AI and Solar Batteries are Getting Better and Cheaper Making Them Transformational
Cheap and distributed solar has changed the grid. Batteries combined with AI will transform it. Batteries are a necessary complement to intermittent renewables if there is going to be a path towards a decarbonized grid for most countries. Take a deep dive to understand battery technology, its economics, and how AI and innovation are making energy storage the ‘Holy Grail’ no more.
Lithium-Ion Battery Prices are Plummeting
Lithium-Ion battery prices are going down, down, down. BloombergNEF’s latest battery price index out this week indicates that prices this year are down nearly 90% from 2010.
Li-on Battery Prices Down From $1250/kWh to $137/kWh This Decade
Battery prices are repeating what we have seen with solar panels, with Lazard estimating that PV panels dropped by 89% from 2009 to 2019.
Battery prices are following as production scales up. Total demand in 2020 is roughly 1000x 2010 demand. The expected surge in electric vehicle (EV) driven demand growth in the coming decade, on top of the stationary storage demand growth, is forecast to see demand grow another 20x this decade.
This ongoing build out in production capacity will give plenty of opportunity for more ‘learning by doing’ and prices are expected to keep falling.
As such it is great news that battery prices are falling on the back of surging EV production and demand. The fact that Li-ion batteries are the chemistry of choice for Tesla and the other EV car manufacturers explains why all the other proposed battery chemistry seem to fail, at least so far. The EV industry gives Li-ion batteries a leg up in scale that no other chemistry that is solely reliant on the stationary storage market can match.
Batteries Can Do A Lot Of Different Things; So Many Kinds Of Value
Batteries are versatile, they are known as the ‘Swiss army knife of energy’. For customers, batteries can smooth over the gaps left by intermittent renewable generation sources like solar and wind, peak shaving, or Time-of-Use arbitrage. For system operators (Independent System Operators or Regional Transmission Organisations – ISO/RTO in US terminology) and the utilities, batteries offer an entirely different set of value propositions.
1 Battery = 13 Value Propositions
The Rocky Mountain Institute (RMI), a fantastic long-standing resource for bleeding-edge research on all things energy-related; in 2015, RMI published a useful taxonomy of 13 different kinds of value offered by batteries; the Value Stack in a key report: The Economics of Battery Energy Storage: How multi-use, customer-sited batteries deliver the most services and value to customers and the grid.
It is useful to separate the value stack into customer benefits and grid services. Customer benefits include avoiding demand charges and time of use tariff arbitrage, as well as back up power. The grid services are provided to either the grid operator or the utility.
Batteries Help Grid Operators In Many Ways
Utilities have a separate list of services that they can use batteries for. These fall into two broad categories; upgrade deferrals and congestion relief.
Location, Market Structure, and Artificial Intelligence All Required To Maximize Value Potential
Where the batteries are located matters. Batteries can be installed at the transmission level, the distribution level or Behind the Meter (BTM).
Transmission Level: This includes large central generation stations, transmission lines, transmissions substations, or transmission-connected customers. This is the farthest upstream location that energy storage can be deployed on the grid, generally characterized by higher voltages (in the 115–765 kV range).
Distribution Level: A midstream deployment location for energy storage, including medium voltage distribution lines, distribution substations, and commercial/industrial customers tied directly to the distribution system, through customer substations, at voltages ranging from 4 to 69 kV.
Behind the Meter (BTM): The furthest downstream location where energy storage can be deployed. BTM storage is on the customer side of the meter in or near residential, commercial, or industrial buildings (can include electric vehicles).
Different Values For Different Groups
The diagram below illustrates the 13 types of value made available to the 3 different set of stakeholders, depending on the location of the battery.
Only the BTM location allows access to the entire value stack. Batteries positioned further upstream, at the transmission or distribution level, do not offer the benefits at the customer level.
The value to the utility in terms of deferred infrastructure build out, either transmission or distribution, is the biggest value proposition of all, but there is no good reason to forfeit the customer benefits.
The location of the battery matters, but so does the market structure. For example in Costa Rica there is no market for any of the grid services available to the operator or utility. This means that the only value that can be monetized (saved) is to the customer.
In some states in the USA and in many of the more advanced power markets in Europe and Asia, market structures exist to let an individual with a battery in their garage sell grid services to the ISO/RTO/utility and thereby extract more value from their battery.
AI Makes Energy Storage Smart
Cheap batteries are a good start, and at the customer level they can still offer a compelling value proposition in terms avoiding demand charges, back up power and resiliency; or arbitraging time of use tariffs.
As soon as we start to look at some other functions and services that batteries can offer, the optimal use algorithm starts to get very complicated very fast. Battery hardware alone does little to unlock the true value of energy storage; it needs artificial intelligence (AI) to get smart.
At Avolta Energy we are working with world-class battery suppliers to offer our commercial and industrial clients solar and storage systems with great economic savings from day 1, along with backup power, peace of mind, and performance. Our sonnenCore offering for homes comes with a state-of-the-art energy management software (EMS) system that does facilitate participation in grid services markets where local market structures allow it.
Batteries are coming to Central America. The Utilities Here Are Not Ready To Take Advantage
At Avolta Energy we are seeing more and more projects where adding batteries improves the already solid ROI for the solar project.
“We are seeing commercial and industrial projects where adding batteries increases the total system price by 60% but reduces the payback period from 6 to 4.5 years, because of the increased flexibility and savings the batteries can offer.“
– Seth Kleinman, Co-founder of Avolta Energy and a former executive at Citigroup and Morgan Stanley
Adding storage or a system to a solar installation multiplies the complexity of the project by several orders of magnitude; at Avolta Energy we are experts in storage analysis. If grid services are included in the value proposition, in order to size the system correctly and maximize the returns from a solar+storage system for the customer, AI is needed to perform the predictive analytics, machine learning, big data, and grid-edge computing required to achieve these returns.
“The system needs real time data on loads, solar generation, weather, nearby grid congestion and electricity rates, AI is necessary for real-time adaptive storage dispatch, to provide and capture these values for the customer and the grid. All this computational power delivers calibrated savings, resiliency and asset optimization.”
– Larsh Johnson, CTO of Stem
Cheap Solar Was Big, Smart Storage Will Be Bigger
Smart storage can stand alone, even where solar economics do not make sense; it produce multiple services and benefits for the customer, utility and the grid. Smart storage can be used to optimize distributed energy resources, expanding the PV’s value and turning solar into a dispatchable grid-facing asset. Moreover, storage’s value in shaping and smoothing variable generation will enable the build out of new solar systems beyond current grid or circuit limits.
Smart Storage Can Be Win, Win, Win, Win, Win
“In each of these cases, the customer, solar developer, ratepayer, utility and grid win. Adding storage to solar projects maximizes the return on the solar investment, gives the host site greater control and flexibility in the face of changing rates and enables access to new utility programs or wholesale market revenue opportunities. Utilities and grid operators can contract services from customer-sited solar virtual power plants to provide firm, reliable and cost-effective energy precisely where and when it’s needed, avoiding the need for new peaking power plants or other costly infrastructure.”
– Larsh Johnson, CTO of Stem and formerly Chief Technology Officer at Siemens Digital Grid
However, all this winning is only possible if market structures allow it. So far in Costa Rica and Central America this is not the case. But this is going to have to change if the region is going to make the most of this huge new asset that allows new techniques in energy storage unlock.
At Avolta Energy we love solar, and we love batteries, and we love intelligence both artificial and the old-fashioned kind. Please get in touch if you want to find out how we can help you save a lot of money off of your electricity bills, and we can see if batteries make sense for you.