The rapid growth of wind and solar energy presents a well-known problem: they do not always work. Energy storage is a solution that investors should consider in 2021, even if it doesn’t lend itself to stock selection yet.
Governments around the world have skyrocketed their decarbonization ambitions this year. There is great uncertainty about how their promises will be kept, but in almost all scenarios, solar and wind farms are being built en masse. As their share of power production increases, it becomes crucial to bridge the times when the wind isn’t blowing and the sun isn’t shining.
Building wind and solar together can narrow the gaps, while gas-fired power plants can provide a non-renewable backup. Also useful are demand response agreements – when large power consumers promise to reduce their consumption during bottlenecks in exchange for lower prices.
But even with all these methods, it will be necessary to store excess electricity for use in lean times.
Lithium-ion batteries similar to those for an electric vehicle are expected to provide most of the new storage capacity. Residential batteries can store power from rooftop solar panels, but they are so-called stationary utility-scale solutions for wind and solar farms that are really needed. They are often custom turnkey installations that provide one to four hours of backup power. Battery packs cost nearly 90% less than in 2010 and will become increasingly cheaper, according to BloombergNEF researchers.
Shared chemistry with the auto industry is a mixed blessing. Large-scale production helps to cut costs, but can also cause a supply crisis. Some Korean manufacturers recently gave preference to vehicle batteries over stationary batteries, forcing buyers to move to new suppliers in China. Expensive battery racks and site construction costs also set utility-scale stationary solutions on a different trajectory than automotive batteries.
In addition to short-term storage, there is a need for long-term solutions for days or even months. Pumped hydropower – where excess power is used to pump water up into a reservoir, from where it can be discharged into a hydropower plant on demand – is a cost-efficient and clean option. It currently offers the most utility-grade storage capacity worldwide, but finding new locations is a challenge.
Green hydrogen is another solution, where renewable energy is “stored” by using it to run electrolysers that split water into hydrogen and oxygen. It is less efficient than other methods, but produces gas that is transportable and versatile.
Safety concerns have been raised about batteries and hydrogen, but they are unlikely to get confused: fossil fuels and nuclear power are not without risks. Other storage options include heating volcanic rock or molten salt, pressurizing air in containers, storing energy in flywheels, and moving weights in the air or in old mine shafts. Pilot projects have proven their efficiency, but most have not yet been commercialized.
A problem with the theme for investors is that it remains an afterthought for large battery companies such as LG Chem and Panasonic for the time being.
The same goes for manufacturers of electrical equipment General Electric,
ABB and Siemens,
who make power conversion systems for the storage facilities. Smaller, pure-play companies with promising technology face great uncertainty about how the market will develop.
Still, storage could soon become a more dominant feature of the green energy landscape and the profit of some businesses. The renewable energy boom has weathered and even accelerated the pandemic. It cannot be long before a technology that is crucial to its effective use also takes off.
Write to Rochelle Toplensky at [email protected]
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