Using a battery to power your mobile phone—or your watch, or your laptop—is obviously no big deal. But on April 16 this year, the kinds of batteries that power your mobile and your watch went quite a lot further, becoming the largest source of power for one of the world’s biggest electric grids.
The grid in question belonged to the California Independent System Operator (CAISO) and at just over 8pm in the evening batteries covered almost a quarter of its more than 25 gigawatts of demand, beating the amount of electricity obtained from gas turbines, hydro plants and interconnectors. What happened at CAISO is likely to become a common event not only in California but also potentially in other markets transitioning to electricity systems dominated by renewables, from Ireland to Australia, in a trend that underscores the growing importance of batteries to society.
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Batteries are already vital for consumer electronics and increasingly for transport, with electric vehicles already accounting for 44% of new two-wheeler and 43% of new bus sales in 2023. Batteries, going forward, are also likely to dominate in stationary storage, trucks, trains, ships and possibly even planes.
What is driving this remarkable adoption across sectors?
Energy storage has been around almost since the dawn of humanity with two technologies: hydro power storage and lead-acid batteries dominating electricity storage in the 20th century. But what has changed the picture more recently and allowed batteries to become a kind of Jack-of-all-trades to be used across multiple industries is the advent of lithium-ion technology.
“Lithium-ion (Li-ion) batteries, … with their Swiss Army knife-like versatility, offer an array of applications that extend far beyond their current use,” says a new report on energy storage from Alexa Capital. “Their capacity to store and discharge energy on demand is not just reshaping our energy systems but is also setting the stage for a radical shift in transportation paradigms. In short, batteries are a key building block for our increasingly digital, distributed and decarbonised economy.”
The key to Li-ion’s versatility is its unparalleled energy density, which outstrips the nearest competing battery technology by more than three to one. This is what has allowed batteries to go from starting your car engine to powering your entire home or car… or supporting whole grids such as in California.
One area of particular interest is so called behind-the-meter storage, batteries that are in our homes and buildings. Customers are motivated by bill savings from solar self-supply and back-up power in areas with unreliable electricity access. Bill savings from solar self-supply are often a result of reducing electricity sourced from the grid with self-generation. Already in countries like Australia and Germany payback periods for investments in solar and storage systems are below 7 years making it a very attractive investment opportunity for homeowners.
Going forward, the increasing accessibility and affordability of solar and storage, will further catalyse growth. With the proliferation of electric vehicles, commercial and residential storage, and heat pumps, the landscape of electric generation is shifting towards decentralised energy resources located on the grid near the consumer. This will significantly alter the traditional dynamics of electric supply.
Along with their technical superiority, the outlook for Li-ion is being driven by three major tailwinds. The first is that—notwithstanding its widespread use today—Li-ion is still a relatively new technology and is thus continuously benefiting from ongoing performance improvements and cost reductions.
Li-ion’s energy density has been rising in line with the technology’s cumulative market size and the rate of improvement has quickened since 2012. This was the year that Tesla launched its Model S sedan and made EVs trendy.
Thanks to the production improvements and economies of scale that have emerged since, the price of Li-ion is expected to fall from a current level of around $100 per kilowatt-hour of capacity towards $30 by 2030. Already this year quoted prices for Chinese battery storage systems have dropped by 50% compared to last year which is driving massive growth there.
A second tailwind for Li-ion is that much of the innovation and cost reduction we are seeing today comes from the automotive industry—and the electrification of transport will continue to power the market for batteries well into the future.
Indeed, transport electrification is just getting started, with EVs only beginning to reach cost parity with internal combustion engine (ICE) vehicles this year—and even then, only in certain regions and among certain vehicle classes.
Today, for instance, you can buy a sports utility vehicle (SUV) in Europe or a small car in China for the same price as an ICE equivalent. But in the United States you may have to wait until 2026 for SUVs to reach price parity. And in India you may still be waiting after 2030.
Nevertheless, the fact is that EVs are rapidly reaching price parity with ICEs in most global automotive markets. Since EVs have lower running costs than ICEs, once you go electric there is little reason to go back—so it will not be long before all new cars are battery powered.
China is already halfway there, with so-called ‘new energy vehicles’—pure electric and plug-in hybrid EVs—making up 50% of new car sales in the first fortnight of April 2024, according to Chinese Passenger Association figures cited by CarNewsChina.com.
And much-hyped headlines around an EV sales slowdown in 2023 overlook the fact that the figures still showed a 35% year-on-year increase—a level of growth that would be hard to find in any other sector.
This tremendous market growth augurs well for Li-ion performance and pricing, and it is not just the auto industry that is hungry for Li-ion. A third tailwind is that countries with growing levels of solar generation need batteries to help overcome the duck curve.
This is the curve of electricity demand minus solar supply. It dips around midday as solar covers most of consumption but soars in the afternoon and evening as sun goes down and extra loads—mostly from residential air conditioning, cooking, TVs and so on—come online.
The duck curve is a headache for grid operators because it increases the need for peaking power in the evening. If provided by gas turbines, this peaking power is expensive and polluting. However, the period of maximum demand—up to around four hours from roughly 6pm to 10pm—is right inside the range that can be met cost-effectively with Li-ion battery storage. Hence, grids that suffer from a duck curve can almost eliminate it by adding Li-ion battery storage to solar generation capacity.
Storage additions can be procured by the grid operator but are likely to happen naturally through market forces.
If you have a solar plant then you are unlikely to get much money selling electricity to the grid as more and more plants are built in the area, because all of them will be producing energy at the same time.
Meanwhile, the mismatch between midday and evening levels of solar production will increase the value of electricity that can be dispatched after 6pm. Hence it will be increasingly worthwhile to invest in a battery system that can store daytime solar production and sell it to the grid in the evening.
This is essentially what happened on the CAISO grid in April and is likely to become the pattern in any market that is seeing high levels of solar production. Plus, it is important to note that taking advantage of this kind of pricing arbitrage is not the only reason to invest in Li-ion batteries.
The technology can also take advantage of numerous other revenue-generating opportunities, from providing ancillary services such as frequency regulation and voltage support to offering synthetic inertia and black start capabilities or helping relieve congested grids and defer infrastructure investments.
It is thanks to this ability to provide multiple services that battery energy storage has been able to scale without relying on government subsidies. And the scaling will only increase as markets continue to embrace clean energy, making the Li-ion battery storage value chain an enduringly safe bet for investors.
