So, what exactly is involved in calculating solar panels cost in 4S Ranch? When thinking about solar power very few people know the way the cost of solar panel systems is actually measured. Or even, for that matter, do we automatically grasp the connection relating to the cost of solar power and the value of solar power. We all know that gasoline prices are in dollars per gallon. We likewise are all aware of approximately how far we’ll be able to drive after spending 40 bucks for a tank of gas. In contrast to a tank of gas, the value of which can be consumed pretty much instantly, solar panels deliver their value across a period of time.
SolarCity's Stock Should Continue To Rise As Solar Becomes More Affordable - Tesla Motors (NASDAQ:TSLA)
Caption: Kokam 24-megawatt Energy Storage System (NYSE:ESS), used by South Korea's largest utility, Korea Electric Power Corporation (KEPCO): world's largest Lithium NMC ESS for frequency regulation
Sometimes technology creeps up on you before you realize what is happening. Then something happens to get your attention and you realize that things are changing fast. And so it is with batteries, the missing link in replacing fossil fuels with renewable energy.
Here I cover two areas of battery technology that are transforming power management at scale. The first comes out of left field as a solution to frequency regulation in power plants. The second relates to management of excess energy generated by solar and wind, followed by dispatch of that energy when needed. At its most extreme this role may involve near complete charge and discharge once, or even twice, in a single day, every day.
Grid reliability, increased efficiency and frequency regulation
Late last month Kokam (XKRX:040480) a veteran Lithium ion South Korean battery manufacturer, announced the deployment of 3 high performance Lithium ion battery systems to provide 56MW of specialized batteries for frequency regulation in large power plants in South Korea. The batteries are: two Kokam Lithium Nickel Manganese Cobalt (NMC) battery systems with capacities of 24 MW/9 MWh and 16MW/6MWh, and a 16MW/5MWh Lithium Titanate Oxide (LTO) battery system. The LTO system was implemented first. While LTO technology is robust, with less dependence on temperature control, it is more expensive than NMC batteries and the specifications from the utilities often require temperature control (hence housing in containers which are cooled or heated). I suspect that NMC will become the preferred technology for frequency regulation.
The 24MW NMC battery system is the largest used in the world for frequency regulation. These batteries provide the Korea Electric Power Corporation (KEPCO) (NYSE:KEP) with ~10% of the frequency regulation needed to allow its entire system to run largely with batteries. KEPCO plans to install ~500MW of rapid response batteries by 2017 to effectively wean South Korea off the need for fossil fuel to provide this reserve power need for frequency regulation. Several battery manufacturers are involved in this project (Kokam, LG Chem (OTC:LGCLF), Samsung (OTC:SSNLF). It isn't clear how much KEPCO has already installed but it may be as much as 230MW of batteries for frequency regulation.
South Korea is special in that it has a single power authority, KEPCO, which is largely responsible for managing the nation's power capacity. So it is possible for one organization to setup a national program to manage 65 GW of power capacity. This capacity is mostly coal powered (~47GW) but with substantial nuclear and hydro capacity (~18GW). There is a very small contribution of wind and solar renewable energy in South Korea.
Currently ~5% of the coal needed to run a coal fired plant is dedicated to frequency regulation, so having batteries take over this role is a substantial saving in coal used. More importantly the South Korean plans (within 2 years!) indicate one of the first examples of batteries assuming a central role in an aspect of power generation that has been seen as a fossil fuel role.
Clearly Kokam doesn't see South Korea as the only market for this role and they have pilot facilities (2-5MW) being reviewed in both Germany and the US. Kokam has the capacity to deliver 100's of MW of the NMC frequency regulation batteries at short notice.
There is a lot of interest in fast response Lithium batteries and a substantial system (2MW) was recently announced in the UK using Toshiba (OTCPK:TOSYY) Lithium Titanate batteries in association with energy company E.ON (OTCPK:E.ON) and it's wholly owned subsidiary Uniper at the Willenhall substation. E.ON also has a 10MW/2.5MWh battery system under development with Tucson Electric Power in Arizona. E.ON is shortlisted for a 250MW tender for frequency response storage in the UK and Kokam is involved in tendering, so Korea's implementation is being watched in Europe too.
Interestingly lithium technology is being used to replace lead acid batteries by Duke Energy (NYSE:DUK) in a 35MW facility. There are also major frequency regulation projects in Canada (e.g. 12MW system in Ontario's Independent Electrical System Operator).
These Lithium NMC and LTO batteries are also useful for peak load management improving power quality and reliability in solar and wind applications, and also for spinning reserve applications.
Energy management for renewable energy
This is a big one, as you need a way to store and then access the intermittent power from solar PV and wind. Unlike the frequency regulation application described above, which needs fast, but short term response and high power delivery, energy arbitrage for solar and wind smoothing requires slower and longer term charge/discharge (up to over a number of hours).
A frequency regulation application has a high life cycle (10,000, compared with 4000-8000 with arbitrage), high power (i.e higher than arbitrage), but lower energy density than arbitrage. Because frequency regulation is a special rapid application it is more costly than an arbitrage battery.
The actual needs for energy management at scale are more varied than frequency regulation and so the actual configurations for batteries for this purpose are still evolving. It might be that the critical requirement is ramp rate control, or charge/discharge over hours may be more critical. Battery manufacturers are focusing in on their preferred configurations. For example Kokam has a High Energy NMC battery for energy management at scale.
For the technically minded here are a couple of links to give a sense of the kinds of lithium battery technology and how the different formulations behave. A good summary is here, and for those who want a deeper dive into lithium battery chemistry, here is a pretty up to date article.
Energy management applications for renewable power generation
Pumped hydro has a significant role in energy storage and this is well established with 140GW of pumped hydro already implemented. This large scale storage allows long term (even seasonal) energy storage.
There are surely many old mines, with tailing dams at the top and down below an open cut mine, that can be flooded. GW levels of power can be addressed in such schemes, but the capital costs are not small and they attract controversy because of their size. Two pumped hydro projects in California, Eagle Mountain and Iowa Hill, have been on this path for a long time, but capital and approvals are elusive.
This is happening at several levels. The easy one involves home solar PV systems linking with a home battery. Because it is a small cost (relatively) and the market is big (1.5 million homes in Australia have solar PV), just about all of the battery providers are interested. Here numbers matter as many small systems add up to a lot of power managed and it is managed locally (at the individual house level).
The harder thing is larger scale energy management, and detractors of Lithium batteries point to frequency regulation to indicate why Lithium batteries are inappropriate for energy arbitrage. However, Lithium battery chemistry configured for frequency regulation is not the only chemistry or configuration for lithium batteries, as Tesla is doing fine with its electric cars that have a range of several hundred miles and hence can discharge over many hours.
It seems that a 40ft container housing a 2-2.5MWh system is the scale for a number of utility energy management systems, but systems as large as 100MWh give a sense of the scale being implemented. Obviously a 100MWh plant would involve 40 x 2.5MWh 40ft containers.
Utilities adopting lithium battery energy management applications
There are now many multiple MW systems being installed for this kind of application. Kokam gives details of 12 of its systems installed in the US, South Korea and Australia that have more than 1MW power capacity. In 2015 Kokam alone installed 85MW of battery storage systems and 75MW of that capacity was larger than 1MW.
Substantial lithium batteries are also being adopted (along with solar PV) in remote and mining communities to partially substitute for diesel-powered systems. For example a remote indigenous community in Northern Australia is installing a 2MWh lithium battery storage system to store solar PV and take over grid forming functions from a diesel system. This will allow switchoff of the diesel system during the day as well as storing solar PV produced power.
Lithium batteries as part of a renewable energy project
Clearly renewable energy projects are considering including arbitrage, as there are various management functions that batteries do well, and holding the power generated to be delivered at a time when the value of the energy is greater may make sense. An early example of this kind of arbitrage involves Statoil (NYSE:STO) which recently announced a pilot 1MWh Lithium battery (technology not given) storage system to complement its Hywind Scottish floating 30MW wind farm.
Image : Statoil Hywind turbine
However, there are other battery technologies for deep charge/discharge on a daily basis. While at an earlier stage of development, flow batteries seem well suited to this task. It is a race to see if flow batteries will get a place at the table or whether lithium batteries now have sufficient momentum to dominate the battery arbitrage space.
Update on flow batteries
Six months ago I wrote an article on three flow battery companies (Redflow (ASX:RFX), Imergy Power Systems and ViZn Energy which had partnered with substantial manufacturing companies (Flextronics (NASDAQ:FLEX), Foxconn (OTC:FXCOF) (TWSE:2354) and JBL Circuit (NYSE:JBL) respectively for manufacture of their flow batteries.
While it is too soon to see a lot of progress, there have been developments in each of the partnerships.
Redflow/Flextronics ZnBr flow batteries :
The last 6 months have seen substantial progress with Flextronics now assuming 100% of manufacturing from Redflow. Flextronics now controls all aspects of manufacturing of the RedFlow batteries, with production ramp up in April 2016.
In 2015 in partnership with FLEX, manufacturing costs have been decreased by 15%, the lifecycle/longevity has been improved and cycle cost/kWh over battery lifetime decreased by 50%. Redflow will soon deliver an on-grid demonstration 0.1MW/0.48MWh flow battery system to Ergon Energy.
In addition to exploring remote markets around the world, Redflow is entering the Australian home battery market with a smaller offering. The Redflow share price has doubled since the start of 2016.
Imergy Power Systems/Foxconn :
It is too early to know how the Imergy projects in India, China and Africa are proceeding, although the status of the Sun Edison (NYSE:SUNE) purchase of up to 1000 of Imergy's vanadium flow batteries for implementing in India could be problematic given the disaster that has recently befallen SUNE and news that it is not supporting its activities in India. The rumor is that Adani (IN:ADANIT) may be interested in SUNE's Indian projects.
Recently (end of February 2016) SUNE announced agreement with Ontario Independent Electricity System Operator (Ontario IESO) to supply an Imergy 5MW/20MWh system in 2017; this was to be SUNE's first large scale grid-connected energy storage project and it will need to be restructured with SUNE in difficulty. Imergy and Foxconn will need to think creatively about diversifying the route to market for their flow batteries.
ViZn Energy/JBL Circuit : ViZn reported 20% improved capacity and reduced life cycle degradation, which is important for frequency regulation applications.
At the end of the day there will be winners and losers and here sits the dilemma for investors. Is it still too soon to know which technology to back and which companies to invest in? Given the intense interest in frequency regulation I suspect that this market, will be satisfied soon by companies like Kokam and LG Chem who have done the hard yards on understanding Lithium battery chemistry. I suspect that for management of renewable energy it will end up a combination of pumped hydro, Lithium and flow battery technologies, with the latter becoming increasingly important.
What is abundantly clear is that all investors need to look carefully at their fossil fuel portfolios, as the complacency that the switch to renewable energy (with storage) is going to take a long time seems misguided in 2016.
This story about battery storage starting to do heavy lifting has implications in two areas of large scale energy supply: frequency regulation and management of renewable energy. It will help resolve issues of intermittency of renewable energy. The impact will be felt not only on adoption of renewable energy (and hence solar and wind companies) but also on fossil fuel power generation. Investors in fossil fuels should think carefully about where this is heading.
Disclosure: I am/we are long ASX:RFX.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.