Storage solutions: why battery developments are forcing utility change

By Emma Hughes
Published: Friday, 24 April 2015

Disruptive technologies, including battery storage, smart meters and other energy gadgets, are driving change to the traditional utility model around the world, which could in turn increase the demand for critical energy minerals such as lithium, graphite and rare earths.

Speaking at the Dentons Global Energy Summit in London this week, Doyle Beneby, CEO of US-based CPS Energy, said that “change is coming” in the global energy market, most significantly in relation to energy storage solutions.

Up until the end of the last century, the breakthrough developments in the field of battery technologies were moderate owing to one key factor: cost. For many years, silicon prices have kept the price of solar panels high, while storage technologies have been hampered by the expensiveness of lithium-ion (Li-ion) batteries.

Now, a drop in the price of Li-ion technology and solar photovoltaics (PV) has provided what panellist Andrew Steel, managing director at Fitch Ratings, described as a “game-changing” opportunity.

“If something goes wrong with alternative energy, for example solar, there needs to be a back-up system in place to solve that problem,” Steel said, adding that “throwing money at storage would be a better idea” for policy makers, who have historically focused on making low carbon promises.

According to Beneby, the price of Li-ion batteries fell 20% in 2014 and is expected to fall by a further 15% in 2015.

And it’s not all about solar. Chris Reed, managing director of Australia-based lithium exploration company Neometals (formerly Reed Resources), told IM in September last year that lightweight batteries have also enabled the creation of entirely new consumer and industrial electronic devices. While these may not appear significant individually, collectively such devices could further increase the demand for lithium batteries.

Some examples are robotic vacuum cleaners, (an entirely new consumer product), and drones/copters, which are edging their way into the market.

“There is no doubt that more new devices with similar energy storage requirements will come to market over time,” Reed said.

This decrease in price and consequent increase in demand for Li-ion batteries is not only good news for manufacturers and consumers, it is also an interesting development for battery mineral exploration and production companies.

A typical Li-ion battery is comprised of an anode, which can contain flake graphite, and a cathode, which most often contains lithium chemicals. Some Li-ion-based technologies, such as wind turbine generators and some electric vehicle motors, also use rare earths in magnets.

SMA solar storage
SMA Solar's integrated solar storage system. Image courtesy: SMA Solar

Change is nigh

For many years, solar developers have been waiting for this kind of storage breakthrough, as suitable batteries have in the past been either too expensive or too bulky for domestic use. This causes an issue for the customer, who is forced to switch to grid power when the sun goes down or electricity use is high. Li-ion batteries are smaller, lighter and more powerful than their predecessors.

Yet, while this kind of advancement can be seen as positive, it’s potentially disruptive force is also something traditional utility providers have had to keep a close eye on over the past few years. It was also something that had a big impact in the US in 2014.

In June, Barclays downgraded the entire US electricity sector to “underweight” owing to the disruptive threat of solar-plus-battery systems.

In its report, Barclays said: “Over the next few years (…) we believe that a confluence of declining cost trends in distributed solar PV power generation and residential-scale power storage is likely to disrupt the status quo”.

“In the 100+ year history of the electric utility industry, there has never before been a truly cost-competitive substitute available for grid power. We believe that solar-plus-storage could reconfigure the organisation and regulation of the electric power business over the coming decade,” the report added.

Owing to this threat of disruption, Fitch Ratings’ Steel, speaking at the Global Energy Summit, outlined several real drivers for a distributed generation versus central utility model.

Among these were costs, politics, uncertainty, responsibility, environmental and accountability. However, these also come with implications for the grid structure, consumption patterns, capital investment, service culture, reliability, security and consumer expectations.

“How these changes to the utility model will be funded remains a big question mark,” he explained.

An evolving customer base

Along with the threat of change from the solar-plus-storage market, utilities are also increasingly faced with a more tech-savvy consumer, according to panellists at the Global Energy Summit.

Thanks to more widely available consumer information and successful advertising campaigns, many are now turning to ‘greener’ energy solutions, such as smart meters and energy efficient appliances. There is also a growing trend of consumers using less energy overall by being more aware of overall usage.

These factors combined are leading towards what speakers at Dentons called “flat-lined demand”.

“Base demand for energy is falling and is expected to continue to fall, or flat line, to 2040,” Beneby noted, explaining that customers are becoming more aware of energy conservation and efficiency.

John Cunneen, former executive director and member of Oman’s authority for electricity regulation, agreed that “change is afoot” and that “energy use is flat lining”, adding that climate change policies and technical progress are driving change.

Meanwhile, Grzegorz Gorski, executive vice president, innovation, marketing and new business, for GDF Suez, another event panellist, said that there are several reasons behind the need for utilities to change, including enabling technologies, customer requirements, regulation and costs.

“As this change occurs people will begin disconnecting from the grid and creating micro grids with their neighbours,” Gorski explained.

Owing to this drastic role reversal, many speakers outlined that customers must be at the centre of all change.

“Understanding customer behaviour is critical to future growth (…) utility models need to act local and think local (…) we need to leverage technologies to provide the most value for consumers,” said Beneby.

“Someone needs to make sure that the cost benefits of making these changes feeds down to the consumers,” explained Cunneen.

Agreement came from the policy makers, with Anne Houtman, principal adviser to the director general, European Commission, saying that “customers need to be at the centre of change in the coming years”.

“We want good input from utilities on how to drive this change,” she added.

Impact on minerals

The support graphite and lithium producers are currently receiving from the battery sector was evidenced at the Prospectors and Developers Association of Canada (PDAC) 2015 conference in Toronto in March.

IM found that the level of interest in battery mineral projects, compared with properties in both the industrial minerals and wider metallic mineral commodity markets, was noticeably higher, with a more positive feel for development, financing and pricing.

Stria Lithium Inc.’s chief operating officer, Julien Davy, told IM during the event that the biggest short term demand for lithium would come from the grid storage industry, adding that despite not receiving comparable media attention, real growth was already being seen in grid storage batteries, where industrial clients are driven by cost cutting and business requirements.

Since 1992 demand for lithium used in batteries has risen from 7% to 31% in 2014. For graphite, annual growth is estimated at approximately 20% and total graphite demand 150,000 tpa, which is already 20% of the flake graphite market, according to data collated by IM.

Cover image courtesy Michael Warren/Flickr



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