Wednesday, May 23, 2018 11.19 AM / Fitch Ratings
Battery and other storage solutions could solve the intermittency problems associated with renewables and accelerate their penetration into the overall energy mix, Fitch Ratings says. Better storage options could also reshape the distribution models of utility companies, for example, by encouraging further embedded generation sources, including rooftop solar panels. Storage solutions could help renewables displace some fast-response peaking plants, and in the very long term, assuming further technological breakthroughs, allow an all-in cost which competes with that of traditional sources providing base load, eroding the position of some of them. Given the lengthy timeline for this scenario to materialise, there is no near-term impact on rated issuers.
The share of renewables in the energy mix has been growing consistently over the past few years, although it was still only 9% of global generation in 2017 (excluding hydropower). Some countries like Denmark are leading the way and generate close to a half of their power from solar and wind. However, growth has been hindered, among other factors, by solar and wind intermittency and the lack of suitable storage solutions for energy already generated. As electricity cannot be stored, sufficient cross-border or inter-regional connections effectively enable large-scale intermittent renewable projects.
This is subject to rapid changes, thanks to advancing technology and decreasing battery solution costs. The International Renewable Energy Agency estimates that if the share of renewable energy is to double by 2030, there will need to be a tripling of electricity storage capacity from the current 4.67 terawatt-hours (TWh) in 2017 to 11.89-15.72 TWh.
Lithium-ion batteries have the most potential as a storage solution. A wide range of applications use lithium-ion batteries, such as portable electronic devices, electric and hybrid vehicles, and residential and utility-scale storage. According to Bloomberg New Energy Finance, lithium-ion battery costs fell almost fivefold from USD1,000/kWh in 2010 to USD209/kWh in 2017 and are anticipated to fall to around USD100/kWh by 2026.
Renewable energy developers are already fitting their solar and wind farms with battery storage solutions and we expect this to continue. Traditional battery storage solutions tend to suffer from a gradual decline in efficiency, eventually requiring replacement. This problem may be overcome as the industry evolves. The availability of cobalt in sufficient volumes to meet potential battery demand and the availability of recycling systems at the end of battery life represent further hurdles for wider lithium-ion battery use.
Pumped hydro storage currently dominates global installed storage power capacity, but its share is likely to decline as other forms of storage, including chemical, electro-mechanical, electro-chemical and thermal technology become more widespread. One of the potential solutions available for energy storage is regenerative hydrogen fuel cells. This power-to-gas technology allows storing excess electricity in the electric grid systems. However, this technology is less efficient than batteries due to higher energy losses.
In addition to advancing the share of renewable generation, adequate and cheaper storage capacity could reduce constraints on transmission and distribution networks, therefore reducing major infrastructure investments. Technological breakthroughs in storage solutions could help renewables displace some fast- and short-response peaking plants. Eventually, renewables in conjunction with power storage could erode the position of some power plants providing the base load, if the all-in cost competes with that of traditional sources. This may also reduce consumer reliance on centralised power systems in some areas.
Structural changes in the power generation markets have already affected many utilities' ratings in the last five years. Nevertheless, the scenario of significant utility-scale battery solutions is unlikely to materialise any time soon, and therefore the ratings of electric and gas utilities and infrastructure companies are not affected. Furthermore, we expect generation companies to continue to adapt to changing circumstances, adjusting the size, cost and shape of their generation asset base and gradually investing in new technology and energy storage and related services.