If you understand markets, then you'll have a far easier time in the years ahead understanding energy storage. Indeed, the word storage itself is slightly unfortunate because it confirms a bunch of common intuitions about the volume of fixed site battery facilities we'll need to build: big box retail-like structures that will, no doubt, mar the landscape. These assumptions flow from the view that a powergrid flush with variable renewable energy (VRE), like wind and solar, will be called upon, at times, to provide days if not weeks of power supply once all the coal plants are gone and we are dependent on fickle breezes and sunshine. I call this the gross matching model of energy storage deployment.
But storage deployment is not likely to grow along such a redundant pathway. Instead, a far better way to think about storage development is market development. For, storage will not merely be a provider of supply, but will provide demand as well--and will do so flexibly. And therein lies all the difference. While Part III of Oil Fall, Waste Crash, goes deeper into this subject, let's lay out a few concepts.
Bring your bid. Storage will provide a Bid in electricity markets, offering to purchase surplus power when price falls too low--at night, for example, in domains with high wind resources like the United Kingdom, and Texas. Now that VRE from wind and solar alone is now cresting above 20% of the UK's total electricity supply, the UK storage market is running hot, with over 3GW of capacity already deployed and more to come.
Hit the offer. Storage will also provide a kind of Offer to electricity markets, when fleets of EV bundled up into market-making cooperatives either hold back on charging at peak hours, or, allow stored power to be sold back to the grid. Please see my cover story from November's PV Magazine, Between the Lines, which explains how full 2-way interoperability between EV and the grid is already rolling out in Europe, and how even a more limited version, 1 way interactivity between EV and the grid, is already appearing in the US.
Substitutability. A strong retort to the gross matching model of required energy storage will be the array of existing infrastructure that's ready to serve in a storage role. Retrofitted hydropower facilities, smart-enabled EV, other electrics, and even water heaters will be brought to bear on the problem. Why? Because there's a long and ongoing arbitrage opportunity to exploit, as VRE produces surplus power, and we use devices to time-shift that supply to better meet demand. See my story on Portland General Electric's superb water-heater test, which converted a fleet of heaters to become a virtual battery using smart-enabling technology and a sub-channel of the FM radio frequency.
Let there be no doubt, however, the world will still need to build a bunch of fixed site storage. But really, should we cower before the prospect of the time and cost to deploy it? Not a bit. In the latest conference call from NextEra (NYSE: NEE) the industry has signaled the arrival of a key threshold: the cost of wind and solar has fallen so far, and will continue to fall further, that the paired cost of VRE+Storage will crush not only future competition, but existing power generation from coal and natural gas. "With continued technology improvements and cost declines, we expect that without incentives, wind is going to be a $0.02 to $0.025 per kilowatt per hour product, and solar is going to be $0.025 to $0.03 per kilowatt hour product early in the next decade. Combining these extremely low cost with one-half to three-quarter cent adder for a four-hour storage system, will create a nearly renewable generation resource that is cheaper than the operating cost of coal, nuclear and less fuel-efficient oil and gas-fired generation units." - Jim Robo, CEO of NEE.
The Gregor Letter is a companion to TerraJoule Publishing, whose current release is Oil Fall. If you've not had a chance to read the Oil Fall series, the single title just published in December and you are strongly encouraged to read it. Just hit the picture below.