International credit rating agency Moody’s Investors Service expects battery storage to become economically viable within 3 to 5 years in the US market, and the biggest losers will be electricity generators, particularly peaking gas plants.

In a detailed analysis of the US battery storage market, Moody’s says battery storage is already viable in certain areas, and may become so across the industry within 3-5 years, if the recent fall in battery prices persist.

Moody’s says battery storage costs have already fallen 50 per cent in the last few years, and will likely continue their rapid fall in coming years. Like the cost fall in solar, the cost trajectory for battery storage is also likely to take the industry by surprise.

Moody’s noted that the US Department of Energy predicted a fall in battery prices from $US1,000/kWh in 2012 to a “reference case” price of more than $US600/kWh and a “high technology” case of $US405/kWh in 2015.

But actual market prices have declined faster than even the DoE’s optimistic scenario. It cites the case of Tesla Energy, which is selling battery packs today at $US350/kWh-$US400/kWh and some high-volume customers are buying batteries today at between $US250/kWh-$US350/kWh,

“With Tesla Energy indicating that it expects prices to be as low as $US100/kWh-$US200/kWh by 2020, this expected trend of falling capital costs suggests that battery applications could become economically viable in three to five years,” Moody’s notes.

Practical applications of batteries include peak-shaving, where commercial and industrial customers could satisfy a portion of their peak power demands with a battery that charges at night and is used during peak load hours.

At the grid level, batteries can be used to integrate renewable energy and supplement ancillary services which helps with minute-to-minute grid stability.

Widespread use of batteries will be bad news, or in the terminology of Moody’s – “credit negative” – for merchant generators because it will push down capacity prices and lower energy prices.

Batteries will store wind energy produced at night and/or stabilise hourly variability in solar production. This will offset the need for gas-fired peakers that would otherwise be needed for this purpose.

Battery storage will also help lower the volatility of peak power prices in general, but especially during extreme weather. Moody’s notes that high peak-pricing is a lucrative and important source of margin for merchant generators.

Indeed, in Australia, one quarter of the revenues of merchant generators are gained through just a few hours of peak pricing. But as such hours dwindle or as pricing peaks flatten, merchant profitability will also decline.

There could be some good news, though. In solar-rich markets, such as California (and this would also apply in Australia), battery storage could be used to address the so-called “duck curve” (see graph below) – the big fall in grid demand and pricing caused by the big increase in solar production during the daylight hours.