Battery storage is gathering momentum in the U.S. market thanks to rapidly evolving technologies and falling costs.

Batteries are rapidly becoming the dominant form of energy storage both at the grid and end-user levels, and utilities are likely to play an important role in its further growth, according to a new brief from Deloitte’s Center for Energy Solutions.

“The emergence of battery storage is happening now, is accelerating, and it will get bigger in the next two to five years,” Andrew Slaughter, the Center’s executive director and co-author of “Electricity Storage Technologies, Impacts, and Prospects,” told Utility Dive.

Utility leaders are increasingly seeing how storage can be “dropped into strategic places in the power system, which means "they are looking at it hard and some are already going to market for storage solutions," Slaughter added.

Battery storage technology appears to be inching closer to a “sweet spot” that will likely result in falling prices, while accelerating deployment through the end of this decade, Slaughter said. “There are more opportunities for storage emerging due to the confluence of the way the economics are working and the way the grid is developing.”

With the power system diversifying both at the grid and consumer levels, utilities are increasingly seeing that “if you get storage in the right place, it de-stresses the rest of the grid, gives new reliability options, and gives the opportunity to avoid investment in generation,” he added.

A new Moody's Investor Services study foresees a significant market impact, especially since "battery prices have declined more than 50% since 2010,” the report said. “Expanded battery use will be credit negative for U.S. merchant generators…due to the subsequent lower prices for capacity and peak energy. Regulated utilities will see a smaller impact, but will face cost-shifting issues.”

Battery economics

The battery storage market is following along similar trends of falling costs and rapid growth previously seen from the solar market over the last three to five years, Slaughter said.

It's difficult to nail down specifics since prices and costs are “moving targets as technologies improve,” Slaughter cautioned. “And the value of storage is context-specific. It depends on what you are going to use it for.”

The build-out of wind and solar projects to diverse locations gives battery storage an advantage. More mature storage technologies like pumped hydro (PHS), compressed air (CAES), or the molten salts used with concentrating solar (CSP) are site-dependent based geology or geography. In contrast, deployment of battery storage is less limited by location.

At present, reinforcing the generation system necessitated by increased penetrations of variable renewable is being bolstered mostly by peaking natural gas turbines. However, “that gets to be quite expensive,” Slaughter said. “Batteries and other storage options are becoming more viable and as that approaches take-off, prices are coming down.”

The price of the power supplied by lithium-ion batteries is priced between $1,000 per kW to $2,000 per kW, according to a recent Energy Storage Update. The update puts the current price of power from CAES facilities at $1,600 to $2,200 per kW, PHS at $1,200 to $2,100 per kW, and flywheel storage at $2,100 to $2,600 per kW.

But that's not the whole story. “Whether an energy storage technology is a viable option for a particular application depends on its cost per unit of power or energy,” explained Deloitte’s recently-published article titled “Energy storage: Tracking the technologies that will transform the power sector.” “Energy storage technologies typically excel at providing either power or energy, but not both.”

Flywheels are much more expensive than batteries for supplying energy. Meanwhile, both CAES and PHS energy prices are low, but battery prices for energy are moving in that direction while “the more mature technologies have cost curves that do not decline as significantly,” the Deloitte paper reports.

The median price for the energy provided by utility-scale battery storage systems in the first quarter of 2015 was $900 per kWh and didn't fall significantly in Q2. But the low end of the price range declined from $800 per kWh in Q1 to $750 per kWh last quarter, explained Ravi Manghani, senior energy storage analyst, who is also lead author on the GTM Research/Energy Storage Association quarterly energy storage monitor.

“When the low end of the range goes down,” Manghani told Utility Dive, “it is an indication the rest of the market will follow.”

The downward trend in costs is being pushed by batteries, but a variety of factors is putting pressure on system prices across the value chain, Manghani added.

Manghani believes Tesla’s April announcement that it would produce batteries at $250 per kWh is pushing other battery manufacturers. They are not likely to get to that price point this year, Manghani said, but it will come in the near future.

What utilities have to do

The growing deployment of electricity storage presents both an opportunity and a challenge for utilities, Deloitte said. They can improve system performance and efficiency with less major capital investment and that means more effective load balancing, improved power quality, and the delivery of better quality services to their customers.

To get those results, Deloitte said, utilities have to assess the costs and benefits of the technologies that will deliver the storage services they need. They must then work with regulators to design rates that value those services.

The challenge, according to the report, will come from consumers who invest in storage along with distributed generation like rooftop solar. In large enough numbers, load defection will reduce utility revenues. That will force those utilities to reallocate fixed system costs over a reduced customer base. It could also force them to limit infrastructure upgrades and maintenance.

"Viable battery applications at the building and distributed level are an important driver,” Slaughter said. “It is hard to say which will move faster but it is another source of potential market growth.”

Challenged utilities will be faced with the choice of streamlining operations to sustain profitability or to modernize their business models with new services and technologies. Many utilities are already beginning to see the big new role storage can have in their power system, Slaughter said. “We are at a stage where this is just about to take off.”

Based on public announcements, utility executive interviews, and remarks made by utility leaders and industry watchers at Deloitte’s most recent alternative energy conference, “utilities are either beginning to integrate storage or looking at it much harder than ever before,” he said.

Uses and the future

The study lists five broad groups of applications: Supplying electricity; supplying ​ancillary grid services such as reserve capacity, surge capacity, load-balancing, or voltage support; supporting the grid by reducing use of existing infrastructure or deferring the need for new infrastructure; and firming variable generation or time shifting generation to match load.

Last on the list is providing end-users with distributed generation support by maintaining power quality and reliability, matching onsite generation with time-of-use needs and time-shifting onsite generation to reduce demand charges

Deloitte explained that "technologies that should be on a customer’s radar are those whose benefits exceed their costs...[even though] the costs and benefits of energy storage are in continual flux."

Lithium ion batteries currently dominate and will do so over the next several years because they are the easiest pathway to scaling up.

“The technology is already relatively well-developed and there is a parallel market developing in electric vehicles that uses essentially the same technology,” Slaughter explained. “The market is leveraging the two applications to advance lithium ion’s scale and learning curve.”

Other battery chemistries don’t have that two-market advantage; therefore, lithium ion will likely be the focus for the foreseeable future. However, there appears to be grid-scale applications in which sodium sulfur batteries seem preferable, Slaughter said. “That is why this is such an exciting sector. People are actually thinking hard and working hard on lots of different stuff. That’s a great indicator that the market is set to grow.”

Among the next generation of battery chemistries, the paper sees sodium-ion batteries, liquid batteries, and magnesium-based batteries emerging in the nearer term future and fluoride-ion, chloride-ion, and metal-air chemistries materializing further down the road.

“People are working on a lot of ideas and as the market expands there are more opportunities for development of different technologies,” he added.

For Slaughter, establishing the market is key.

“We are talking about establishing the market and the applications with current and next generation battery technologies and then, as the market develops, we will see what happens and what comes through,” Slaughter said.