CERAWeek: Entry into battery storage industry requires caution: execs

The battery storage industry comes with a buyer beware warning, according to executives attending the CERAWeek by IHS Markit conference, even as corporate titans, bankers, and investment gurus froth at the mouth at its prospects.

Speaking on a panel 5 March, Johannes Rittershausen, CEO of US-based Convergent Energy & Power, said the battery storage sphere was very different to many of its counterparts in the energy transition, especially those with a head start, be that for companies entering the arena or anyone looking for an investment opportunity.

"I think track record is key here, just having experience in the broader energy industry does not necessarily qualify a firm to develop this type of asset class, and so, really looking at a track record. Have assets been developed? Is there steel in the ground? Are they operating correctly?" he said.

"That last point, is, I think, crucial; because, unlike wind and solar which is more of a passive asset, once you build it, the sun shines … storage has to be actively dispatched, you have to make active decisions about when to turn the storage on and off. It is hard to discharge. In order to create [value] for a particular customer in a particular circumstance," all this needs bearing in mind, Rittershausen said.

Battery storage needs ongoing management in ways that he said "traditional renewables" do not.

His was not an isolated stance. "I think the biggest issue that investors coming into the space now from other related areas need to focus on is the complexity. This is not … a passive asset … where you plug it in and wait for the sun to shine," said Andrew Tang, vice president, energy storage at Finnish company Wartsila, adding: "Batteries tend to be finicky."

Tang qualified that by advising that a battery only tends to make money when electrons are moving, and stored power must be discharged cautiously, saying that not doing so can limit battery lifespan. Although, he said, there are occasions like the past few weeks in Texas, when operators don't care about battery life because they're "absolutely printing money."

The level of complexity is different, Tang said, unlike any seen before in the power industry, and the operator must focus closely on the control system. A company cannot just "contractually sell [itself] out of every problem," he said.

Even more so than with other investments, it pays to do one's due diligence, he said.

Incentives or regulatory barrier removal?

But that's not to say the future for the sector isn't bright or that the excitement isn't warranted, the panelists said. More applications for storage are emerging, said Rittershausen, as the underlying system expands and at the same time as the cost of doing so increase. Energy storage adds the dimension of time to the energy sector, added Roger Lin, US Energy Association board member.

When it comes to building back better, as President Joe Biden has promised a US electorate aching for good news after the economic damage the COVID-19 pandemic caused, renewables are the cheapest form of generation, so that's where incremental dollars are going, Tang said. But to make it affordable in terms of scale, and in order to rate base the costs, storage is the way to enable renewables to push past the 30-35% penetration level, he added.

That will required funding, and Jigar Shah, who founded SunEdison in the early 2000s and invented the purchase power agreement model that is now the backbone of most US solar energy projects, has been tasked with funneling billions of dollars into the Biden administration's ambitious energy transition plans.

"He's has written the playbook on how to drive the market toward clean energy solutions," Biden's newly Secretary of Energy Jennifer Granholm told CERAWeek attendees earlier this week. "He's going to help us put together an indominable portfolio of investments for American taxpayers so we're ready to invest in advanced vehicles, and carbon capture, and advanced reactors and so much more. The possibilities are endless."

Possibilities that include incentives for storage. Incentives "are the big hammer," said Lin. Although the panelists said that wasn't all that was on their, or the industry's, wishlist.

When asked by moderator Julian Jansen, IHS Markit associate director, consulting - clean technology & renewables, to choose between incentives or the removal of regulatory barriers, Tang said "incentives always help, far be it from me to turn down incentives."

But there is a need for regulatory change as there are some players who cannot participate in some markets at the moment.

"Because storage is such a flexible asset, some of [the US'] regulatory policy is actually lagging, or trailing, how you make the investment. So, for instance, the shift to open markets which, don't get me wrong, has primarily been a very good thing, … has actually created something of a challenge for regulatory constructs, because you're either a generator or you're alone, in the way a lot of the market rules are designed." As a result, some players cannot participate in all of the revenue streams, he said.

Among the other issues facing the sector is customers wanting longer duration options, which was a bit of an issue, with the lithium-ion battery space somewhat hamstrung from a cost front, as scaling up the technology is linear when it comes to the bankrolling, according to Tang.

Still, the lithium-ion battery is going to be dominant for some time, the panel agreed, even as talk of alternatives ramps up and governments seek to diversify and strengthen supply chains.

For the foreseeable future, said Rittershausen, lithium-ion batteries are set to rule the roost, accounting for "99% of the solution," but in three to five years' time, things could have changed. But for the three-to-five-year timeframe, lithium-ion players were "a safe bet," he said.

Posted 05 March 2021 by Keiron Greenhalgh, Senior Editor