Wind and solar efforts are being held back by lack of grid storage

It may seem an old and tired criticism of renewable energy, but it's true -- the sun doesn't always shine and the wind doesn't always blow.  That's the challenge California is looking to tackle with a major grid storage effort.

I. California Grid Storage Dreaming

While often considered the "greenest" state, according to the U.S. Department of Energy (DOE) California actually is not a leader in renewable energy, despite being somewhat above average.  Last year about 25 percent of the state's energy came from renewable sources (by comparison South Dakota and Iowa were approximately 94 and 92 percent renewable sourced, respectively).

Still, California is the nation's most populous state, home to 1 in 8 Americans, so its green efforts are followed closely.

Renewables by state
California is in the dead middle -- 25th out of 50 states -- in renewable energy deployment, according to the DOE.

In July the renewable energy industry held its Intersolar conference in San Francisco, which claimed nearly 18,000 attendees and nearly 10,000 exhibitors.  A central theme among the conference's keynote speakers was the need for backup grid storage.

Grid storage is particularly important in the state, which typically only uses around 17 Gigawatts of power during the winter months, but sees peak power draw soar to 51 Gigawatts during the hot summer months as air conditioners roar alive.

Governor Jerry Brown remarked in a speech, "We can't just rely on sunlight.  We've got to bottle the sunlight."

California is aiming to have 1.3 Gigawatt-hours of grid storage by 2020.  To put that in context, that's the equivalent to about 79,000 of the 16.5 kilowatt-hour stacks found in the 2013 Chevy Volt from General Motors Comp. (GM) or roughly 15,500 metric tons of batteries at current densities for a battery plus the supporting cooling/charging systems.

California became the first state to pass a major grid storage effort, promising 1.3 GWh by 2020. [Image Source: Free HD Wallpapers]

The recently passed piece of legislation [AB 2514] anchoring that effort (approved by a 41-28 vote) is making a splash as it's the first major piece of grid storage legislation with teeth.  Lux Research analyst Steven Minnihan told Reuters that the bill will drive the market in grid storage from $200M USD in 2012 to an estimate $10.4B USD by 2017.  He says that other states may embrace similar measures between 2020 and 2030.  That's when the effects of the law will truly be felt, he argues.

II. Growing Pains

The bill and other similar state and federal drives to stoke artificial demand are controversial efforts, but it is a welcome handout to players in the struggling industry.  

So far grid storage has not proven commercially viable on the scale some had hoped.  The two biggest types of storage -- mechanical (flywheels) and chemicals (batteries) -- have both suffered from high profile bankruptcies.  In Nov. 2011 Beacon Power LLC -- a flywheel grid storage startup backed by DOE loans -- went bankrupt.  And then in Oct. 2012 A123 Systems (who lost its bid to supply GM's Volt) went belly-up.  Its automotive assets were bought by Johnson Controls Inc. (JCI), while a Chinese company (the Wanxiang Group) bought its remaining assets for $257M USD, including the grid storage unit.

Beacon Power
Post-bankruptcy, Beacon Power is coming back with new contracts.

Both companies have downsized and are looking slightly more competitive.  The Chinese-backed A123 Systems is back to selling grid storage, in June closing a major deal with Maui Electric Company, Ltd. to supply a fresh 1 Megawatt-hour (MWh) storage unit. 

Independent Bank Corp.'s (INDB) investment wing Rockland capitol, meanwhile scooped up Beacon Power for $30.5M USD, and scored a $5M USD state government contract to provide backup storage in Pennsylvania, breaking ground [PDF] on a new 20 MWh, 200 flywheel plant in Hazle Township, Penn. last December.  That plant is expected to be fully online next month.  Supposedly Rockland is also about to announce a new Beacon Power effort, which is not reliant on government aid, according to managing partner Scott Harlan.

These turnarounds are turning heads in the investment industry.  As the CEO of solar firm SunPower Corp. (SPWR), Tom Werner, said in a recent address, "We all agree, as we sit here today, storage is uneconomic.  But if you go out five years, I wouldn't bet against it."

Bill Gates, co-founder and former CEO of Microsoft, is investing big in grid storage.
[Image Source: Telegraph UK
Despite the failure of several prominent firms backed by government loans, venture capitalists seem particularly bullish on grid storage these days.  Aside from Rockland Capital and the Waxiang Group, other top investors in the field include Peter Thiel (cofounder of eBay, Inc. (EBAY) acquired PayPal), Vinod Khosla (co-founder of Sun Microsystems, an Oracle Corp. (ORCL) acquisition), and Bill Gates (co-founder of Microsoft Corp. (MSFT).  General Electric Comp. (GE) is also making deep investments in the field.

III. Fresh Ideas Drive Grid Storage Towards Cost Parity

Grid storage is a long play; a gas-fired backup power plant costs around $1,000 per kilowatt to build, while a battery plant is currently around 1.7 times as expensive.  But a mixture of exotic technologies and maturing established technologies have investors seeing green in years ahead.

One both literally and metaphorically hot startup is Ambri Inc., whose molten-metal battery technology was invented by a Massachusetts Institute of Technology (MIT) professor.  After Bill Gates took Prof. Donald Sadoway's open courses, he funneled an undisclosed amount of funding into the firm.  Other backers include Total SA (EPA:FP) and Mr. Khosla.

Ambri Liquid Metal BatteryOne startup backed by Mr. Gates -- Ambri -- uses molten metal. [Image Source: D. Sadoway]

Other exotic battery formulations abound.  Japan's NGK Insulators Ltd. (TYO:5333) is marketing sodium-sulfur batteries, which scored a 4 MWh storage contract for Pacific Gas & Electric Corp.'s (PGE) San Jose grid region, with the help of a $3.3M USD state grant.  American Vanadium Corp. (CVE:AVC) -- a mining firm -- and Germany Gildemeister AG (ETR:GIL) have paired up to produce and sell vanadium redox batteries in the U.S. Vanadium has higher global production [source: 12] that lithium and may have longevity advantages over lithium batteries.  

GE meanwhile has a double play, offering both direct integration of a backup battery into a renewable energy-generating device, and a novel battery formulation.  Its "Durathon" battery is a sodium nickel chloride (salt+Ni) battery (developed by acquisition Beta R&D) formulation, and is integrated into its latest "Brilliant" turbines, such as the GE2.5-120 [PDF].  GE has been selling the turbines to California's wind-producing nexus -- Tehachapi

While novel battery formulations are gaining ground, the market's predominant technology -- lithium ion batteries -- is also seeing gains.  Tesla Motor Comp.'s (TSLA) refined thermal and charging system has been scaled to grid storage designs for CEO Elon Musk's other firm (well one of them, at least), SolarCity Corp. (SCTY).  The residential solar company began testing 8 kilowatt-hour home storage and business storage units in June.  

Tesla Elon Musk
Tesla Motor Company CEO Elon Musk is using his company's battery packs for solar grid storage. [Image Source: Reuters]

The technology is co-designed by Tesla's battery cell provider, veteran Japanese manufacturer Panasonic Corp. (TYO:6752) whom Mr. Musk owns a small stake in.  Like GE, SolarCity wants to eventually bundle Tesla/Panasonic's battery technology directly into its solar panels, and to release such a product by 2015.

Others -- following in Beacon Power's line -- are aiming to ditch batteries entirely, lofting mechanical storage schemes.

One prominent player is LightSail Energy, who scored a $1.7M USD contract from the California Energy Commission (CEC) to provide a demonstration scale unit of its exotic compressed air energy storage technology at the Ventura county naval base.  LightSail's backers include the oil company Total, Mr. Gates, Mr. Khosla, and Mr. Thiel.  It's vying with General Compression and SustainX -- for dominance of this young technology.  General Compression is notable for having raised over $100M USD in venture capital funding from prominent backers including Duke Energy and Conoco Philips (COP).

IV. Is it Worth It?

Not all are enthused, though, about the resurgence of grid storage.  They argue that it's still not cost effective and point to a deluge of new and old government grants, loans, and tax credits as propping the industry up and disguising the true cost.

Some of this criticism is even coming from bureaucrats -- including in California.  The Division of Ratepayer Advocates -- an industry advocacy under the umbrella of the California Public Utilities Commission (a state panel that regulates private power providers) has been drafting a critical evaluation of the push.

Farzad Ghazzagh, an analyst working on the unfinished study, says that the cost of the promised storage will likely range from $1B USD to $3B USD depending on the rate of technology advances -- or about $79 USD per Calif. taxpayer, at a maximum.  He comments, "The ratepayers would be on the hook."

Green Energy graveyard
Critics say gov't efforts are propping up an industry that's not ready for prime time.
[Image Source: Heritage]

A recent piece by conservative magazine Heritage comments:

Right now, families are forced into buying pricier electricity and taxpayers are on the hook if the project fails... Beyond the risk to American families for footing the bill for failed projects and the handout to companies for financially viable ones, loan guarantees have other negative impacts on the economy... The government’s intervention in the market decreases the incentive to innovate and increases the incentive to use the political process and lobby for handouts. Loan guarantees promote cronyism that rewards political connectedness over market viability.

Still, backup storage is on the verge of being cost-equal with fossil fuel backup power, if it can only push a bit lower.

Multinational utility The AES Corp. (AES) is promising 1 GWh of storage -- mostly with lithium ion batteries.  To the surprise of many it promised to reach that mark without government grants or loans.

If the storage sector can find a way to ease itself off government reliance, while continuing to reward loyal VC investors like Mr. Gates, Mr. Thiel, Mr. Khosla, and Mr. Musk, it just may make believers out of skeptics.  As alternative energy firms begin to incorporate a variety of storage technologies directly into their generating devices, grid storage may finally reach maturity after the frustrating string of newsmaking failures over the past few years.

Windmills at sunset
Green grid storage has its work cut out for it. [Image Source: Ames Power]

A mature grid storage industry is good news for the electronics and automotive sectors, as well.  By feeding off each other's mutual demand for reliable, high-density power storage, these three pillars of America's high-tech sector can collectively work to cut costs via the maturation of exciting new technologies.  But there's a lot of hard work ahead before that can happen, and a lot of bureaucratic wrangling that will surely provoke a lively debate.

Sources: AB 2514 [Grid Storage Bill], Paul Hastings [on AB 2514], Reuters

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