Giant Battery Unit Aims at Wind Storage Holy Grail: Commodities

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Southern California Edison
A worker prepares to do voltage output tests on a section of solar modules at the Southern California Edison (SCE) solar array in Porterville, California. Photographer: Ken James/Bloomberg

At a windy mountain pass on the edge of the Mojave Desert, North America’s most potent collection of batteries used for storing unused power is humming its way toward an electricity revolution.

Southern California Edison, a utility that serves about 14 million people, has amassed more than 600,000 lithium-ion battery cells -- enough to power 2,000 Chevrolet Volts -- at a substation in Tehachapi, California. The $54 million, two-year test project aims to collect power generated from the area’s 5,000 wind turbines and store it for future use.

Cost-effective storage for wind and solar energy is the industry’s “Holy Grail,” Morgan Stanley says. That’s because times of high output during sunny days or windy nights don’t always match up with peak demand. While batteries are currently too expensive for large-scale use, improving technology is cutting costs, which means storage systems could replace some plants and avoid the need for new ones, as well as cut demand for oil, according to UBS AG and Citigroup Inc.

“We’re at the infancy of this,” Ron Nichols, the senior vice president of regulatory affairs for Rosemead, California-based SCE, said in a telephone interview Oct. 1. “The technology is important. I don’t know if it’s a game-changer yet, but it has the potential to be, particularly if it gets implemented more deeply and the costs come down.”

In the next seven or eight years, the price of batteries used for storage may fall by about half, to $230 a kilowatt hour of generating capacity, said Sofia Savvantidou, an analyst at Citigroup in London. Policy makers are setting more targets for renewable energy and demand is increasing from companies including electric-car maker Tesla Motors Inc., she said.

Prices Falling

Electric-car battery prices already have fallen by 50 percent since 2010 to about $500 per kilowatt hour, and “by drawing on auto-battery technology, battery makers may also be able to supply storage batteries at a lower price,” Citigroup said in a Sept. 25 report. Tesla Chairman Elon Musk said in July that battery packs for electric cars will drop to $100 in the next 10 years. The Tehachapi batteries are supplied by LG Chem Ltd. and are the same type used in General Motors’ Volt.

The Southern California Edison project is part of a push for more wind and solar power in the state, among the sunniest in the U.S. A third of California’s electricity must come from renewable sources by 2020, and mandates also require that the three biggest investor-owned utilities store 1,325 megawatts by 2024. California already has more than 12,000 wind turbines, the most of any state, according to the American Wind Energy Association.

Excess Energy

Most electricity in the U.S. is produced at the same time it is consumed, and suppliers bring plants on and offline depending on demand. Coal and nuclear plants provide much of the base load, accounting for a combined 58 percent of domestic output last year, government data show. Peak-load plants, usually fueled by natural gas, which accounted for 27 percent of U.S. output, are more flexible. They run when demand surges, often on hot days when consumers run air conditioners.

Only about 4.1 percent of U.S. power came from wind turbines last year, and less than 1 percent was generated by solar panels, both of which are more erratic than fossil fuels. Most of the rest was supplied by hydro-electric dams, geothermal steam and petroleum.

California already produces more solar energy than it can consume during certain hours in the spring, when it’s sunny but still too cool for air conditioners, SCE’s Nichols said. Excess generation may reach 10,000 to 15,000 megawatts by 2020, when the state meets its renewable targets, so batteries will be needed to avoid wasting energy, he said. The Tehachapi facility can store 32 megawatt-hours of energy, making it North America’s largest lithium-ion battery project by output, the company says.

Tesla’s Gigafactory

Other countries are pursuing similar projects. Wemag AG, a northern German utility, opened Europe’s first commercial battery-storage facility last month, a 5-megawatt unit built by Younicos AG that stores power on lithium-manganoxid cells made by Gyeonggi, South Korea-based Samsung SDI Co. In Japan, Toshiba Corp. is supplying lithium ion batteries for a Tohoku Electric Power Co. pilot project that will create a 40-megawatt energy storage system in Sendai, the largest of its kind when completed in 2015.

Tesla, based in Palo Alto, California, is planning a $5 billion “gigafactory” in Nevada with help from Japan’s Panasonic Corp. that will be the world’s largest battery factory, Musk said last month. Samsung is partnering with Chinese investors to build a car-battery plant in Xian, China. Electric vehicles may make up 10 percent of new car registries in Europe in the next decade, according to UBS, which estimates battery costs will drop by more than 50 percent by 2020.

‘Smart Grid’

Besides helping bring battery costs down, electric cars themselves may become a source of energy storage for the power grid, said Patrick Hummel, a utilities analyst for UBS in Zurich. In a “smart-grid world,” consumers would recharge cars while at work during the day, when solar output is the highest, and then feed some of that energy back to the grid during the high demand periods in the evening, he said. This could eliminate the need for some peak-load plants, he said.

“Demand peaks typically only last for a few hours, and having electric vehicles during those hours that can also supply to the grid would be a huge, huge benefit,” Hummel said by telephone Oct. 6. “It avoids billions in expensive backup or peak power stations or other expensive demand-side responses.”

Some utilities including SCE’s owner, Edison International, may benefit if their spending on grid upgrades and new technologies includes a focus on electric vehicles, UBS said. Renewable generators and battery manufacturers including Saft Groupe SA and Blue Solutions SA probably will also see benefits, while conventional power generators stand to lose, HSBC said in a Sept. 29 report.

Less Oil

Consumption of oil, natural gas and coal also may drop as battery storage reduces demand for traditional fossil fuels, Citigroup said. Global oil consumption may fall by as much as 4 million barrels a day over the next 15 years as the technology becomes further integrated, Savvantidou said. The world used 91.33 million barrels a day in 2013, BP Plc data show.

In Europe, Germany is leading the transition toward renewable energy. The German government has set a goal that 80 percent of the country’s electricity be supplied by renewable sources, including solar and wind, by 2050. The country also provides subsidies to consumers in the form of loans to buy and install batteries alongside solar panels. There are more than 4,000 residential energy-storage systems in the country because of the subsidy program, HSBC said.

Power Plants

The U.S. is still a long way from having enough battery capacity to replace power plants, SCE’s Nichols said. The Tehachapi site, half funded by the U.S. Department of Energy, is capable of storing enough energy to power about 1,600 to 2,400 homes.

“If battery storage ever gets to the point where we have a breakthrough technology, where they can run for eight or 10 hours at their full capacity, that would be a real game changer,” Nichols said. “We don’t see that right now, but one never knows what technology could bring us in the future.”

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