The future of battery storage on the grid

Cleantech investor Vinod Khosla made news last summer when he told a meeting at the Energy Storage Association that the smart grid was more “smart hype than smart grid.” Importantly for that audience, he noted that all of the fundamental efforts of the smart grid geared at the demand side—smart meters, demand response, real time pricing, smart electronics—would become irrelevant and unnecessary if energy storage got price competitive (always a controversial figure, Khosla also dismissed as “toys” most of the storage technologies being developed by members of the audience).

Khosla was pointing out that if you can begin to store renewable energy at reasonable prices, then you can provide a much more stable flow of electricity to the grid and forget hassling the demand to change its behavior. With intermittent sources of power generation, like wind and solar, joining the grid, the power supply is becoming less stable and requiring second by second balancing to respond to the whims of nature.

Now the holy grail has always been energy storage, and for all the criticism of coal and oil, they’ve been fabulously successful because they are portable, and energy dense. In an excellent analysis of the “battery deficit disorder,” UCSD Physics Professor Tom Murphy points out that high end lithium ion batteries store about 180 watt-hours per kilogram while gasoline stores about 13,800 watt-hours per kilogram.

In terms of the grid, the competition for grid battery storage is clear: peaking turbines. Mostly powered by natural gas, peaking turbines are what utilities turn to during times of peak demand when base load power plants are overloaded. Where the market stands today, peaker plants are still much cheaper than battery storage though there are some signs that change is on the horizon.

I spoke with Greensmith Energy Management Systems CEO John Jung recently about his take on the grid storage market. Greensmith has raised about $7 million for its turnkey power management software that it pairs with whichever battery its customers chooses (Jung was clear that he was happy not to be in the battery manufacturing business which involves the double whammy of massive capital scaling costs and East Asian competition).

Jung said he’s so far worked with 14 customers, including 8 blue chip utilities such as Southern Company, Hawaiian Electric Company, and a large progressive Southern California utility. “We believe that the market is here,” said Jung. He added, “If you’re battery agnostic, not capital intensive, and buy the best, cheapest batteries from around the world, you can focus on the numerator, how much ROI is on the top line.”

Conversely, Phil Giudice, CEO of Khosla and Bill Gates funded grid battery startup Ambri, is aware and sensitive to the global price of battery storage and the cost of peaker plants, because Ambri’s tech must compete in that market. But he also pointed out that the value of a battery on the grid is being rethought beyond just the cost per kilowatt. The secondary benefits of battery storage include:

1) Taking power off the grid when it’s cheap: You can’t do this with unidirectional power plants, but battery storage means that when power is cheap and in excess (like if the wind is howling at night during low demand), a battery can capture that energy.

2) Batteries lessen the need for capacity markets: Typically ISOs (independent service operators) pay a not insignificant amount of money to major customers to turn down demand during peak hours (demand response). And on a second by second basis they ask customers to shift power usage to balance the grid (frequency regulation). Because batteries can respond quickly, faster than even turning up a peaker plant, which also can only be turned up and can’t absorb excess power, they are good solutions to frequency regulation.

Ambri is slated to have a commercial prototype ready for 2014, and acutely sensitive to the challenges of commercial scaling. The startup isn’t planning on building its own manufacturing capabilities, but expects to outsource and contract manufacturing around the world.

The type of VC money needed to scale manufacturing runs into the hundreds of millions and isn’t readily available in a post Solyndra, post-A123 Systems world. Combine that with decades of manufacturing experience in batteries from the likes of LG and Samsung, and an innovative solution to grid storage will require not just great technology, but reasonable scaling costs. Throw in the needs of utilities to deal with intermittent sources of power generation, and you might just have a market.