The rapid growth of wind and solar power brings with it a well-known problem: They don't always work. Energy storage is a solution that investors should look out for in 2021, even if it isn't ready for stock selection just yet.
Governments around the world have greatly increased their decarbonization ambitions this year. There is great uncertainty about how their promises will be fulfilled, but almost all scenarios involve the massive construction of solar and wind farms. As their share of electricity generation grows, it will be crucial to bridge the times when the wind isn't blowing and the sun isn't shining.
By building wind and sun together, the gaps can be closed, while gas-powered power plants can provide non-renewable security. Demand-side reaction agreements are also helpful – when large electricity consumers promise to reduce their consumption during the pinch points in exchange for lower prices.
Despite all of these methods, excess electricity must be stored for lean times.
Lithium-ion batteries, similar to those in an electric vehicle, are expected to provide most of the new storage capacity. Residential batteries can store electricity from solar panels on the roof, but these are so-called stationary solutions on a supply scale for wind and solar parks that are really needed. These are often customer-specific turnkey installations that provide one to four hours of backup power. Batteries cost almost 90% less than in 2010 and continue to get cheaper, according to researchers at BloombergNEF.
The shared chemistry with the automotive industry is a mixed blessing. Large-scale production will help reduce costs, but it can also lead to a supply crisis. Some Korean manufacturers recently gave automotive batteries priority over stationary, pushing buyers to new suppliers in China. Expensive battery racks and construction costs for construction sites put stationary solutions on a supply scale on a different trajectory than car batteries.
In addition to short-term storage, there is a need for longer-term solutions for days or even months. Pumped Hydro – where excess energy is used to pump water uphill into a reservoir, from where it can be released into a hydroelectric plant when needed – is an inexpensive and clean option. Currently, most of the storage capacity in the world is provided to utility companies. However, finding new locations is a challenge.
Green hydrogen is another solution that “stores” renewable energy by running electrolysers that break water down into hydrogen and oxygen. It is less efficient than other methods, but it produces gas that is transportable and versatile.
Safety concerns have arisen with batteries and hydrogen but are unlikely to raise them: fossil fuels and nuclear power plants are not without their risks. Other storage options include heating volcanic rock or molten salt, pressurizing air in containers, storing energy in flywheels and moving weights into the air or into old mine shafts. Pilot projects have proven their effectiveness, but most of them are not yet commercialized.
One problem with the topic for investors is that for now it will remain a side business for large battery companies like LG Chem and Panasonic.
The same applies to the electrical appliance manufacturer General Electric,
ABB and Siemens,
manufacture the power conversion systems for the storage facilities. Smaller, pure companies with promising technology face great uncertainty about how the market will develop.
However, storage could soon become a dominant feature of the green energy landscape and some businesses' profits. The boom in renewable energies has weathered the pandemic and even picked up speed. It can't be long before technology that is critical to its effective use hits the market.
Write to Rochelle Toplensky at email@example.com
Copyright © 2020 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8