The intermittency of renewable power sources is the biggest barrier to the energy transition: the wind doesn’t blow to order and the sun doesn’t always shine. Our existing energy systems are designed for fossil fuels, which hold their energy till ignited. Adding decentralised storage capacity to the energy mix is therefore a must.
Bloomberg New Energy Finance predicts that global energy storage requirements will grow to a cumulative 857GWh by 2040. This in turn will require more than $1.2 trillion of investment.
“The electricity value chain has been really quite stable for the past 100 years,” says Ross Israel, head of Global Infrastructure at QIC. “But that is all now changing as renewables, energy storage and decentralised microgrids converge.”
“It has been the large amount of subsidies combined with cheap financing, rather than renewables themselves, that have proved disruptive over the past decade,” adds Jeffrey Altman, senior advisor at Finadvice.
“However, the combination of renewables and energy storage technologies could be genuinely disruptive in the years ahead.”
The energy storage industry is still in its infancy, though some facilities are already cheaper than diesel generators or gas peaker plants. But the co-location of large-scale systems with solar and wind generation, in particular, is emerging as a bankable theme.
“Renewables and storage will ultimately converge, both in front and behind the meter,” says Gustavo Coito, director of energy storage at SUSI Partners, which closed a €252 million energy storage fund in 2018.
“Co-location is an attractive way to mitigate the relatively small-scale and modest level of contracted cashflows that you sometimes find with standalone storage projects, [which helps] to attract more conservative sources of capital such as project finance.”
Elsewhere, energy storage opportunities are being transformed by the tumbling cost of batteries. Driven largely by automotive giants seeking to crack the electric vehicle market, batteries have emerged as one of the dominant energy storage technologies. Once toxic and bulky, improved chemistry and production techniques mean rechargeable lithium-ion batteries, in particular, are leading the energy storage charge.
“In terms of batteries, I would say that lithium-ion is the clear winner,” says Coito. “There are alternatives such as flow batteries that are quite attractive, but lithium benefits from a highly favourable cost curve, while the relative scale of deployment and track record it offers set it apart from competing technologies.”
But while batteries may be stealing the headlines, other exciting storage technologies are gaining momentum, including flywheel systems and pumped hydro. The rapid evolution of the energy storage industry will have implications for other areas of infrastructure. We will see a shift from in front of the meter to behind the meter, and the comprehensive decentralisation of energy production for both the residential and commercial sectors.
In addition, the electric vehicle market, which has helped propel the energy storage industry, will be transformed. Electric car penetration is expected to soar, alongside less well-publicised themes such as maritime electrification.
The energy storage sector will present challenges for infrastructure investors over the next decade. Project sizes still tend to be small and contracted cashflows are not always what investors in the asset class are used to. But few technologies could prove as critical to the global energy transition.
“There is no play book yet for energy storage investments,” says Coito. “But the opportunity to move away from a single 25-year revenue stream that is wholly contracted or relies purely on feed-in tariffs [and] to instead embrace the multiple revenue streams that batteries are able to provide, leveraging [their] flexibility as an asset, is quite exciting.”
Power stations in space
Earlier this year, China announced plans to build the first solar power station in space by 2025.
Positioning photovoltaic arrays in the earth’s orbit, high above weather systems, could provide an inexhaustible supply of energy. One of the challenges will be getting the arrays into orbit. It is understood that China’s planned power station will weigh around 1,000 tonnes, more than double the international space station. The plan is for modules to be assembled 22,000 miles above Earth using robotics and 3D printing. The next challenge will be bringing the energy back. Scientists are exploring converting the sunlight into microwaves that could be “beamed” to ground-based receivers. Some estimates put the resulting flow of power at 2,000 GW.
Fostering the geopolitical environment to drive space-based power will be difficult but the potential for transforming our energy supply is unparalleled.