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Commercial and industrial use of lithium-ion batteries for energy storage could become economically viable in the next three to five years if the decline in battery prices persists, according to a new report by Moody’s Investors Service.
Battery prices have declined more than 50 percent since 2010. Expanded battery use will be credit negative for U.S. merchant generators in the longer-run due to the subsequent lower prices for capacity and peak energy. Regulated utilities will see a smaller impact, but will face cost-shifting issues.
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.
“New York City stands out as the most promising economic market for peak-shaving because of its high demand charges, followed by California, Hawaii and the northeastern states,” says Moody’s VP – Senior Credit Officer Swami Venkataraman, lead author of the report. “Current battery prices are only about 20-25 percent greater than breakeven levels for peak-shaving applications in New York City.”
The report said other battery applications such as grid-based storage are less economically viable and, most likely, will need to initially rely on contracts with utilities. Regulatory support provided by states such as California, New York and Hawaii will be critical to increasing volume growth that will eventually lead to further battery price declines.
In the long term, merchant generators such as Calpine Corp. (B1 positive), NRG Energy Inc. (Ba3 stable) and Dynegy Inc (B2 stable), could face lower capacity prices if commercial and industrial demand for power materially drops during the peak hours of the day. Grid-connected batteries could further lower on-peak energy prices and dampen power price volatility, a credit negative.
Moody’s says batteries are also credit negative, though less so, for regulated utilities, such as Pacific Gas & Electric Co. (A3 Stable), Southern California Edison Co. (A2 stable), Hawaiian Electric Co. Inc. (Baa1 negative) and Consolidated Edison of New York Inc. (A2 stable)
“Peak shaving will lower power bills for commercial and industrial customers, which will lead to regulated utilities shifting costs from battery customers to non-battery customers to recoup the revenue losses”, says Venkataraman. “But grid storage also represents a potential investment opportunity for regulated utilities”.
Aside from falling prices, other factors affecting battery growth rate and adoption include customer electric usage, improvements in battery reliability, local fire and safety codes and battery technical specifications.