An Energy Storage Transformation in Germany?
By B. Stanzl, K. Stasio, S. Steinhauser, and I. Weigand
Germany has long been a global renewable energy leader, with solar and wind capacity increasing from 5% of total capacity in 2000 to 25% in the first half of 2012. Yet, this renewable boom comes at a price. Earlier this year, electricity prices fluctuated at near record levels, largely due to variations in the supply of energy produced by solar and wind. According to data from Bloomberg, day-ahead
Installed PV Capacity at the End of 2012 (MW)
electricity prices traded in a EUR 110 ($146.31) wide band from November 23, 2012 to February 18, 2013, the largest 60-day swing in five years. Prices are low on sunny, gusty days and high on calm cloudy days. While Germany has cut back on its solar feed-in tariff and other aspects of its renewable energy policy to help mitigate this volatility, it still maintains the twin goals of phasing out nuclear power generation by 2022 and generating 80% of its electricity from renewables by 2050. Under this program, known as the Energiewende (‘energy transformation’), electricity volatility is only going to worsen if Germany does not take steps to properly adapt its grid to its evolving generation mix.
One solution that could play a key role in managing the costs of the Energiewende is energy storage. Energy storage systems could be used to store extra energy when the sun is shining and the wind is gusting and release it back onto the grid when it is not, thus smoothing out electricity supply, and, as a result, prices. Experts estimate that a total of at least 5 GW of storage capacity will be required by 2030 (~10% of expected renewable installed base in 2030), and Germany has little to no room to rely on pumped storage.
The reduction in the solar feed-in tariff is already making residential energy storage more attractive in Germany by decreasing the value of selling electricity back to the grid, thus increasing incentives to store the electricity and using it for on-site consumption. In addition, the German government has signaled a potential incentive system that would provide a subsidy for storage systems coupled with small-scale solar photovoltaic systems.
Energy Storage Technologies
In order to assess the commercial feasibility of rolling out energy storage today to a large number of customers, our team conducted a study focused on the deployment of Lithium Ion (Li-Ion) batteries, which currently provide the best performance, cost and technology maturity characteristics for small-scale storage (residential and community). Li-Ion batteries are the most common rechargeable battery technology in the consumer electronics space. Its primary advantages are high energy densities, no memory effect, and a slow loss of charge. However, some disadvantages include temperature dependency as well as capacity reduction due to charging and discharging of Li-Ion batteries. With the advent of electric vehicles and an increased volume and interest in Li-Ion technology, the overall costs of Li-ion batteries are expected to decline. According to assessments from McKinsey and BCG, cost per kWh of installed storage are estimated to decline from 1000 USD/kWh in 2010 to 500-600 USD/kWh in 2012 and could reach values as low as USD 200 by 2020.
In addition to the battery itself, energy storage systems also require a battery management software (BMS) system, which manages the charging and discharging cycles of the battery according to the supply of solar radiation and consumption of energy. The BMS monitors the state of the battery (voltage, temperature, level of charge), communicates with the various system components (and eventually the grid), protects the battery from over-current, and maximizes the battery’s capacity. Solar manufacturers such as Kyocera already offer integrated systems with BMS that can adjust battery charging patterns based on peak consumption. Current BMS solutions sell at about € 500-1000 per kWh ($655-1310), accounting for a significant fraction of the cost of the energy storage system. With large-scale application, price of the BMS and the battery system as a whole can be expected to decrease dramatically.
Potential Models
Based on our assessment, the individual consumer in Germany would not benefit from adding energy storage to their solar PV system – they would benefit more from selling their solar power directly back to the grid. However, energy storage providers could employ various business models to help drive down the costs and increase returns. For example, implementing a community energy storage system – in which refrigerator-sized batteries serve 5-20 houses within a neighborhood by tapping into the grid’s distribution transformers – could decrease costs by taking advantage of economies of
The individual consumer in Germany benefits more from running their meter backwards than adding storage to their PV system.
scale and decreasing the necessary amount of storage capacity per household due to the averaging of the varying load curves across the houses involved. Another model, which could be used in tandem with community energy storage, is a virtual power plant (VPP) system. A VPP is a centrally-controlled cluster of distributed generation installations which leverages software systems to remotely and automatically dispatch and optimize storage resources. Connecting a series of community battery storage units to a virtual large-scale storage system could provide a revenue stream to the stakeholders delivering the stored electric power, taking advantage of both economies of scale and the opportunities associated with operating as a power plant. Ohio’s AEP utility is currently piloting such a model. While current BMS technology could make such a VPP feasible, several regulatory and technical challenges still need to be addressed.
A 2013 solar storage report by NanoMarkets forecasted that the global solar energy storage systems market will be worth US$2 billion by 2018. Germany’s current energy landscape and supportive solar policies make it an exciting place for this growing market. Businesses could employ innovative models such as community energy storage and the VPP to better take advantage of this market. A German solar energy storage subsidy will be essential to ensuring its economic feasibility in these early development stages, and could help energy storage to balance the grid, decrease the need for building new peaker plants, decrease electricity prices for consumers, and make intermittent renewable energy sources more attractive.
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Benjamin Stanzl has spent the last seven years in the energy industry as an entrepreneur and at Chevron Energy Solutions. He is particularly interested in business model innovation in energy storage and has served on the board of the California Energy Storage Alliance. Ben is currently pursuing his MBA at the Graduate School of Business at Stanford. He holds undergraduate and graduate degrees in chemistry from Stanford and Harvard University.
Kirsten Stasio is currently pursuing a dual-MBA/MS in environment and resources at Stanford University. Before coming to Stanford she worked for three years at the World Resources Institute (WRI), an environmental think-tank in Washington DC, where she focused on the international climate negotiations.
Sebastian Steinhauser is currently pursuing his MBA at Stanford Graduate School of Business. Before coming to Stanford, Sebastian worked for several years in the international energy space as a consultant.
Ingo Wiegand is currently pursuing his MBA at Stanford’s Graduate School of Business. Before coming to Stanford, he worked as a management consultant in the global high-tech and semiconductor industries.
