Like the soap bubble, a market bubble can seem as if it will rise forever, floating carelessly in the air. However, since market bubbles are not formed from anything substantial they, like soap bubbles, will eventually pop. When they do, the money that was invested into them dissipates into the wind.
Approximately 475 MWh was added to the energy storage market in 2016, that’s almost 300% more than in 2015, according to Shayle Kann, GTM Research’s senior vice president.
“This extraordinary amount of attention and investment to an energy storage market where not much is getting deployed has all the makings of a bubble,” Kann stated at the U.S. Energy Storage Summit late last year. “That should give everyone pause – but it is not a foregone conclusion that the bubble will pop.”
The energy storage market, as with other many other markets, is driven by a cost – benefit equation. As costs go down or benefits go up value is created and the market grows. While energy storage technologies do continue to advance, it is the falling costs that have produced the greatest force in this sector, namely the falling costs of lithium ion batteries.
Elon Musk’s Tesla, a stationary battery market leader, expects economies of scale to continue driving down energy storage prices. Mateo Jaramillo, former vice president of Tesla’s products and programs suggested recently, before leaving the firm, that energy storage costs could drop as low as $0.05/kWh by 2030.
“We bet the whole company on it,” Jaramillo said. “It will take a lot of work to get the battery, the power electronics, and the mechanical and electrical systems down the cost curve. But it is engineering work, not science work, and Tesla is doing that work.”
Kann warns however, that the energy storage market is still nascent, drawing comparisons to what the photovoltaic solar sector looked like in 2005, before its bubble burst in 2007. This does not necessarily mean the same will happen, nor that it won’t, these are different technologies after all. For example, “energy storage has so many values and is so versatile that it has to prove its capabilities in each use case,” Kann said.
Continued hype within a nascent market is the scenario we should be looking for to foretell this bubble and bust saga; we know the hype is still there but is the market nascent?
Currently, California and Hawaii account for more than half of all residential battery storage capacity in the US, and California alone accounts for 86% non-residential storage capacity. While this has come about due to the high electricity rates in those states, “this kind of deployment to a single or a few locations based on a particular set of conditions is indicative of a nascent market,” explains Kann.
Furthermore, the cost – benefit equation of energy storage is fragile. It depends heavily on the variable electricity rates put in place by utilities. Storage is based on charging with low-cost electricity and dispatching when costs are high, if a flat rate was offered by utilities it could change everything.
Utilities created variable rates to encourage shifts in electricity demand from high-cost / high-consumption times to low-cost / low consumption times, in order to balance supply and reduce peak demand. So it is conceivable that a balanced energy system achieved by masses of energy storage could bring about the business case for removing those variable rates. Energy Storage could create the conditions for its own demise.
As long as electricity demand is growing this should not be an issue. However demand has been on a gradual downward trend in the US since 2009, despite a slight rebound last year. As peak rates become lower batteries would need to be correspondingly cheaper to remain cost-effective.
There are still many “ifs” and energy storage cost does not just mean battery cost. There are many more energy storage technologies, each with their own cost characteristics and each ready to take the mantle for certain applications and under certain conditions.
While batteries offer good value at small scale, pumped hydro is already more cost effective for large scale, where elevation is available. Flywheels may not store that much power but can dispatch it quickly. Cryogenic (liquid air) energy storage, compressed air and hydrogen each have their advantages and disadvantages. There may not be a battery bubble to burst but these technologies could step in to support the wider energy storage sector.
"Is there an energy storage bubble about to burst, leading to a crash and a consolidation before growth can resume?" Kann asked, at the summit. “Or will the technical and financial regulatory issues be resolved, allowing the market to scale? Can we get this market built to the point where the bubble does not pop?”
[contact-form-7 id="3204" title="memoori-newsletter"]