Energy storage costs could beat conventional generation costs by 2017

The cost of battery storage could beat that of conventional energy generation within two to three years and could go as low as $100/kWh, a new report has found.

In a report based around a discussion with Navigant research, investment bank UBS says the $230/kWh for battery storage mark will be reached by the broader market within two to three years, and will likely then fall to 100/kWh.And it predicts that the market for battery storage will grow 50-fold by 2020, mostly in helping households and businesses consumer more of their solar output, but also at grid scale and with electric vehicles.

The UBS report follows similar groundbreaking analysis from HSBC and Citigroup, which last week cited $230/kWh as the key mark where battery storage wins out over conventional generation and puts the fossil fuel incumbents into terminal decline.

According to UBS, this shift is happening largely because interest from both investors and corporates has accelerated in recent months, as the big end of town comes alive to the opportunities of a technology that will likely be even more disruptive than solar.

And the key is in the forecast on costs.

In the discussion with UBS, Navigant estimates that the cost of materials going into a battery at the Tesla Gigafactory on a processed chemical basis (not the raw ore) is $69/kWh [this metric is per kW per hour of operation]. The cost of the battery is only ~10-20% higher than the bill of materials – suggesting a potential long-term competitive price for Lithium Ion batteries could approach ~$100 per kWh.

Tesla currently pays Panasonic $180/kW for their batteries, although conventional systems still selling for $500-700/kWh. But Navigant says that the broader market place will reach the levels Tesla is paying in the next two to three years.

Navigant also estimates that the global market for batteries will grow from 400 MWh in 2013 (ie – 100 MW assuming 4-hour systems), to 20GWh (or around 5GW/yr) by 2020, globally. UBS believes that the ‘merchant’ entry of batteries for wholesale purposes on the grid remains a few years off.

Some above-market PPAs will be supported by utilities looking to use the technology to balance their grids but UBS believes commercialisation of battery storage will remain biased towards ‘short-usage’ needs, and by businesses looking to clip their ‘peak’ usage charges.

Still, over the long run, the advantages of scale will mean that utility-scale storage will evolve much more rapidly compared to the residential product.

© 2014 Solar Choice Pty Ltd

Giles Parkinson