The rapid growth of wind and solar energy comes with a well-known problem: they don’t work all the time. Energy storage is a solution that investors should look for in 2021, even if it is not yet suitable for stock selection.
Governments around the world have increased their decarbonisation ambitions this year. There is great uncertainty about how their promises will be kept, but almost all scenarios involve the massive construction of solar and wind farms. As your participation in energy production increases, it will be crucial to overcome the times when the wind does not blow and the sun does not shine.
Building wind and solar energy together can reduce gaps, while gas-fired power plants can provide a non-renewable backup. Demand-side response arrangements are also useful – when large energy consumers promise to cut usage during tightening points in exchange for lower prices.
Even with all these methods, however, it will be necessary to store excess electricity for use in lean times.
Lithium-ion batteries similar to those that power an electric vehicle are expected to provide most of the new storage capacity. Residential batteries can store energy from solar roof panels, but so-called utility-scale stationary solutions for wind and solar parks are really needed. Often, they are customized out-of-the-box facilities that provide between one and four hours of backup power. The batteries cost almost 90% less than in 2010 and will continue to be cheaper, according to researchers at BloombergNEF.
The chemistry shared with the automotive industry is a mixed blessing. Large-scale production will help to reduce costs, but it can also create a reduction in supply. Recently, some Korean producers have prioritized vehicle batteries over stationary ones, pushing buyers to new suppliers in China. Expensive battery racks and website construction costs also put stationary solutions on a utility scale on a different trajectory than car batteries.
In addition to short-term storage, there is a need for long-term solutions to cover days or even months. Pumped hydroelectric – where excess energy is used to pump water uphill in a reservoir, from where it can be released in a hydroelectric plant on demand – is an economical and clean option. It currently provides most of the utility-level storage capacity globally, but finding new locations is a challenge.
Green hydrogen is another solution, involving the “storage” of renewable energy using it to run electrolysers that divide water into hydrogen and oxygen. It is less efficient than other methods, but it produces transportable and versatile gas.
Safety concerns have arisen in relation to batteries and hydrogen, but they are not likely to get in the way: fossil fuels and nuclear are not without risks. Other storage options include heating volcanic rock or molten salt, pressurizing air in containers, storing energy in steering wheels and moving weights up or down in old mine shafts. Pilot projects have demonstrated their efficiency, but most have not yet been commercialized.
One problem with the issue for investors is that, for now, it remains a secondary business for large battery companies, such as LG Chem and Panasonic.
The same applies to manufacturers of electrical equipment General Electric,
ABB and Siemens,
that make energy conversion systems for storage facilities. Smaller, pure companies with promising technology face great uncertainty about how the market will develop.
However, storage may soon become a dominant feature in the green energy landscape and in the profits of some companies. The renewable energy boom resisted the pandemic and even gained speed. It will not be long before a technology crucial for its effective use also takes off.
Write to Rochelle Toplensky at [email protected]
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