Solar-Plus-Storage Systems Are ‘Match Made in Heaven’: Q&A

By Richard Stubbe, Bloomberg New Energy Finance editor. This article first appeared on the Bloomberg Terminal

The business of energy storage is growing surprisingly fast as battery systems get cheaper and utilities and other businesses find new ways to use them, said Andrew Oliver, chief technology officer for Renewable Energy Systems Americas Inc.

RES, the world’s largest independent renewable energy company, works in onshore and offshore wind, solar, storage and transmission.

Oliver answered questions from BNEF about where storage is going and how RES is responding to the rising demand in a telephone interview in mid-January. He said he expects lithium-ion batteries to remain the dominant storage technology for the next few years.

Q: What’s the future for energy storage?
A: There’s two very hot areas right now. The first one is solar-plus-storage, the second is peaker plant replacement. Nearly every solar independent power producer is adding an energy storage option to their plans. In certain markets, they can get a capacity payment and it certainly provides a hedge to the people writing the PPAs, usually the utility, against future lower wholesale pricing as that penetration of solar increases on the grid.

Q: What are the issues with combining solar and storage?
A: Finding the optimal cost solution is really quite impractical without throwing a massive amount of computing power at the problem — AC-coupled systems versus DC-coupled, the ratio of DC panels to the AC grid connections, the orientation of the panels, trackers or fixed-tilt, the ratio of storage to solar, the number of hours of storage, and then the overbuild strategy — lithium-ion technology degrades over time and so how much extra do you need to build to get to the end of your power purchase agreement.

Q: What about peaker plant replacement?
A: More and more utilities and IPPs are realizing that storage can compete head-to-head with traditional thermal peaker plants on an installed-cost basis, if the run time’s around two hours, and that’s only going to increase. I don’t think we’re going to be building many traditional gas peaker plants five years from now.

Q: BNEF reported that the rise of solar in Texas is going to be very tough on peaker plants there.
A: It’s already happening in California. As you start putting solar systems into a grid, the peak has generally been in the afternoon and the solar does help there. As you continue to add solar, the peak tends to move toward the evening because the generation has offset the load during the peak of the day, so now the new peak is when the sun has gone down and the air conditioning has come on, and of course the solar isn’t available at that time. So that’s where adding storage to a solar system really can benefit the network. They are kind of a match made in heaven, solar plus storage.

Q: What’s RES doing in the space?
A: There’s so many different business models that are surfacing with energy storage that we decided not to develop any more projects and just be an integrator for people who are finding all those different uses for storage. We help them with in-house engineering and construction and being able to run those computational models to figure out what’s right for their project.

Q: How’s that working?
A: Our customers are loving it. They’d seen us as an IPP competitor. Now people who compete with us on the wind side see us as not a threat in the storage arena and and we’re helping them to size their projects.

Q: How do you size systems?
A: That’s actually one of the biggest technical challenges. If you make the amount of battery too big, you’re producing an uncompetitive system. If you make it too small, the system’s going to fail before the end of life. We can come up with a right size for them that we know is going to last for 20 years or whatever the customer wants.

Q: Is lithium-ion going to remain the dominant technology over the next decade or two? Are there any potential competitors on the horizon?
A: There’s nothing that we think will worry the dominance of lithium within the next two or three years. The challenge of any competing technology is to achieve similar performance metrics at a better price.

Q: What about the different kinds of lithium batteries?
A: Even within the lithium family there’s a few different main types of chemistry — two of them being NCM, or nickel-cobalt-manganese, and LFP, lithium-iron-phosphate. NCM is more energy-dense but commodity prices, particularly cobalt, which has gone from $15 to $35, have moved that technology’s price up relative to lithium-iron-phosphate. But again LFP is less energy-dense. By the time you’ve done all the calculations of integrating, the two technologies have quite similar costs at the end of the day.

Q: Do you see rising commodity prices as a temporary or lasting issue for storage manufacturers?
A: We haven’t really gone into too much of the geopolitical stuff. What we have done is built pricing models from the bottom up based on what we know about the amount of cobalt and nickel and manganese in these cells and we then projected how we see the balance of system costs evolving over time. Right now it’s about a wash. The next step is to see what we think happens to cobalt to determine what we’re looking at two or three years from now in terms of the type of chemistry we’re going to be installing.

Q: Is the primary use of batteries going to be in solar plus storage? How big do you see electric vehicles getting?
A: EVs are really what’s given stationary storage the opportunity to grow. They’ve driven the scale of manufacturing to enable us to lower our costs. At a solar farm, we’d supplement the storage over time. You might use a different vendor to supplement the original system. That’s an interesting subtopic, how you augment a system that degrades over time.

Q: How do you project that?
A: It’s extremely complicated. In general we have engineering models of the chemistries. We will project the cost decline and then look at how much it will cost to augment. Is it more economical to overbuild the project in Year 1 and never go back, or because prices are dropping, do you go and augment in years 3, 6 and 9? We’re doing that kind of analysis day in and day out. We want to design the most cost-effective solution for our customers.

Q: How is the competitive landscape changing for your company? Siemens and AES have started Fluence Energy, a joint venture specializing in energy storage.
A: We’ve done 250 megawatts of storage in four countries to date and we’re working on several very large projects. What’s going to keep us ahead is continued investment in our controls platform RESolve. We are technology-agnostic whereas others are tied into equipment. That can be a limitation. And of course there’s more mouths to feed if you joint venture with someone from the same cost base. We’re independent, we’re technology-agnostic, we design bespoke solutions for our customers to offer them the solution they need at the best value.

Q: Do you have an installation target?
A: We see the number of RFPs continue to accelerate from both utilities and IPPs. It’s hard to imagine this is going to slow down. It’s phenomenal growth. I was in the wind industry and I saw that grow rapidly, and this is like wind on steroids, almost.

Q: It’s growing that much faster?
A: The growth rate of the marketplace has surprised me. A few years ago, a 10-megawatt project was huge. Now we’re seeing utilities wanting 30-megawatt, 50-megawatt, 100-megawatt projects just a couple of years later. The number of opportunities we’re seeing — New York announcing 1.5 gigawatts of storage, California with all its procurements — continues to grow.

Q: What other uses are there?
A: You know about the major potential use cases: transmission and distribution deferral, frequency regulation and reduction of peak charges. We’re also seeing some thermal operators wanting storage to enhance their existing generators — to give them a better ramp rate or quicker access to the market so they can operate in a different reserve market that might pay a little bit more. That’s an interesting and growing area. All in all, I’m just really positive about the prospects for energy storage and RES’s continued leadership in shaping the industry.

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