Innovation in the Energy Storage Market Contributes to Market Growth

Energy storage is on track for another breakout year in announced capacity. According to Guidehouse Insights’ Energy Storage Tracker 2Q19, in 2019, 4,230 MW of storage has been announced or built with 145 projects (or 3,251 MW) of advanced battery projects slated in the pipeline. Innovations in business models, regulatory treatment of storage, and technology cost declines contributed to market growth globally.

Not only are system prices declining over time, but prices between longer and shorter duration projects are also compressing. The number of hours stored in advanced battery systems is the key driver of system price—lithium ion (Li-ion) battery packs account for at least 20% of a 30-minute battery system, 35% of a 1-hour battery system, and 65% of a 4-hour system price. (Note: system price includes battery pack, power electronics, software and controls, balance of plant, and systems integration. System price excludes site installation and project development fees—which are project and site specific.)

Price compression is clearest with Li-ion batteries. By Guidehouse Insights’ estimate, the compression is happening at a rate of 21% over the 2019-2028 period, using a 1-hour system as the reference case. In 2020, an installed 4-hour system is 195% the price of a 1-hour system. By 2028, an installed 4-hour system will be 174% the price of a similar 1-hour system (the installed price includes battery pack, power electronics, software and controls, balance of plant, systems integration, site installation, and project development fees).

Utility-Scale Li-Ion Battery System Pricing, 10 MW System by Duration, World Averages, Base Case: 2020, 2024, and 2028

(Source: Guidehouse Insights)

Price compression will enable energy storage plus solar PV to displace natural gas power plants, defer transmission lines, and lower delivery charges to ratepayers using non-wires alternatives mechanisms. Instead of gas-fuelled assets, utilities with high irradiance service territories in North America are buying solar plus storage, solar plus wind plus storage, and wind plus storage to fulfil local capacity requirements. 

This is not to say that natural gas, storage, and renewables are not complementary. However, in the future, natural gas prices are expected to remain steady or increase whereas price compression for Li-ion battery systems will lower the marginal cost of energy storage. With storage plus power purchase agreement (PPA) prices plummeting, storage plus is already an attractive resource option compared to greenfield natural gas plants. According to the Guidehouse reference case (which includes assumptions for capacity factors, gas prices, variable operating, and maintenance/fixed operating and maintenance expenses, heat rates, and capital costs in 2021), Guidehouse Insights expects the 2021 levelized cost of energy for a new combined cycle gas plant to be $41/MWh-$47/MWh (2018 dollars). By contrast, PPAs for solar plus storage plants issued in 2018 for plants commissioned in 2021 range between $30/MWh and $41/MWh, including capacity payments.

Solar Plus Storage PPAs in North America: 2017-2018

Note: Dollars per kilowatt-hour information was not available for APS Redhawk

(Source: Guidehouse Insights)

The trend is not limited to large scale, front-of-the-meter storage. Utilities use contracts to storage, solar, and other emerging technologies to provide reserve services normally delivered by gas. For example, in the Pacific Ocean, the Republic of Narau’s small-scale solar plus storage project will help the island defer diesel costs. 

To learn more about innovation in the energy storage market, find Guidehouse Insights at ESNA 2019 in San Diego, California on November 5-7.