In December 2016, financial advisory firm Lazard released its second Levelized Cost of Storage Analysis 2.0 which analyzed energy storage technologies in the context of various uses, from large-scale, power grid-oriented applications to small-scale, residential applications. The study noted that cost declines of most battery storage technologies are likely to have broad applications, along with, improved prospects for “behind-the-meter” merchant energy storage systems. Vic Shao, CEO at Green Charge Networks – a commercial energy storage company based in Santa Clara, California, agreed with the findings from Lazard, and sees opportunities in storage technology from declining battery costs, particularly when leveraging solar energy for behind-the-meter commercial and industrial users.
“There are several opportunities, especially in regions without centralized infrastructure, as storage technology not only enhances grid operations, but when combined with solar, it can support consumers with reliable electricity. In regions with high solar concentration (such as Australia), energy storage could be a solution in place of net metering,” says Shao, who also sees a value proposition when combining solar and storage through the federal Investment Tax Credit (ITC) and lower electricity cost.
“The combination of energy storage and solar can leverage ITC credit to provide comprehensive support to the end consumer – particularly for behind-the-meter commercial and industrial users. The solar-storage combination has the potential to lower monthly electricity bills (kWh) and address peak demand (kW) concerns,” he says.
Given the high impact and potential to scale energy storage, utilities and investors have also started to come on-board and consider storage technology as a viable investment option. Kate McGinnis, Western US Market Director at AES Energy Storage, has noticed the similarities between energy storage today and solar energy a decade ago and expects strong growth in energy storage.
“We see significant growth for energy storage over the next 5 to 10 years. The energy storage industry is about where solar was in 2008/2009 and is just starting to hit its stride. Nearly all utilities are talking about energy storage and more and more utilities are moving to commercial procurements,” she says.
Alongside, Karen Butterfield, Chief Commercial Officer at Stem, an IoT analytics company controlling energy storage fleets to improve energy distribution and consumption, noted that storage solutions will not only grow, but also provide utilities and grid operators an effective way to improve their system in the coming years.
“Customer-sited storage will continue to grow as we unlock the multiple value streams it provides customers, utilities and grid operators. With an imminent need to invest in aging infrastructure, faster adoption of renewables, and an increased demand for electricity, we anticipate more and more utilities will start to tap into energy storage,” says Butterfield, who is managing some of the largest digitally connected energy storage networks in the United States and has seen encouraging responses from utilities and regulatory agencies.
“Regulatory policy and innovative utilities are combining to drive the adoption of storage technology solutions. Also, utilities from across the country have implemented pilot programs over the past five years and clearly see the value of aggregating storage resources. Now they are seeing the cost points that really work” she says.
The method by which the grid system incorporates storage technology and manages multiple sources of production, storage and usage has become an important topic. Paul Fox, Head of Technology Innovation at AGL New Energy, expects that the grid will become an energy exchange in balancing energy flows within the system.
“The grid will become an energy exchange as a means of balancing between multiple sources of production, storage and usage,” says Fox. He then adds that AGL New Energy, the innovation accelerator of Australia’s AGL Energy Limited, an Australian IoT energy company, is focusing on customers at the center of the distributed energy system to facilitate their participation in the exchange.
“Our 1,000 battery VPP will provide 5 MW of capacity, which is a commercially tradable amount in the market. using IOT we will enable our customers to participate and benefit from that sharing and trading,” he says.
Of late, high-profile investors such as Bill Gates, GE, Siemens, Total Energy Ventures and others have invested significant amounts of capital in energy storage. Since 2012, energy storage companies have raised over $570M – largely due to strong prospects for deployment in grid energy storage. François Badoual, the CEO of Total Energy Ventures, who received the “Corporate Investor of the Year” award at the Cleantech Forum 2017, seems confident that energy storage will play an important role in optimizing the grid system and energy flows in growing urban centers.
“Energy storage will play an important role in not only optimizing the grid network, but will also bring in larger capacity. In addition, we see large opportunities in the smart cities market as large portions of the world’s population is expected to reside in urban centers. There will be a need to optimize energy flows in these urban centers and energy storage is likely to play an important role in managing the city grids,” says Badoual, who has supported several energy storage companies, including Aquion Energy, Sunverge Energy and LightSail Energy.
François Badoual makes an important point because by 2035, developing countries will represent 80 percent of the total growth in both energy production and consumption, while an estimated 2.5 billion more people will be migrating into the world’s cities by 2050, placing increasing strain on existing grid infrastructure. As a result, energy storage will be an important component in managing power demands caused by increased industrialization.
Integrated Energy Solutions Enabling Energy Access and Financial Inclusion in Africa
Meanwhile, in Africa, the benefits from storage technology are likely to transform the energy landscape and provide more cost-effective routes to power off-grid communities. A new report from the International Finance Corporation (IFC) predicted a 40-fold increase in energy storage within developing economies by 2025. Poor infrastructure and the demand for reliable clean energy and poor infrastructure have created an avenue for energy storage to be deployed with solar power. Bill Lenihan, President and CFO at Off Grid Electric – a solar energy startup based in Tanzania, highlights the importance of energy storage in providing electricity and opening up markets in developing countries.
“Given the lack of a grid, or weak grids, having a storage capability is critical. All of our systems include lithium ion batteries, which is currently the one of the largest cost component of our system. As these batteries improve in quality and cost, we expect more markets will be opened to customers who can afford the technology,” says Lenihan.
Aside from delivering solar products, Off Grid Electric is also financing and enabling their customers to enter the banking system. Venture capitalist Nancy Pfund, the founder of DBL Partners (who has supported some of the most successful modern clean energy companies, including Off Grid Electric, Tesla, SolarCity, PowerLight, BrightSource, and NexTracker), highlights the social value in helping people to enter the banking system.
“This is one of the positive social impacts of bringing off-grid electricity to developing nations: it enables their citizens to build their credit scores, optimize their savings, enhance their ability to take on loans, and fosters overall financial literacy. Once a customer enters the banking system, it financially empowers them to improve and take better control of their life,” says Pfund.
By providing credit, companies are able to collect large amounts of customer data and understand payment behavior. Nicholas Parker, Managing Partner, and Co-Founder at Global Acceleration Partners agrees that acquiring customers’ data is a positive trend because it allows companies to be innovative in delivering products and branching out into other businesses.
“The world is moving towards a decentralized system, and access to large amounts of customer data can enable companies operating in regions without formal banking, to not only branch out into other business but also refine their products specifically for their customers,” says Parker, an investor in M-Kopa, a solar energy startup based in Kenya.
In effect, this implies that companies can essentially leverage their own data, then develop and provide credit for new products and services to customers. Nico Tyabji, Director of Strategic Partnerships at SunFunder, a specialist debt provider for the sector, points out that solar companies are already starting to expand their offerings.
“What we are seeing is that having a credit profile with a solar company can be leveraged to create additional value. Solar companies are also selling smartphones and TVs, and even offering loans to pay for school fees,” he says. “This makes receivables financing ever more important for the growth of the sector.”
However, it is worth noting that success in these markets will require more than product development and analyzing customer data. Partnerships will play an important role in acquiring new customers and raising funds because even with declining costs, financing solar energy is considered to be risky for investors, especially in regions with various geopolitical and sector hurdles. In Africa, the multinational companies tend to have strong distribution channels; so for early-stage startups, leveraging these channels can help them access working capital and keep their balance sheet in sound financial health. As a result, Off Grid Electric has partnered with EDF, a French electric utility company in Ivory Coast. Lenihan views these partnerships as being critical for early stage startups looking to scale-up in Africa.
“Our joint venture with EDF is the first large-scale partnership between one of the world’s largest energy producers and an entrepreneurial, off grid player. A partnership with a company like EDF will bring credibility, market presence, government relationships, long-term Africa experience, and financing to off-grid electricity and our industry,” Lenihan says.
Pfund, an investor at Off Grid Electric, also agreed that partnerships are important and can help startups understand their market and accelerate customer acquisition.
“If a large partner already operates in your target geography, it can help you to understand the market, currency, and cultural dynamics, as well as accelerate customer acquisition because of the partner’s existing customer base and/or distribution infrastructure,” she says.
Ankit Mishra is a Business Development and Partnerships fellow at Tradecraft. Previously, he worked at the OECD and Ontario Ministry of Energy as a Policy Analyst.