As the cost of batteries, fuel cells, and renewable energy more broadly come down, it’s becoming clear that energy storage will be a big business in the future. It can smooth out the variability inherent with wind and solar, provide valuable services to the grid, and move cheap renewable energy created during the day to hours when it’s most needed.
It’s becoming more clear that energy storage will be valuable, like wind and solar energy a decade ago. What’s not yet clear, though, is the answer as to how energy storage will generate value for investors. Creating a business model that can exploit the advantages of energy storage to make money will be key. And the industry may be perilous for those on the bleeding edge.
Where energy storage has value
Generally, we know where energy storage has value. Rocky Mountain Institute has defined 13 value drivers from energy storage, including self consumption of solar, backup power, and energy arbitrage (lowering electricity consumption during high cost times and moving it to low cost times). These are the items Tesla (NASDAQ:TSLA), Sunrun (NASDAQ:RUN), and SunPower(NASDAQ:SPWR) have used to justify a lot of the limited amount of energy storage that’s been installed today, but those businesses are essentially in pilot mode.
If the chart above is correct, the bigger sources of value may come from the utility side of the ledger. Transmission congestion relief and distribution investment deferral are two of the most valuable uses of energy storage, but they’re driven by utility needs and go through regulators. For developers, you can’t just build a battery and bid it into the open market without regulators driving the utility to buy services from you.
There’s value from energy storage for the entire grid, from utility to customer, that much is clear. The question is, who pays for this value and how? Here’s a few viable options.
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