Coming boom in energy storage will make technology companies rich but harm traditional utilities, Citigroup predicts

Source: Daniel Cusick, E&E reporter • Posted: Tuesday, October 7, 2014

Advances in energy storage technology over the next 15 years will allow for significant reductions in both costs and payback time for renewable energy systems and allow self-generation to become even more competitive with traditional utility-delivered electricity, a new report from Citigroup states.

The Citi Research group, in a 56-page document called “Energy Darwinism II,” says that energy storage technologies will constitute a 240-gigawatt market by 2030 and account for more than $400 billion in direct investment. That cash infusion will in turn help drive down costs for renewable energy systems and “make self-consumption [of electricity] financially attractive in a number of developed economies.”

But just as Darwin’s theory of evolution, including natural selection, applies in the biological world, so, too, will it play out in electricity markets as new technologies like energy storage that allow for self-generation of electricity threaten to overtake the traditional ways of producing and delivering power.

“On the one hand, it is going to create a new revenue stream for technology companies,” the authors say, regarding the emerging energy storage market, “but on the other it could permanently alter the utilities’ business models, with very negative repercussions for conventional power generation and end-user supply.”

The picture isn’t entirely bleak for utilities, however, especially for power providers that embrace storage technology and add it to their asset base, allowing for a regulated rate of return. Such shifts are already occurring in parts of Europe, and the analysts say they “expect U.S. utilities in particular to be able to benefit the most” from the development of large-scale storage facilities.

“Longer term, the integration of battery storage into electricity systems, when also combined with demand response and smart meters, should make the long-term power demand-supply balance much more predictable,” the Citi report states. “This, in turn, should reduce the risk for power investments and create a much more efficient system with fewer redundancies and less risk of stranded cost creation.”

Fast-moving technology will benefit industrial nations

Citigroup’s latest findings follow an earlier “Energy Darwinism” report issued last year that evaluated how risk and uncertainty in the power generation market, especially around fuels, will affect investors, developers, owners, products and consumers of energy.

That report found that utilities were responding to a “global energy industry [that] has transformed in the last five years in ways and to an extent that few would have thought credible,” a decade ago. That transformation includes technological advances in shale gas production that have turned the United States into one of the world’s largest natural gas producers and consumers, as well as the marked expansion of renewable energy technology across Europe, Asia and the Americas.

“Energy Darwinism,” Citi’s researchers said, reflects the bank’s belief “that these transitions are happening faster and to a greater extent than is widely recognized.” As a result, utility investors and managers need to prepare for evolutionary shifts in the industry.

While questions about upstream electricity production, including the development of new generation technologies and alternative fuels, remain a major thrust within the energy sector, Citigroup’s analysis of energy storage suggests that concerns about optimizing the flow of electricity are equally critical to the industry’s future.

According to Citi, battery storage could have a major role in that evolution. The primary benefits of storage systems are their ability to provide power during periods of high demand, to shift the timing of generation to optimize costs and accommodate intermittent renewable resources, to provide electricity in emergency situations or to correct imbalances, and to offload power from the transmission grid for maintenance or other reasons.

The Citi Research analysis evaluates the market potential for battery storage in three highly developed energy markets — Europe, the United States and Japan — as well as two emerging markets, Brazil and China. The report projects that China will emerge as the No. 1 market for energy storage technologies over the coming decades, with demand of between 60 and 120 GW by 2050.

In the United States, battery storage requirements will be in the range of 47 GW by 2030, according to Citi. Researchers estimate that 22 GW of that demand can be met by existing hydro pumped storage facilities, leaving an estimated 25 GW of capacity to emerging battery storage systems.