Andrew Dykes
Welcome to the MW hour, the latest podcast series brought to you by energy Voice in paid partnership with BDO.
In this series, we'll be examining how energy storage technologies are reshaping, reinforcing and indeed recharging energy markets in the UK and further afield from batteries to gravity.
There are myriad ways to capture, store and use energy both on and off the grid. In this the first episode of our boxset series we’ll be taking a broad look at how these technologies work and the ways in which they play an increasingly important role as we adopt cleaner and greener sources of energy across the UK economy and around the globe.
I'm Andrew Dykes, an editor at energy voice where we are leading the global energy conversation and today I'm delighted to be joined by my co-host David Bevan. David is a corporate finance partner at BDO and heads up the Group Renewable energy practice in the UK.
We're also joined today by our guest, Merrick Kubek. As well as being a founding member and Managing Director of Energy storage technology company Fluence, Marek a clean tech advisor to the UN and has been recognized in the Forbes 30 under 30 lists - so he's very well placed to help us understand the past, present and future of the sector.
So with that in mind, we've got a lot of ground cover I'm going to dive straight in and pull in my co-host. David, what do we mean when we talk about energy storage?
David Bevan
Energy storage, essentially, storage is a form of flexibility really. It can be used to balance supply and demand on the system. There are lots of other things you can use to balance supply and demand; you can change supply, you can change demand as well.
The ultimate flexibility tool is a good old fashioned power cut. I suppose it's the flexibility of last resort in in in a sense, which was quite popular technique when I was a kid in the in the 70s and 80s, but we have a slightly different view of power cuts and power outages nowadays.
So really it's storage is a form of flexibility. Sometimes people use the phrase time shifting I've heard that phrase used quite a bit in this area and really, it's about taking power that's been generated at one point in time, keeping hold of it and using it again at a different time when you need it.
Andrew
As we go through the series, there's going to be quite a few acronyms and various different complex terms thrown around. Could I ask either of you to pick up on a couple that you think are the most important that we should know about now?
David
I guess when we think about storage and different storage technologies. There are various ways of characterizing them or assessing them, and they have different characteristics, and they're really quite broad.
There's energy capacity and the power rating of technologies, but there's also the cost; a pumped hydro system is significantly more expensive than a utility scale battery storage system. There's scalability - can you just add bulk bits on or are you sort of fixed by some geographic or other constraint?
Indeed, where can your technology go? Where can the solution go? Is it required to go in a certain place? What's it's speed of response?
Batteries are very fast, and able to respond super quickly to a request from the grid. Gas peakers are pretty fast, but they still take a few minutes to get going.
There's speed of charge and discharge and also the ability of the system to go through multiple cycles. So as we all know from mobile phones your battery in the phone gets less and less effective over time.
Safety - different systems have relatively different risk characteristics. You know batteries have occasionally caught on fire and management systems are pretty good nowadays and they're getting better, but there is some risk.
Useful life - hydro stations if you maintain them can last 5000 or more years and there are such systems out there that are a hundred years old. Batteries are more of a challenge.
So those are some of the characteristics that you need to consider and assess when looking at different types of storage solution.
Marek Kubek
And then I can maybe add some of the TLAs, the three letter acronyms that gets thrown around a lot with energy storage just to help understand some of those they relate to.
A lot of things that David just mentioned, so RT is a common one - round trip efficiency. It's a very simple measure of energy in versus energy out, and how efficient an energy storage facility is.
Batteries are particularly good in this regard depends on exactly on their power energy ratio, but for a long duration storage system you can get somewhere close to a 90% round trip efficiency, which is much higher than a lot of other technologies.
On the other hand, batteries do degrade, so they don't have the usable energy capacity they have at the beginning of life in 10 years, if you use it for a cycle a day, every day, it reduces over time. That's something commonly referred to as SOH - state of health - which is a measure of the original capacity that was installed.
And it usually depends on how you're going to use the battery. But after 10-15, maybe 20 years, you're going to reach the end of its initial useful life where you can still then you know, replenish, remove those batteries, or replace them with others.
But compared to other technologies which don't degrade or degrade very slowly, that is something you have to consider.
State of charge – a very common one for any duration limited type of technology, which is exactly what it sounds like - what level of energy capacity is left in the fuel tanks, so to speak? It usually ranges from zero to 100, but some technologies may have restrictions on how they can be used.
And then you can get into different chemistries. Lithium-ion is really an umbrella term for a lot of different interesting sub chemistries and technological innovations. The most common that are used in grid storage are NMC, which is nickel manganese cobalt batteries. Those are also used predominantly in electric vehicles, because of their energy density, which lets you pack a lot in and get a lot of range into a given electric car.
LFP, which is lithium iron phosphate chemistry. That is also now increasingly being used in electric cars. It's less energy dense, so for stationary storage, it perhaps that matters less. I would argue it still does matter because footprint equals money as well in terms of land, in terms of containerization, thermal management and everything else, but those are the two dominant chemistries you'll hear - LFP and NMC mentioned a lot if you're talking about battery storage.
There are a lot of other sub chemistries as well and a lot of interesting innovations within lithium ion that are that you know, may still take place over the next few years or decades.
Andrew
At the end of the podcast series there will be a quiz on all the acronyms covered throughout the series, and I intend to get full marks.
Marek your company Fluence was created specifically to kind of play in this market, can you give us an idea of what some of these solutions look like and maybe how you've seen them develop over your time at the company?
Marek
I think first it's helpful to level set a little bit about the kinds of storage that are out there in the world. 85% of energy storage on the electricity grid, at least in the world today is pumped hydro - so this is literally pumping water uphill, putting it behind a dam and running it back down a hill to generate electricity.
Storage takes a lot of different forms. We tend to use electricity storage as a shorthand because that's mostly where the exciting stuff is happening in developing at the moment, but there's also thermal storage.
I mean the old world of fossil fuels was chemical storage, right? Essentially, you're storing energy in the form of oil, gas, coal, which you could literally stockpile and run as you need it.
But as we move into a world of increasing renewable generation for various reasons, so some of those are existential like climate change, some of them are geopolitical, such as REpowerEU, and you know moving away from dependence on, say, Russian fossil fuels.
Others are simply that renewables are becoming the cheapest form of electricity generation. So there's a need to drive towards that, but because of that variability, you essentially need some way of dealing with the intermittency of renewables, whether that's the sun simply doesn't shine at night, or whether it's dealing with smoothing the balance of supply and demand, and that's where you know Fluence come in.
We're an energy storage technology company, and so we provide energy storage products and services to help integrate renewables on the grid. We're not actually a battery manufacturer ourselves, but we're pretty much working only with lithium-ion batteries today. In our very early days we worked with a lot more technologies, but because of the cost curve of lithium-ion batteries, which has declined very very significantly over the past 10 years, we're finding that's a very economical way of solving a lot of the flexibility challenges that David was talking about.
Andrew
You've touched on I guess the crucial question, which is why do we need it? What problem is it solving on the grid that we need these kind of forms of energy?
Marek
Well, there's a lot of different problems that it solves, which is part of the fun of it, I think. But so one of the important ones I'm David mentioned time shifting, so that's the most obvious example. If you think of energy storage in its most fundamental sense, it's essentially an electron time machine - so you're taking an electron that would have otherwise been used in real time, storing it in some other form, in this case, an electrochemical form in a battery, and then discharging it for later on.
That deals with the more obvious intermittency problems.
It's easiest to think with solar that the sun shines in a nice, relatively predictable way, or maybe not in the UK with cloud cover and everything, but generally, in a sunny country, in a very predictable way, but at the same time that predictable way doesn't match the demand profile.
So you need a certain amount of storage to be able to shift that energy from day to night, that's one sort of very obvious area I think most people can get their heads around quite straightforwardly, but there are also others.
Another one is actually geographic. If you look at the distributed nature of renewable energy and so offshore wind, for instance, is mostly, as the name suggests, offshore and far away from the demand centres. You also have constraints getting the electricity from where it's generated to where it needs to get to.
So if you think about it in terms of pipes and flow, the pipes of the electricity grid, which are the transmission and distribution lines around the country, only have so much capacity and if the pipes are full you have to basically turn off the taps, so to speak. And you pay to not to use renewable energy solar energy because you can't actually get it from A to B.
Solving those constraints is something that also energy storage is quite useful at doing, because you can store at one end and discharge at the other and then not only do an electron time machine, you also have an electron teleportation device because it can disappear over here and appear over here without having to have built a transmission line.
So that one, I think is also very interesting. There are a whole load of others, but I could spend probably the next half an hour of this podcast talking about them, so maybe I'll leave it at those two
David
Actually. Marek you reminded me of a question I've had. I've sometimes heard people use this sort of bath analogy when they're trying to describe how you define different characteristics of storage technologies?
And I've never quite sort of mastered the analogy, but it's something to do with these two key variables, which are energy storage and power ratings, or the amount of oopmh and the amount of stuff you can store.
Can you describe the analogy better than I can?
Marek
Oomph and stuff. I'll have a go, David.
I mean, in terms of those two metrics, the most common that are associated with energy storage would be power and energy. So you can consider energy in terms of energy capacity, so this is typically a grid scale talked about in megawatts and MW hours in a domestic scale.
You might be talking kilowatts, so just for perspective, you know a kettle might be, you know, 1000 watts, that's you know roughly what it takes to boil the kettle for two or three minutes. We're talking another 1000 times larger than that to get to megawatt scale and for that sort of scale, you have your power, which is how much a month you can provide to the electricity and how much you're contributing in terms of electricity in real time.
But how long you sustain that for is also a very relevant metric. It's not so much a relevant metric for fossil fuel generation, because generally speaking, you had not a completely limitless resource, but you didn't really have to think about how much capacity you had. Whereas with a battery, for instance, you might have 12345678, something like that, hours of duration. And if you multiply the duration of how long you can discharge the power for by that that power that will give you your fuel tank, essentially, your MW hours.
So if it's 100 MW battery and you've got 4 hours of capacity, that's 400 MW hours of capacity. So 100 x 4.
Those are the two most important metrics. The power dictates the maximum you can do. It doesn't mean it's what you have to do, because you could obviously go at half power for twice as long or a quarter power for four times as long, so there's flexibility between the two, the two elements, but I mean the bathtub and the tap is not a bad analogy, just a different one to one I would usually use when I'm talking to electrical engineers.
Andrew
We've kind of mentioned the big numbers around how these projects work, and especially the ability to timeshift.
There's also kind of the in-between stage of energy storage to do things like grid balancing and David you mentioned it right at the beginning. Can you give us an idea of that market and this is another element of how these projects can support renewables?
David
Yeah, that's right. I mean, I guess if we focus for the moment on what I would describe as utility scale battery storage. So as Marek described, large batteries in perhaps in containers in a field somewhere linked to the grid, providing a range of services. The key services they're providing, is frequency response, which is really linked to very short-term responses to grid requests to increase or decrease voltage.
I'm going back to the intermittency point if you think of a solar farm operating and a cloud passes over, you get a very relatively small local shift in output and that can have frequency impacts on the local grid and the grid is bound so that all of our plug sockets and electrical equipment works properly at 50 Hertz, it's bound to supply electricity within that within a fairly narrow band, around 50 Hertz.
One of the services that the grid can use to counteract the impacts of clouds going over solar farms, for example, is to call on batteries at very short notice, milliseconds, seconds, etc to discharge and fill the gap essentially.
So that's frequency response, which is a very short-term service. There are slightly longer-term services that utility scale batteries provide. The key one I think at the moment, within the balancing mechanism is dynamic containment, which I could try and explain, but I might just defer to Marek to explain how that works and what what service that's providing.
Marek
There are a lot of acronyms and terms which we're probably going to throw around or try and avoid in this podcast, maybe, but dynamic containment is one of the most popular services for batteries.
Now it's come and replaced. Something used to be called firm frequency response – FFR - essentially, it is an automated algorithm with very strict rules around how you respond so that you respond very quickly and very accurately to any frequency deviation on the grid.
So taking David's example, cloud passes over a solar farm. The generation from the solar farm dips, and as the supply has dipped compared to the demand, the frequency is going to fall. If the frequency falls below a certain trigger, well, it could fall to a point where nothing happens. There is a certain range, called the Dead Band, in which nothing happens. So if the frequency stays close enough to the 50 Hertz, which is supposed to be, the grid stays nice and stable, nothing is called upon, but if it goes below this trigger threshold, the algorithm essentially determines how strongly the battery should respond to help uplift the frequency.
So the faster the frequency is falling, the faster the battery is going to respond and the more aggressively it's going to pick up its output to try and balance that out. That's essentially it.
There's a lot more nuance to it, but basically it's responding to changes in frequency in an automated way that provide a lot of precision and control. National Grid has some capability to tweak and hone these different parameters so they could change, for instance things like the deadband setting or the droop characteristics, or how aggressively the battery responds depending upon system needs.
It's also very high resolution, so actually they take 20 millisecond timestamps, which is an insanely fast polling period, you have to have very good software and controls to be able to manage to deliver these sorts of services, it's not any battery system that can do it, and it is quite a demanding one, but it's very valuable to the electricity grid to be able to have a technology that can respond this fast because it's significantly faster than fossil fuel generation would have been able to respond in the past.
David
And that's probably worth flagging that one of the great benefits of these these battery systems is their speed of response. And that's one of the reasons you're seeing relatively significant increases in investments and deployment of these kinds of systems on the grid because it works.
Andrew
We've touched mostly on batteries and mostly on the kind of short to medium term there. Is it worth zooming out a little bit and looking at the medium to longer term kind of options that we have so you mentioned pump hydro, there are options like gravity. How are they being deployed and what do they allow us to do that still be slightly different from the kind of immediate short term battery type projects?
Marek
It's a very topical question actually at the moment, because in the last week ease the European Association for the Storage of Energy (EASE) just came out with a new report looking at what needs to be done by certain targets for 2030 and 2050 to help essentially achieve the renewable decarbonisation targets that have been set.
And whilst we talk about batteries a lot, particularly because they solve the very near-term challenge, that report sort of identified in the European context - looking right across Europe - to get to that sort of average target, you would need to be able to balance the grid with about 60% renewable electricity penetration with what they termed daily storage, which I think was under 10 hours of duration.
So that sort of territory is something that batteries playing quite comfortably. We're not quite at 10 hour batteries yet, but we you know there are examples of six, even eight-hour duration batteries in each case now around the world. Mostly they sit in about the four, four to six hour range as a maximum, but then to get beyond 60% renewables.
If you want to get to 80% or beyond, you start to need to look at weekly, or multiday storage at least, and then seasonal storage. I would usually bracket it in those sort of three ways daily storage, multi day, weekly and then seasonal.
What can fill the multi-day storage gap is the kinds of technologies you just mentioned Andrew. So things like pumped hydro. It could be liquid or compressed air energy storage, physically compressing air until it is liquefied and can be stored in underground caverns using depleted gas fields, or it could be building, you know, custom containers above the ground to do that in, so there's a number of different technologies.
And of course pumped hydro as well, which is by far the most established. It just tends to take a long time to build and permit and get new pumped hydro on, but that can help fill that multi-day gap.
The most challenging and the most interesting I think is the seasonal storage and finding a low carbon way of doing that. There are a lot of potential technologies that can help achieve that, power to X being one. That is for instance, running electrolysers to take electricity from the grid as it's being generated to turn it into hydrogen.
You could use thermal forms of storage, so whether it's heating up rocks which maintain a very stable temperature, which can then be extracted later on. There are multitude of different ways that the very long duration challenge can be solved, but they're also sort of the furthest out in terms of their maturity, and you will need all three, if you want to get to essentially a fully decarbonized electricity system, which we do by 2050.
Andrew
That seems like a great place to take a quick break and we'll be right back after this.
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Andrew
We didn't fully answer a question before, which is why do we need storage now? You know, we've had renewables since the mid 2000s, we are now suddenly faced with a big upswing in developing them and building them out in the grid. So why is that happening?
Marek
There's a technological answer to this. Lithium-ion batteries have been around since the 80s in terms of inventions, so John Goodenough won the Nobel Prize a year or two ago for the invention of the lithium-ion battery. But really, outside of sort of, you know, Sony camcorders and things like that it didn't really take off until we started using it more widely in consumer electronics.
First in laptops and tablets and phones and so on, but then later on in terms of electric vehicles and now into stationary grid storage. Fluence was actually at the very beginning of this about 14 years ago, doing the very first grid scale battery projects in the world.
So there were niche cases which still made sense for batteries to do, even at the significantly higher cost levels that they were at but since this sort of virtuous circle of investment we've had very significant demand from consumer electronics, electric vehicles, and now grid storage, which drive up production, which fuel R&D and innovation, and therefore we get more energy-dense packs lower cost packs coming through in cycle
And then as production scales up we also see cost declines as a result. So there's a learning rate which is sort of very self-reinforcing, that as storage gets cheaper we can use it for more things and therefore we do deploy it more, and then we build more.
That's the technological answer to it. The grid need side of things is I mean, when I started my career, I did a PhD in renewable energy integration, 2009 to 2013, and I was reading the literature in the papers around that time and you were getting papers saying: “Oh you can't get above 10% renewables it'll break the grid. You can't get above 20%, it'll break the grid” - and that's the sort of levels we were at.
But even at sort of 10 or 20% of electricity being satisfied by renewables, there wasn't really actually anything you needed to do about it. You could make your power plants a little bit more flexible in terms of their minimum generation and how they ramp up and down, but you didn't fundamentally have any stability issues.
But when you get above 20, you know there's no trigger point, it's just gradually the more and more renewables you add to the electricity grid, the more you have to deal with the stability and intermittency impacts that that that causes.
The area where it becomes really interesting is most people forget that if you're thinking about 20% renewables or 30% or 40% on average, over the year, that means to reach a 40% on average, there's going to be periods where you have to be significantly higher than 40% because there are periods where there isn't any wind or other than any solar.
That's actually what drives renewable uptake, and particularly the frequency regulation services we were talking about in the first half. You need to provide stability to the grid during times where there's a lot of renewable energy generation and where there, by default, isn't a lot of thermal power plant on the grid.
Andrew
It and maybe to put some kind of numbers on this. How do we decide what storage to deploy where and what are the costs involved? I'm thinking, you know we have an electricity price that that fluctuates. If you're a developer, how do you decide that you can make this economic, that you can play in this market and and how you're going to provide those services and at what price?
Because that obviously reflects you know what, what facilities you could build right? Big pumped hydro projects are expensive at remote, they come with extra costs. Smaller kind of more nimble battery projects, you can put them - not just anywhere you like - but they're they're a lot more flexible in that way too.
Marek
I'll have a go at answering that and then maybe I'll pass it to David, because I think he probably has some topics to weigh in on here as well.
It's really driven by market needs, and if the market doesn't need it, no-one’s going to deploy it. So there has to be a remuneration mechanism, there has to be access to markets in order for storage to be deployed.
The very early scrappy projects that we were doing in other electricity markets, we had to make batteries look as much like a coal power plant as possible because otherwise they wouldn't actually be allowed to connect to the grid and do anything useful, and that's simply because at the time there was no playbook of what batteries looked like on the grid, you had to come up with some way of getting it on the electricity system.
So the first thing is regulatory hurdles being removed.
The next is access to as many markets as possible. It's easy to set up a battery to do one job and one draw only, which is frequency regulation, but that's significantly curtailing its valuable use cases if it's not allowed, for instance, to trade in energy markets, or provide voltage support. Providing access to these different revenue streams is really what's driven a lot of the uptake.
We now have about 1500 megawatts of batteries, whereas you go back four or five years. It was certainly in the 10s of megawatts only, so that uptake has been very rapid, and it's been driven by access to different markets. Developers essentially respond to market needs.
David
I think I think you've hit that on the head there, Marek. I mean your point about the establishment of an industry creates its own momentum. I think that's important.
You're right four or five years ago, there were very few utility scale battery projects and the people doing it were pioneers, you know, genuinely taking significant risk. Back then there were some challenges with the markets that did exist - capacity, market frequency response markets that were in existence then were volatile and the capacity market paused, but regulatory reasons for, the best part of 2 years, there was a huge amount of uncertainty and that meant that the other issue, of course was you're buying batteries five years ago, worrying that maybe they'd be twice as twice as cheap in in a year’s time or in two year’s time
You were faced with these sort of triple whammy's of risk, but what we've seen since then is the capacity market issue resolved. We've seen slightly better mechanisms and markets for delivering voltage control as you described it, just a broader range of more sophisticated services.
As to whether they are less volatile in the long term, that's an interesting question. I'd say it's still probably quite difficult to predict pricing in these markets going forward. We've seen how difficult it is to predict power prices in the pure generation markets, but I suspect there will be more volatility in the in the storage market.
The risks haven't completely disappeared. A battery project looks very different in complexity and risk to a solar farm or a wind farm still today, but it's changed massively and and that's reflected in an increasing number of players, institutional investors, putting money directly into utility scale, battery storage, and the projects are getting bigger and more sophisticated.
I think we all believe that this capacity is required, and that's what's ultimately driving their confidence, but it's a it's a market that's matured very quickly. We're talking four or five years. It's quite remarkable what's happened.
Marek
One of the big trigger points for that on the planning side has been the lifting of the 50 MW cap. It used to be that batteries under 50 MW would go under local planning and anything above that would be nationally significant infrastructure, which just in terms of cost and time of the development cycle to get a project with land grid planning and a business case would take multiple years, but there was a recognition - something we lobbied for through the Electricity Storage Network as members – of saying, the 50 MW cap was set by diesel generators, basically thermal power plants. A battery is very different in, you know planning, let alone anything else to that sort of asset because it's pretty benign, right?
It's essentially a containerized sort of solution, a modular set of building blocks. There's no water usage, it's quite an innocuous sort of structure. The biggest thing to worry about is maybe noise during operation.
So the threshold was lifted to 350MW, and we're now seeing hundreds of megawatts being built in single projects and single goes now. That alone has sort of 10X or 100X compared to some of the very early deployments where the 10 MW we built the very first commercial grid battery in the UK, actually way back in 2015 - it was 10MW because 9.99MW was below the threshold at which we could get a harmonized ancillary service contract and build it behind the meter at a coal power station!
It's a different world now in terms of scale of these projects and therefore the speed at which they can be deployed as well.
Andrew
So you mentioned a couple of things. I think it's a great point to look at some of the challenges and basically the question why don't we have more of this already? David, you've mentioned a bit of risk and a bit of learning. Marek , you've mentioned some kind of policy angles.
Looking just at the UK you know are there things that are holding us back from making more of this technology now?
David
I talked about that sort of residual future pricing risk. There are sort of market experts just like with power prices, there are various consultants in the market that spend their time trying to forecast and give some clarity on likely future pricing for the revenue streams that utility scale batteries produce.
I think that there's still some uncertainty there. So if you're looking to lend against this kind of asset you're faced with that future revenue stream kind of dilemma. Some elements of the revenue streams are contracted for a number of years in advance, but it's not a significant proportion of total revenue for this kind of asset, so there's still a bit of uncertainty, but it's hard to argue we're not going in the right direction given the explosion in in developments and we're seeing.
We're even seeing now you know, most renewable generation development projects usually have some kind of parallel planning application for a storage site there. Co-location is sort of perhaps another topic for another time, but the market clearly sees the need for storage and is sort of factoring that into the very early stage of planning and development for renewables generally. So I think that's all really positive.
I guess though in terms of the future, the biggest risk is probably around these longer-term storage technologies that that Marek alluded to this, you know, time shifting over much longer periods.
And there I don't think we've quite got on the sort of technological momentum shift that Marek talked about with batteries, that hasn't quite happened yet with the longer-term storage. The risks are bigger, the capital costs are bigger I guess as well.
Andrew
Is this a kind of fundamental physics challenge really? I mean we have a system we rely quite heavily on gas. Gas is a great form of energy storage in terms of what we need it for, right? We can store it in a big tank and we can use it in the winter when it's cold.
That's also a pricing point as well, it is - was - relatively cheap. It's now incredibly expensive. I appreciate that causes a lot of volatility as well. So is it in competition with other forms of technologies that we that needs to get better as well?
Marek
I mean it is essentially if you put it that way. It's quite evident that we haven't needed long duration storage because we've had a very effective and relatively low carbon compared to some of the other fossil fuel technologies on the electricity grid.
Now the challenge with volatility is it works both ways. It can be volatile upwards, it can be volatile downwards and that that is difficult for investors because, OK, there is now I think stronger political will to decarbonize and move away from dependency on imported gas and that's going to create a vacuum or a gap that needs to be solved.
It could be you know, a perfect opportunity for longer duration storage technologies to come in.
The other aspect of this is whether there's ever going to be sort of border carbon taxes. The EU is moving more in that direction than it has done before with setting out legislation that essentially protects and promotes localized production one way or another, and that's something that could help, because something that's not factored directly into the gas price. There is the emissions trading scheme, but it hasn't really historically moved the needle that much in terms of investment decisions on long duration storage.
The other thing that I think is holding us back, moving back away from the long duration stuff to the near term is actually now supply demand. We've had a huge bounce back of demand for batteries in particular because of electric vehicle sales going through the roof, and through the need for grid storage, and now we're actually increasingly we're finding that the challenge is on the supply chain side.
There's frankly not that many stationary storage technology providers that can get access to large volumes of reliable battery supply.
As the largest player in the space, we're one of the few that does, and we're finding increasingly, actually a lot of businesses coming to us because they can't get access through smaller players, small integrators, and that's leading to a slowdown in actual deployments. Just because there's only so much capacity that's available to be deployed for stationary storage, particularly because in electric vehicles, generally the margins and those sort of vehicles are going to be better.
So if you have a choice between A&B - and there are some companies out there that that do both, probably well-known ones - where are you going to put your batteries? If you have that dilemma to make and it probably it's going to be in the electric cars, right? So that's what's going to potentially slow up the transformation of the electricity system is sort of competing priorities with a constrained supply.
I think it's a short term issue, there's a lot more supply coming online in the next year and couple of years, but that's another correction that that's going to have to happen sometime soon.
Andrew
And does that make other forms of storage more attractive? Or, you know, increase people's willingness to invest or willingness to explore. We mentioned compressed air, we mentioned pumped hydro - does that change the kind of economics on them?
Marek
I mean, I would say probably not for the simple reason that unless you believe this is a systemic shift and battery prices are going to remain higher than what they were and won't continue the course correct and continue coming back down again in the future.
Then, well, really a year or two of higher prices isn't going to make a difference, because particularly for those sort of other technologies, if you're looking at, you know flow batteries or liquid air compressed air, you need to be taking a 20-30, maybe even 50 year time horizon for your investment case.
And I think that's fundamentally the problem, right? It's very difficult to predict what's going to happen in two years, let alone in in 20 or 50.
Andrew
So David, I mean, in terms of the clients that you work with, can that risk be overcome? Is this just a case of having some major projects backed and seeing that there is investment interest, or is this again more of a technological problem that we need to wait and see this catching up?
David
I think from what we're seeing, we are starting to see the emergence companies IPO-ing that have got slightly different battery chemistry technologies, so there's business called Gelion which IPO’d a few months ago, which has a non flow zinc bromide technology and there are others we're working on at the moment.
So there are signs that the investors - and I'm talking about sort of public, institutional investors - are showing interest in these alternative forms of technology, which actually may have slightly different characteristics.
Perhaps one thing we should run through at some point is that sort of list of you know, the key characteristics of a storage system. What kinds of things can you be good at and bad at? Some of the things that lithium-ion is very good aren't always needed in utility scale storage, and we're starting to see those technology companies get beyond pure sort of academic research and pre commercialization stages so that that gives me some confidence that within a few years we'll start to see more of these technologies deployed.
But more generally, taking storage generally we talked about the four or five year explosion. I mean, there are now at least three dedicated listed funds on the London exchange which basically take investors money and deploy directly into utility scale battery storage. I suspect there will be more. I think that's really encouraging.
We're finding a lot of invest a lot of the vehicles are a bit like the renewables funds. Actually they're there investing at an earlier stage, so whereas once they may have been buying operational assets, you know existing batteries that have been built by someone else, now they are taking on more of the construction development risk, and they're buying into rights for ready to build projects or even development projects that aren't quite ready.
That's pulling back the stage of investment which gives them potentially higher return, which is fantastic, but I guess in the context of the supply chain challenges that Mark mentioned, it doesn't solve them, but it means at least they're ready when those supply chain challenges relieve a bit.
Andrew
David, you've picked up a great point there for our next episode, which will be a deep dive into battery storage. I do want to zoom out just slightly and maybe hand over to Marek. We've talked a lot about the UK, obviously Fluence works in a lot of different markets - is there anything happening around the world that's really exciting and energy storage or anything that we should be learning from do differently?
Marek
Yeah, there's an awful lot actually. So Fluence is present in about 30 different markets now with projects we have offices in seven different places and with close to 5GW now of battery energy storage projects, either operational or awarded in and in construction and so that spans a lot of different geographies.
A lot of interesting contrasts in terms of the speed at which energy storage is being picked up, and actually what it's being used for.
So I could just pick a couple of interesting examples out there. One to flirt with the political perhaps is Eastern Europe and what's happening there is very interesting because we recently were awarded a 200 MW portfolio of what we call T&D - transmission and distribution - use case storage in Lithuania.
Lithuania is part of the Baltic ring and therefore connected to the Russian electricity grid - similar to Ukraine and other countries that therefore are reliant electrically or have been historically on electricity that's generated in Russia. One of the interesting things that we're starting to see in countries over there is the move to decouple from the Baltic ring and onto the European one, and that's something that batteries interestingly can help with because it's not so much about time shifting it is about some of those things, like grid stability, about black start - being able to start the grid if it was to fail.
So we're seeing quite significant scale portfolios being built out there for network infrastructure purposes so the sort of use case of virtual transmission lines that I mentioned at the very beginning of the podcast and dealing with grid constraints in a different way, so that's quite interesting.
Second is I'm responsible for, in addition to the UK and Ireland, the Israeli market and Israel is very different in terms of its structure, but in in some ways it's very similar to the UK market in that the Israeli market for, again geopolitical reasons, doesn't have interconnection at all, and so is operating as an Islanded system.
And although it's much further behind in terms of renewable energy penetration at the moment, it is catching up very rapidly and of course has an incredible solar resource, so being able to integrate large amounts of solar to the grid presents a different set of challenges to an electricity system where mostly we're dealing with wind energy like the UK. Namely that there is a lot more time shifting of renewables that needs to happen there and so Israel actually just had a very simple policy of mandating 4 hours of energy storage with every MW of solar that's being added to the medium voltage grid there.
That's led to a very rapid and accelerated uptake of renewable energy generation. It's becoming one of EMEA’S biggest electricity markets for energy storage in in a very short space of time.
As a result of that, a lot of other examples, but maybe one more just to pick up on because it would be, I think, remiss of me not to mention the US because the US is currently the global leader in energy storage deployments.
That's largely been driven by peaker replacement strategies - if you particularly look at places like California, it's very difficult to get permitted a gas peaking power station largely because of the environmental permits, water usage, emissions, noise, visual impact, etc, whereas batteries they don't use water, visual impact is significantly less. They're obviously not actually making any sort of direct emissions when they're when they're generating - in fact, they're helping integrate renewables, so we've seen a large uptake of energy storage being used to displace what traditionally would have been a peaking power plant that ran less than 5% of the year for a few hours a year just to meet peak.
That's been a very significant use case as well I would say, and it's one that we're starting to see emerge into more markets. Ireland, for instance, adjacent to the UK, where we've seen in the recent capacity market three and four-hour batteries start to be awarded, so we're starting to see this move towards longer and longer duration storage, which can solve more problems.
So there's a lot more examples than that, but again, in the interest of brevity, maybe I'll stick it a few short teasers.
Andrew
Well, look, I think that's a fantastic place to end and really sets the scene for the rest of this series. A lot of stuff to tackle, from technologies to challenges to policy.
Hopefully we'll have more time as the series progresses to dive into all of those a bit more, but that brings us to the end of our first installment of the Megawatt Hour.
Thank you to David and Merrick for joining me for an amazing introduction into the sector and hopefully this is a great springboard for more discussions throughout the series.