Global investment banking group, Citi, says wide deployment of battery storage will hasten the demise of fossil fuels and any utilities that remain focused on centralised generation. Citigroup expects a rapid fall in battery manufacturing costs and estimates a $400 billion energy storage market by 2030.
Citigroup claims that the battery phenomenon will be even more profound than the solar revolution of the last decade, and warns that any traditional utilities that remain focused on centralised generation will be left behind.
For this reason, energy storage has been included as part of Citigroup’s analysis of the 10 major investment themes for 2015, stressing the significance of continued development in this technology.
The issue is rapidly moving beyond those focused on the utilities and energy markets. Energy storage is now becoming part of mainstream financial thinking, and because of that will have a profound influence on capital flows across the globe.
Citi says improvements in battery storage both in terms of operational performance and economic terms should further expand and accelerate the trend for businesses and households to become self-sufficient in terms of electricity generation.
Energy storage is increasingly being touted as the disruptive technology, which will revolutionise a multitude of clean technology applications. The latest analysis from Citigroup highlights the implications of this disruptive technology on fossil fuel energy demand.
Renewable energy has long been the underwhelming, clean alternative to nuclear and fossil fuel derived power. Energy storage would reduce both the cost of intermittency and the physical grid constraints that prevent deeper renewable energy penetration. Affordable, high performance energy storage would undoubtedly boost to the growth of renewable energy in residential and commercial smart building, as well as grid level power supply.
If storage can be competitively used to “firm” intermittent resources, renewable energy sources can become a true substitute for baseload generation. In many markets around the world, baseload is dominated by coal fired power plants.
Storage enabled renewable energy would also benefit from the growing policy pressure to displace coal in markets ranging from the US to China, policy is likely to emphasize the substitution of firm renewables in place of coal-fired generation.
Furthermore, where oil is still used in the global power sector, it is most often utilised as peaking capacity. If storage is also deployed as a utility-scale peak shaving asset, storage might start to push out the stubborn oil-based generation still holding on to its only remaining power producing role.
In the near to medium term, natural gas’s complementarities with renewable power generation makes gas a winner in any scenario with increased renewable energy sources, as gas continues to be the best option to balance intermittency in many places. However, it too would pose challenges to the utility model in many countries, as any former base load fuel supply would bring lower returns to the utility based on lost peak / high priced demand load.
Away from residential and commercial power supply, energy storage is being developed to promote the growth of electric vehicles. Significant success in this field would greatly erode petrol (gasoline) demand, let alone demand growth. If we were to imagine a wide scale deployment of electric vehicles combined with the seemingly inevitable increase in North American production of oil and gas, not to mention African, Australian and South American production potential, we can assume further pressure on oil and related commodity prices.
Electricity is one of the few non-storable commodities in the 21st century global power market, but large-scale energy storage, would change the way we look at electricity. Linking spot prices to forward prices in this transformed commodity would make electricity markets trade much more like oil or gas markets. The implications for power forward curves and asset finance would be huge.
When the impact of energy storage will be felt is harder to predict, as is foreseeing the technologies and companies who will lead the energy storage revolution. As in the solar industry, battery makers will be squeezed by severe pricing pressure from users on the demand side, and unavoidably high procurement costs on the supply side.
Success will depend on the creation of new business models, away from the simple sales of hardware, towards a service model that includes after-market services. Comparable to the development of solar leasing, which is now proving more profitable than solar manufacturing.
Citi says the storage battery market is likely to develop as an infrastructure business that involves the supply of services and solutions. It will not be limited to hardware and the most successful firms will be those who come up with solutions that increase the convenience for users and make a long-term commitment to infrastructure. Stating, “the rise of distributed solar generation and battery storage, does not necessarily mean the death of the utility model”.