an early and eager adopter of solar power through purchase agreements from a nearby provider. But solar power, like wind power, comes with a timing problem. The sun shines brightest at midday, and the wind blows strongest at night, while consumers use the most electricity around dinnertime. With too much solar, surplus electricity can feed back onto the transmission operator—a dangerous condition. If there isn’t enough solar power, customers are forced to pay peak prices to power wholesalers, eclipsing their savings.
Solutions were few as recently as several years ago. But as smartphone sales boomed around the globe, the costs of lithium-ion batteries fell. Companies such as Tesla (ticker: TSLA) and LG Chem (051910.Korea) poured research dollars into batteries large enough to power electric vehicles. Each EV battery can supply roughly three times the power used by a typical household in a day, making automotive battery breakthroughs applicable to utilities, too.
Two years ago, the town of Sterling turned to nearby NEC Energy Solutions for batteries, management software, and know-how. The facility took two months to set up and cost $2.5 million. This past April, the town published a case study estimating that storage cut $400,000 from its power bill in the first year. At that rate, it will pay for itself in less than seven years—2½ years after factoring in state grants.
A few recent developments have made Sterling’s experience suddenly relevant to large-scale power players. The cost of renewable power, especially wind, has fallen low enough to attract the interest of profit-minded businesses rather than just do-gooders (see table on page 21). Last year, in fact, it became profitable for the first time for the owner of a typical coal plant to build a wind farm to replace it, according to a yearly analysis by Lazard, an investment firm. Storage has become a cheap and useful add-on for renewable power projects. Bids for a project in Colorado published late last year showed that developers were willing to build combined wind and storage capacity for $21 per megawatt-hour, compared with just over $18 per MWh for wind alone.
New business models are popping up. Stem, based just outside of San Francisco, provides batteries, software, and artificial intelligence to corporate customers for a fixed subscription price, and says it can cut power bills by 10% to 25%. Software maker Adobe Systems and Amazon.com’s Whole Foods Market unit have signed on, as has a Wet ’n’ Wild water park in Honolulu. AES (AES), a power generator, last year announced that it was shedding 30% of its coal-fired capacity and formed a storage joint venture with Siemens (SIE.Germany), called Fluence. This year, it began marketing a combined solar/storage platform.
“If you have a gas plant that gets fired up only to meet peak demand, you might operate it at less than 10% of capacity,” says AES chief Andrés Gluski. “If you use batteries, they’re online 100% of the time. They stabilize the grid, so you get more advantages than you pay for.”
NEC Energy Solutions, meanwhile, is thinking much bigger than its project in Sterling. “Imagine that platform and 50 just like it were aggregated on our system, and could bid into markets,” says CEO Steve Fludder. He recently built a 48 MW storage facility in Jardelund, Germany, that is Europe’s largest, and will sell capacity to transmission-system operators through weekly auctions.
In Washington, D.C., storage is finding support for more than its environmental or commercial benefits. “I’m fairly immune to politics because we focus on national security, and that cuts across politics,” says Bruce Walker, assistant secretary at the Office of Electricity at the Department of Energy. “Having run grid control centers for most of my life, I’m absolutely convinced there’s a key role for storage to play in security.”