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Government incentives and technological advancements further bolster the sector’s growth potential. As investors increasingly focus on sustainability, energy storage aligns with environmental goals and can provide portfolio diversification, making it an attractive long-term investment option with the potential for substantial returns, though careful consideration of risks is essential.
About the Episode: This episode of the PSI Podcast features a battery and energy storage system expert. David Van Hek is joined by a Pangea SI Expert who has been able to offer an insight into their experience within energy storage, investment opportunities within the market, the future of the energy storage market and more.
About the Pangea SI Expert: We were joined by on of our experts who is a Senior Performance Analysis Engineer in Solar & Storage. They serve as subject matter expert on battery performance, including round trip efficiency and has a wealth of experience across energy storage.
Pangea SI Expert: It really boils down to not all MW hours being created equal. By that I mean, you know supply and demand for energy varies by time of day and sometimes dramatically. And so energy storage systems have the ability to shift wind and solar energy that is generated during times of lower demand to times of higher demand, which compensates for their intermediate the intermittent nature of those resources. I think for some of your audience who are familiar with the duck curve energy storage is one of those assets that can help mitigate the issues of the duck curve.
Pangea SI Expert: So first, if there are specific efficiency requirements for the system and if those requirements are relatively high, it’ll dictate that we have to use a lithium-ion battery. Sometimes these requirements come from a power purchase agreement. Other times the requirements are necessities in order to achieve financial goals. I can get into other chemistries later, but most of my experience is with lithium-ion batteries and even if you have determined that you require a lithium-ion battery, the efficiency is going to determine the number of batteries that you need, because you have to compensate for the energy lost in the system, and this is not just the batteries themselves, but also the DC line connecting the batteries to the inverters, the inverters themselves, Transformers and A/C line. So a vital aspect of being competitive in the energy storage market is right-sizing the system.
This means not designing with more batteries than you need at the same time, and not accounting for losses appropriately can result in an increased risk of shortfalls in performance guarantees, which are typically availability capacity and round-trip efficiency. So, in financial terms, if you get efficiency wrong, you can produce a quote that is 1,000,000 more dollars in Capex than is needed. On the other hand, you can produce a quote that results in a higher risk of liquidated damages. During the early life of the project, efficiency analysis is one of the things that you need to do to find the happy medium between a high Capex and a high-performance risk.
Pangea SI Expert: So, there is definitely no shortage of challenges. I’d say as far as the challenges that that I personally am involved with, it’s de-risking our performance guarantees and as I kind of alluded to earlier, predictive analytics is the means of doing that. So we’re investing a lot of resources into predictive analytics to ensure that we are maximising the uptime of our systems. And improving longevity.
Pangea SI Expert: I wish I knew more about all of the markets that are out there and that are appealing. I’ve been focused mostly on the North American markets right now. California and Texas are the hottest ones but in general, I’d say that these appealing markets are characterised by large gaps between peak and trough pricing. So just kind of you know the same as I was alluding to before, not all MW hours are created equal.
If you’re seeing that there is, you know, pricing that’s very low or even in the negative, which means that energy storage systems can get paid to be charged from the grid because there is such a huge excess of power supplied beyond demand. And then you see later in the day or maybe a day or two later that the prices are quite high, then it’s at a tremendous market for energy storage systems. And we see this, this type of. These types of characteristics in both the California market and the Texas market, also known as CAISO and ERCOT, to the insiders.
Pangea SI Expert: So definitely you will need a lithium-ion battery if you require a high round trip efficiency, but I’ve looked a little bit at alternative chemistries like flow batteries and zinc air batteries, and if those are significantly cheaper, they have a lower Capex than lithium-ion batteries, then they can compete in some niche markets similar to the, the ones that I was.
What is that referring to you where pricing can be very low or even negative? The reason why they could be competitive in those markets is because despite having a low round trip efficiency meaning for every MW hour put in, you have left fewer MW hours of output Despite that characteristic of those batteries you can make a lot of money because the input energy is either low or negative but. If there is a significant opportunity cost to your energy, for example, you have a PPA that gives you, you know you’re pairing the energy storage system with solar and this scenario and your PA gives you, you know, X dollars per MW hour. Then you have a higher opportunity cost, and you want a larger or a greater round-trip efficiency because you don’t want to lose out on earnings. So, in those cases, you need a lithium-ion battery, but definitely, there are cases to be made for alternative technologies.
Pangea SI Expert: They can provide a variety of services, which is really exciting to utilities and grid operators. So, one example is frequency response. So basically, the idea is the grid should stay close to her frequency of 60 Hertz and if you get too far from 60 Hertz, you get trips that result in grid instability depending on whether the grid frequency is higher or lower than 60 Hertz and energy storage system can strategically charge or discharge to compensate to create more stability. So that’s one of the great offerings, they can also be used during, you know, times of very high demand when other generating assets are not able to produce enough. So, for example, we have a customer who’s running one of our systems in Texas who has been successfully using our system during these incredibly hot summer days so that the grid can support the increased use of air conditioning so that people can keep cool. So, there are a variety of ways in which these systems can be used to compensate. And in these times that is high stress to the grid, which is great.
Pangea SI Expert: Yes, the largest impact in recent memory is the Inflation Reduction Act, which has, you know, a huge impact on reducing the Capex of energy storage systems. Previously, you could get up to a 30% investment tax credit if you were paired with solar and before then. I think also there was a reduced tax credit for pairing with Win, but now energy storage systems don’t have to be paired with any sort of renewable ask that to get a 30% or even more tax credit. More being if there is some level of US content. So that’s been a huge, huge deal in the industry at a national level and at a state level, there have been a few programmes in the Northeast that I’m familiar with that have been a boon to energy storage, at least in the distributed energy resources market, which was The SMART programme in Massachusetts, which kind of I guess you can compare to the feed-in tariff.
In other countries, this is, I guess the term that they use there was also a clean peak programme that incentivised in the same market in Massachusetts for energy storage systems to shift renewable generation to peak times. And then in York, there are a couple of similar programmes. There was the Vedder programme, which is the value of distributed energy resources which guaranteed great rates per kWh for distributed energy resources that were solar plus storage. And then they also had a Capex subsidy. Called the bridge programme that offered really, really attractive subsidies that essentially for the first tier of awardees, essentially gave them a free energy storage system to pair with their solar plant. This program also had a component for larger bulk storage systems, which were, I believe, 20 up to 20 MW, 4 hours and possibly even higher at a lower level of Capex subsidy, there have been some really great state-level incentives in addition to the IRA, which is the game changer nationwide.
Pangea SI Expert: I might be biased here just because of what I do, but I I’d have to say the use of artificial intelligence for automation of operation, which would include optimising market participation, helping you know asset owners to figure out, you know, which revenue streams they should participate in in order to maximise revenues and also predictive analytics, as I mentioned, for optimization of performance and system longevity.
There are so many cool things that we can do with data nowadays and there are more and more tools to make it. Easier. Not that it’s easy, but to make it, you know more doable than previously. I think the second area that I think is exciting is seeing new alternative chemistries that will reduce cost and enable longer durations. So, like when I’m looking at energy storage systems today and I’m mostly looking at lithium-ion the longest duration I’m seeing is about 5 hours and you’re seeing chemistry’s come out now that are offering storage for, you know, weeks’ worth of energy rather than hours. And what’s exciting and even more exciting is, is that it should be done at a lower cost per MW hour than you’re currently seeing in the market, which will, you know, be a huge boost to the adoption of energy storage technologies, because that’s one of the hugest barriers is cost.
Pangea SI Expert: I’d say higher experience consultants and it’s not just enough that they have experience in the field, they really need to demonstrate success with the exact tasks that you need them to do because there are so many like sub scopes that people have in this in this industry and having you know experience in one of these little niece scopes does not really help you in in others. So, it’s important to get the right skill set.
For the folks that you’re hiring to make your projects and your business successful, I can’t tell you how many times I’ve read a customer’s power purchase agreement key requirements for the energy storage system are unrealistic and must be renegotiated, and this is the kind of pain that can be prevented if you hire the right person.
“We’re investing a lot of resources into predictive analytics to ensure that we are maximising the uptime of our systems and improving longevity.”
Expert Bio:
This expert holds deep knowledge and understanding of energy storage systems in North American markets.
Key Achievements:
✔ Built models from scratch to produce optimal dispatch profiles and perform parametric analyses to determine optimal power and duration combinations for energy storage projects ranging from 4MWh distributed energy resource projects to 1.4GWh utility-scale projects.
✔ Responsible for maintaining the product specifications needed as design inputs for sales team’s design and cost tool to ensure that designs comply with RFP requirements and quotations are accurate.
✔ Serves as subject matter expert on battery performance, including round trip efficiency, depth of discharge, auxiliary draw, capacity retention, as well as constant voltage and de-rated power operation.
✔ Strategic planning: tracking energy initiatives, trends, and anticipated RFPs of current and prospective clients worldwide and mapping the steps needed to position the firm to compete.
