Low cost energy storage will change the pattern of the whole power industry. This fact will have a profound impact on the future society and the capital market. As the consumer electronics market and the demand for electric vehicles (EVS) continue to grow, the price of energy storage batteries has fallen faster than any expected. Major manufacturers in Asia, Europe and the United States are expanding lithium battery capacity for electric vehicles and other power applications. The price of the battery pack in 2010 reached nearly $1000 per kilowatt hour. However, in 2016, the cost of battery pack has been reduced to US $230 per kWh without any surprise.
McKinsey research has found that for many commercial customers, it is economically feasible to reduce their peak power demand through energy storage equipment. In the current situation of low electricity price, energy storage has begun to play a more extensive role in the energy market, and has changed from a niche market such as power grid balance to a broader application, such as replacing traditional generators to improve the reliability and stability of power supply, supporting the integration of renewable energy grid.
In addition, in view of the adjustment and change of the subsidy incentives for solar energy in many markets, the combination of solar power generation and energy storage can enable the household users to store and use the electricity produced according to their own needs, which will be very attractive to the users (also known as partial off grid). We believe that the energy storage market will continue to grow, which brings great challenges to the power sales companies facing the phenomenon of weak or even declining customer demand growth. Finally, a combination of solar power and energy storage plus a small generator (also known as a fully off grid) can bring economic benefits to some customers in the high-cost market in the next few years.
In this paper, we will analyze how energy storage will change the operation of power grid and power market, the way users consume and produce power, and the role of power companies and third parties with the development of industry trends. Our analysis is mainly focused on the development of Europe and the United States; changes in energy storage may also be reflected in different ways in other markets.
Impact on power companies
Energy storage equipment can be deployed in the grid and in individual homes or commercial facilities. It is a complex technology whose economic applicability is determined by many factors such as customer type, location, grid demand, regulations, user load curve, rate structure and application nature. Energy storage battery has unique flexibility, which can stack different value chains, or change its charging and discharging mode to meet different user needs. The industrial chain of energy storage business is growing in value and market scale (see the figure below).
Economic value and development trend of battery energy storage in different application scenarios
Cheap battery storage equipment will pose a challenge to "meter after meter power generation" (that is, small-scale power generation equipment installed inside buildings, such as in residential and corporate buildings). However, it also provides an opportunity for "pre meter power generation" (large-scale power generation companies with various grid connected application functions).
Power generation after meter (power generation by client)
Cheap solar energy has proved to be a challenge for the power generation industry in some markets. But cheap energy storage equipment will be more destructive to the market, because by using different combinations of energy storage and photovoltaic power generation, it is possible to realize arbitrage from any floating price model designed by any power company.
Specifically, the net electricity price (NEM) rules show that surplus electricity can be sold back to the grid at retail price; the feed in tariff subsidy policy ensures the tariff subsidy of renewable energy power generation, which plays an important role in expanding the global renewable energy market. In the United States, which has implemented this policy, NEM has been proved to be a strong incentive policy for consumers to install solar photovoltaic power generation.
Although the NEM policy is helpful for the development of solar energy, it brings some pressure on power generation enterprises. Consumers are able to produce their own electricity, thus reducing the demand for power supply; this has led to an increase in the price of electricity paid by other consumers, as fewer and fewer people pay for the construction investment of the grid, which is still a reliable backup power source for solar users. Solar users pay for their own electricity, but they do not fully pay for the grid access as a reliable power source. The response of the power company is to design and use the electricity price meter with long and on time charge to reduce the enthusiasm of users to install solar power generation equipment, set the demand electricity fee (basic electricity fee) or reduce the purchase price when purchasing the excess electricity of users.
However, in the environment of low-cost energy storage, the above charging structure will have little effect on reducing the load loss of power grid. This is because the addition of energy storage equipment allows users to transfer solar generated electricity from sale to meet a larger proportion of their own power demand; as a result, their revenue is almost the same as selling it back to the grid at full retail price. This leads to a wide range of risk of grid load loss, and customers choose to stay connected to the grid to obtain 24 / 7 (all-weather) reliable backup power, but they can still produce 80-90% of their own energy through solar power generation, and use energy storage technology to optimize utilization.
This kind of power storage and utilization mode has already appeared in places with high power generation cost and solar energy popularization, such as Australia and Hawaii. In the near future, it may also appear in other solar powered markets, such as Arizona, California, Nevada and New York (Figure 2). Many power generation executives and industry experts believe that the use of solar energy The risk of load loss is exaggerated; but if solar energy is combined with energy storage technology, it will be more difficult to defend this view.
Completely off grid - that is, completely disconnected from the centralized power system - is not economical and practical at the moment. However, according to the current rate of cost reduction of power storage equipment, it may be realized earlier than expected in some markets. Of course, the economy itself does not determine when customers choose to disconnect from the grid provided by the power company. Another important factor, for example, is confidence in the reliability of power generation and supply within buildings. But this dynamic affects business models and regulatory decisions earlier.
Power generation before the meter (power plant power generation)
Energy storage technology is also beneficial to power companies, helping them to solve the planning and operation problems in the electricity market with large load fluctuation. For example, some state regulators in the United States are giving power companies rewards to provide distributed generation contracts. This will, among other things, slow down power companies' investment in high-value new projects and reduce the risk of long-term investment cycle projects being put on hold.
Power companies can also purchase reliable energy storage assets to meet long-term regulatory requirements and short-term needs, such as reliability requirements and extending the construction cycle of new substations. As storage costs fall, these projects can reduce the cost of power generation, thereby reducing consumer prices - putting pressure on existing conventional gas and coal power generation, curbing traditional energy market prices and providing load tracking services.
Tasks of the power company
Power companies need to understand from now on how low-cost energy storage will change the future. In fact, power companies need to make breakthroughs by themselves, otherwise they will be passive. There are two categories of actions to consider.
Redesign compensation structure and explore new opportunities
Sooner or later, regulators and power companies need to find new ways to get their investments back in the grid as soon as possible.
Power grid is a long-term asset with high cost of construction and maintenance. Grid access requires fixed fees that are not popular with consumers, so regulators are not particularly keen. However, the fixed fee can ensure that everyone who uses the grid is paying for access. The volume or rate of change structure used today is a legacy structure, and people are used to paying for the electricity they use. But as more and more users can use their own energy, the reliability and market value of the power grid will be more valuable than the power itself.
As any change in electricity price will be slow growth (especially the change to fixed fees), power companies need to expand services and charge new transaction fees to obtain new business opportunities to cope with these new market conditions. There has been some interesting momentum in these directions. In Australia, power companies are becoming solar and storage installers and providing consulting services; in the United States, a pilot project is being implemented to sell consumers analysis and data management services of * * * * to help them manage their energy use. Several state power companies are also exploring new services and investing to modernize and electrify the grid.
Rethinking power grid system planning
Power companies must change the way they plan their grid systems. This means investing in software and advanced analysis tools to modernize the grid. It also means rethinking industry codes and standards, some of which have been around for decades, moving to node planning for independent circuits, and using asset health assessments to ensure that the most important system requirements are addressed first. These schemes will change the traditional grid system planning.
Energy storage can be a unique means to support grid system reform. The intuitive capital return of changing the power grid planning from the perspective of economics does not seem to be large at the initial stage, but because the energy storage equipment will be further modular development and more convenient transportation, the risk control is relatively high. This will allow power companies to adapt to uncertain demand at various circuit levels and reduce the risk of over construction and shelving investment.
The third party
For third parties, namely distributed energy (DER) companies, technology manufacturers and financial institutions, the growth potential of energy storage business is huge. But they must be flexible in their use of these opportunities. Distributed energy companies can design new combinations of power generation and energy storage equipment according to specific purposes. Although energy storage can ultimately enable users to get higher returns at lower prices, the new tariff structure will be more complex and policies are unlikely to lock in tariffs for the long term. Shorter fixed tariff period and more complex tariff structure will make it difficult for der providers to obtain new customers. As new customers, they don't like complexity and want to be able to confirm that their investment will pay off. The creativity of new products and financing is key to meeting these challenges and attracting customers who are still waiting.
Technical participants also need to know how and where to operate the energy storage value chain, and provide products that meet the needs of customers with the rapid development of technology and use cases.
Financing institutions, such as banks and institutional investors, will need to provide financing options that adapt to and match customers' investment vision. As the market places more trust in the growth of the underlying economy and energy storage performance, financing institutions will also develop financial products that meet the specific needs of technology. By then, the financing cost will be reduced, so as to further tap the market potential and form a virtuous circle, similar to the past ten
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