DBRS Publishes “What’s in Store for Energy Storage? The Energy Storage Industry and Its Potential Applications”

In its new commentary, DBRS Limited (DBRS) asks, “Why do we care about energy storage?”

When we turn on a light or switch on any appliance, we put demand on the electricity grid and assume there will be enough power supply to meet the demand. A grid operator typically has sufficient information to anticipate when power is needed and ramps up traditional forms of fossil-fuel generation to meet the aggregate demand. This load-following form of grid management has been the norm for grid operators because until recently, energy storage technologies were not commercially viable.

However, many jurisdictions are increasingly looking to add renewables to their energy mix. For example, California’s Renewables Portfolio Standard has risen to 50% of overall electricity procurement by 2030. With the increase share of renewables in the overall energy mix, electricity grids are facing new challenges. Renewable power such as wind and solar is intermittent, making it difficult to manage the overall supply-demand balance in the grid. Efficient and commercially viable utility-scale energy storage solutions are key to solving the intermittency issue of renewables, which would help achieve a higher percentage of renewables in the energy mix, as well as reduce energy costs by ensuring the lowest marginal cost energy is used first.

Most utilities today have accepted the benefits of energy storage to augment services to customers while reducing operational costs. In fact, one survey found that 77% of utility executives said they would be investing or were planning to invest in energy storage solutions in the next ten years.

Energy storage can also provide a number of ancillary services, such as demand response, resource adequacy, frequency regulation, spinning reserves and voltage support.

While not a new concept, in recent years, the energy storage industry has seen significant growth, spurred by new technologies and an increasing need for storage. Hydro-pumped storage and compressed air storage have been in use for decades and remain the cheapest form of energy storage available for now. However, both are heavily dependent on the geographical conditions or location, making them challenging to implement across various applications.

The need for utility-scale energy storage and the lack of scalable and efficient options historically has led to the development of different types of storage technologies. There are three main categories: Electro-mechanical (which includes hydro-pumped and compressed air storage), thermal energy storage and electro-chemical storage (lithium, flow and other types of battery storage).

Energy storage has certain technical terms that describe its characteristics, as outlined in DBRS’s commentary. These terms are important for investors and developers to help compare storage technologies and assist in decision making.

The economics of new energy storage projects are improving in countries globally, driven by (1) falling hardware costs, (2) increased policy support, (3) increasing investor confidence in energy storage technologies and (4) improving value of storage systems resulting from advanced software capabilities to capture multiple revenue streams.

Regulation and legislation are being adopted in this growing and important area of utility-scale electricity storage. Decisions in this area will likely have a large influence on the industry. It is particularly important that clear policy frameworks are established by national governments and energy regulators so that the true value available from storage applications will start to become clearer, and energy storage will increasingly become bankable. To date, most storage projects have been funded off balance sheet. This will change as new equity players enter, lenders become comfortable with the risk and gearing ratios increase.

Notes:
A full copy of this commentary is available by contacting us at info@dbrs.com.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.