Energy Storage and Project Finance outlook Energy Storage e Project Finance outlook

Energy Storage and Project Finance outlook

Energy storage is one of the biggest market opportunities in clean energy, required for electric vehicles, integration of renewables and other grid applications.

Coupled Solar and Energy Storage Market will Grow to $2.8 Billion in 2018. Dominated by grid installations, this market segment will be a boon to energy storage producers but have only a modest impact on the solar market.

The value added by this technology can be very wide and multiple. For example, a peak power substitution project can also perform frequency regulation when not injecting peaking energy, while a large solar project that uses storage for ramp mitigation (due to cloud effects) can also bid into the open-bid frequency regulation market after the sun sets.

The energy storage technology is also one of the fastest-moving areas of innovation, with multiple technologies competing among them.

Let’s briefly go through the actual trends for this industry and then see whether the banks are already considering the business.

According to GreenTechMedia, the energy storage industry is moving forward according to the following steps:

Cost reduction. The focus is to get technologies to work and to scale them up to commercial size. Since there are substitutable technologies for every application, success will be merely driven by costs.

Li-ion batteries. Most CEOs of the industries producing energy storage systems believe that Li-ion batteries will not be quickly obsoleted, as some experts have predicted. The request is mainly driven by two markets: electrical vehicles and grid-connected storage. Improvements in the life cycle of Li-ion have been significant in recent years so that they may still aim at a significant share of the stationary energy storage business.

Power versus energy applications still dominate. Most companies are focusing on power applications versus multi-hour energy time-shifting. CEOs tend to believe that for right now, the highest value of energy storage is in its power capacity and locational value, not in the ability to shift large amounts of energy through time. This is expected to change as storage costs drop.

Europe and China. These appear to be the most attractive international markets.  Though the enormous technical market potential of China is appealing, the lack of transparent market mechanisms in China and widespread concerns about theft of intellectual property are keeping most players from making any serious attempt to explore the Chinese market.

Project financing. PF is starting to appear. For example, according to GreenTechMedia, American Vanadium has put a financing vehicle in place so that customers can lease its vanadium redox flow battery system. And Northwater Capital, a Canadian venture capital firm, has invested in NRStor, a firm dedicated to energy storage project development that also provides project financing.

The Project Finance of energy projects is not in its best days though. The financing of renewable energy projects, and of energy storage system in particular, is at the lowest level of the last 5 years (source: cb insight). In addition, investors expecting returns on investment within more commonly accepted VC windows (e.g., a 3 year period) are staying away from additional bets on energy storage.

The risks of energy storage are, not including system reliability, connected to competitor technologies (natural gas), National energy policies and safety and environmental risks:

  1. Safety and environmental risk have become far more important issues. These will be defining factors in determining whether a technology or system can ultimately achieve broad market acceptance.
  2. Natural gas cost may affect the storage industry though applications that are optimized to provide high power versus energy time-shifting are less impacted by the cost of natural gas.
  3. Restoration of National energy policies would of course strongly accelerate the energy storage market development. Where possible lobbies are acting at the state level.

The interest for energy storage is not decreasing:

  • Last december, the Scottish government approved SSE Plc to build a 600-megawatt hydropower plant that will also be able to store surplus energy.The facility will have about 30 gigawatt-hours of storage capacity.
  • Stem Inc., a provider of energy-storage technology, received $15 million in a Series B funding round to expand in North America. General Electric Co. (GE) and Iberdrola SA participated in the funding, along with Angeleno Group LLC.
  • Hitachi Ltd. unveiled an energy-storage system that the company said will support wind and solar power and allow users to sell electricity into deregulated markets such as California. California is requiring its utilities, including Edison International (EIX) and PG&E Corp. (PCG), to have at least 1.3 gigawatts of storage capacity by 2020.
  • NGK Insulators Ltd. and a group led by Sumitomo Electric Industries Ltd. were picked for a project aimed at reducing the cost of storage systems that can help integrate clean energy onto the grid. Japan’s government will pay the companies as much as 75 percent of development costs. The Sumitomo group and NGK will work separately on two different technologies.

On the other hand, market forecast says:

  • Residential applications will dominate through 2018. As lithium-ion (Li-ion) batteries and overall storage arrays fall in price, residential systems will gain the most. The light commercial segment will increase slightly less while heavy commercial/industrial systems will lag.
  • Japan will remain the worldwide leader. Hit by high electricity prices and seeking alternative energy after the nuclear woes, Japan will install 381 MW of solar coupled with storage by 2018, leading all other markets by a wide margin. Germany will come in second at 94 MW, while the U.S. will be third at 75 MW.
  • Newfound storage policies may dramatically increase the market. This year, Germany set aside $67 million to subsidize solar-tied energy storage and the U.S. Senate introduced a program that could fund $7.5 billion worth of new storage projects, or about 7.5 GWh of capacity.

There is no doubt on the potential economic impact of such technology. So maybe the Finance and the Utilities are actually missing an opportunity.