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Embracing the Next Energy Revolution: Electricity Storage
- October 18, 2017 Bain Brief
Even as the electric utilities industry continues to work through the implications of renewable generation, executives are already grappling with the next big thing: energy storage.
Energy storage is coming online quickly as the rapid adoption of electric vehicles brings down battery costs. This revolution will have tremendous implications across the electricity value chain because energy storage can replace peaking plants, alter future transmission and distribution (T&D) investments, restructure power markets and help digitize the electricity ecosystem.
In some markets, battery storage is already coming close to economic parity with some forms of peaking generation. Bain & Company estimates that by 2025, large-scale battery storage could be cost competitive with peaking plants—and that is based only on cost, without any of the added value we expect companies and utilities to generate from storage (see Figure 1).
However, Bain research into utility-scale energy storage finds that early deployment will require new business models that create value in multiple ways—or as it is sometimes called, value stacking. Of course, utilities can use batteries to store electricity during periods of low demand and then tap the stored electrons during peak periods to shave peak loads, and customers can do the same to arbitrage electricity rates. But until costs come down, leaders in energy storage will need to explore ways to stack value on top of peak shaving, such as ensuring more reliability from renewable generation, enabling customers to operate independently of the grid when necessary, and providing services like voltage and frequency modulation (see Figure 2).
New value for utilities
Along with these new opportunities, energy storage also brings new challenges, particularly as they relate to regulatory schemes. Storage is a hybrid, a bit like a peaking plant, while also providing services like frequency stabilization and bearing qualities that make it part of the distribution infrastructure. Successful integration of storage requires a comprehensive overview of the entire system. However, while vertically integrated or regulated transmission and distribution companies may have the best integrated view of the need for storage, regulators are concerned that they not dominate or stifle the market.
As with renewable generation, storage will affect the entire electricity ecosystem, from utilities to end consumers. Every utility executive has an eye on energy storage, but many have not yet confronted the complexities, such as integration into strategic plans, investment decisions or regulatory priorities. They need to grasp the opportunities sooner rather than later to avoid the types of pitfalls they experienced as renewable energy, particularly distributed solar, took off.
Energy storage is also becoming increasingly attractive to commercial and industrial customers for the reliability and arbitrage advantages mentioned above, as well as for the value-stacking opportunities. These customers, and the energy service companies that serve them, may have a clearer path to benefit from these new technologies, free from legacy generation and T&D, as well as the regulatory rules that apply to utilities.
For everyone in the electricity ecosystem, the advent of cost-effective energy storage can bring new opportunities for reliability, resiliency, sustainability and control.
Large-scale energy battery storage is reaching an inflection point, advancing from limited experimentation to wide adoption. In just the first half of 2017, several utilities announced their plans to build and deploy large arrays of grid-connected batteries in Australia, New Zealand and several states across the US. For utilities, battery storage will become an integral tool for managing peak loads, regulating voltage and frequency, ensuring reliability from renewable generation and creating a more flexible transmission and distribution system. For their customers, storage can be a tool for reducing costs related to peak energy demand and help them meet sustainability goals by ensuring a more reliable flow of electrons from distributed renewable generation, solar in particular.