Storage and solar's missing links

30. July 2013 By:  Matt Feinstein, analyst, Lux Research

The energy storage market has had its fair share of troubles, as has the solar market but the combination of the two technologies remains a fairly murky area.

Matt Feinstein, Lux Research

Matt Feinstein

A lack of clarity around the potential deployment ecosystem remains, inverter technologies are still in the process of adapting to the inclusion of energy storage, and costs remain prohibitive. Still, much of the infrastructure for solar deployment – third-party financing used to alleviate high upfront capital expenditure, ongoing monitoring and maintenance centers – should adapt well to the inclusion of storage.

However, the idea of reliable, continuous solar – and for some, the further down-the-line idea of going off the electrical grid completely – plus the pilot systems in island geographies like Hawaii and the Millener Islands, and the introduction of new incentives for widespread deployment, have given the idea significant momentum.

One thing solar/storage coupling has in its favor is a number of high-profile partnerships, as well as a few conglomerates that have combined efforts to debut a system all their own. Some of the notable partnerships include SolarCity and Tesla (note the Elon Musk connection), and LG Chem and IBC Solar. Some of the large companies internally capable of providing solar and energy storage include Samsung and Hanwha.

Still, the cohesive deployment ecosystem for solar/storage projects is still unclear. Battery providers are subject to the same strict bankability standards that module suppliers must overcome before project developers are willing to consider them – and even then, the technology must prove itself economically viable. Early projects have proven economical on island nations due to extremely high retail electricity prices or potential interconnection fees (which would only be imposed without energy storage).

However, the broader market could see solar/storage systems capture a dual revenue stream: the power purchase agreement (PPA) solar systems capture normally, plus revenue for instantaneous demand response (DR) from the utility/RTO through an analogous contract – perhaps initially developed by a separate "fourth party" partner to the solar system owner, or eventually merged with the solar PPA. While such a system is more likely for large-scale systems today, smart meter deployment on a widespread basis makes it feasible for residential customers, too.

These third-party solar owners also maintain ongoing monitoring centers for the solar arrays they lease/manage, making it intuitive for them to manage a storage array as well. Most of those companies acknowledge this fit and would expect to own a potential storage asset. However, this is indicative of a broader battle: that between third-party solar owners and the utilities from which they are often stealing electricity market share (though to be fair, some utilities have become investors in third-party owned solar). Optimal usage of the storage array might differ for a utility and a third-party owner looking to maximize its financial return. While that debate will fall into the broader one currently ongoing within the solar industry, most of any major alignment in the ecosystem is stymied by the high cost of batteries.

Advanced energy storage is too expensive – that's not a new sentiment.

Aside from the batteries themselves, technical integration of energy storage isn’t simple, but also isn’t too overwhelming. Multi-port inverters – able to connect to a host customer, solar array, storage array, and the grid – are increasingly available on the market, especially from small suppliers like Princeton Power Systems and Ideal Power Converters. These systems have the integration of energy storage in mind, and those suppliers are standing by for demand to rise.

While the next logical step in overall solar system evolution is to begin integrating storage arrays, the industry might actually seek a "happy medium" solution first. For example, SMA recently announced a new inverter with an integrated 2 kWh lithium-ion (Li-ion) battery. Some manufacturers have proposed using ultracapacitors in inverters that would act as a means of energy storage, too.

Once past that stage, though, the only remaining avenue is full-sized energy storage. While the cost is high and prohibitive, it may come down in a similar manner to solar modules. While Li-ion batteries don't have a polysilicon commodity analog that will lead to crashing costs like solar modules have, they may indeed see costs fall rapidly with scaled manufacturing in China. Wanxiang Group's acquisition of A123 closed at the end of January, and more acquisitions might be on the way.

Further, incentives can certainly help – Germany introduced a capital subsidy in early May, and it’s now clear that batteries in the U.S. will qualify for the Investment Tax Credit (ITC). Once the cost of batteries is such that they can be sold at a profit and used economically by project developers/owners, the only question will be the margins and market that they enable.

Lux Research hypothesizes the precise market size for solar/storage coupling will grow out from niche off-grid and island market systems to microgrids and community solar, and later to broad residential and commercial segments in a similar order to those that first adopted photovoltaics alone – in fact, retrofits might be worthwhile for developers.

The technology, ecosystem, and market size discussed above are indeed intertwined. As the ecosystem finds its way towards sustainable storage deployment, determining factors for battery pricing will be revealed. For example, if residential solar/storage systems primarily serve to store excess solar and feed it back into the grid at peak hours, then peak retail electricity pricing will determine acceptable battery prices in a given region much the same way average retail rates determine solar system pricing today. If they serve only to displace hefty interconnection fees, then those fees determine the acceptable battery price and margins for battery manufacturers and project developers accordingly.

Overall, most industry stakeholders and participants see solar and energy storage as an inevitable marriage. However, the timeline is far less certain, and while some wait only for costs to come down or incentives to come online, there are several gaps that need to be filled where smart investors can gain a competitive advantage.

Matt Feinstein analyzes technologies, strategies, and business models of emerging companies through primary research and market analysis for Lux Research. Lux Research provides strategic advice and ongoing intelligence for emerging technologies.

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andrew mickey

Tuesday, 05.08.2014 21:13

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