This past April, Tesla Motors CEO Elon Musk grabbed headlines with the introduction of two battery-based energy-storage products from the new Tesla Energy subsidiary he claims will “fundamentally change how the world uses energy.” Perhaps even more important to Musk’s ambitious goal is the anticipated 2016 production startup at the company’s “Gigafactory,” now under construction in the Nevada desert. With that facility’s economies of scale, lithium-ion (Li-ion) battery prices could drop by as much as one-third, possibly making a number of now out-of-reach energy-storage applications more realistic.

(Update: On July 29, Tesla hosted a grand opening event for its Gigafactory. Though the facility isn't complete, it officially opened on July 26. See the video embedded below.)

In fact, some go so far as to use the phrase “inflection point” to describe the increasing market interest for energy storage, especially battery-based systems. Certainly, battery manufacturers are bullish on the potential for the U.S. market. In addition to Tesla Energy, the German storage-system leader Sonnenbatterie and South Korea’s LG Chem both recently announced intent to begin marketing U.S. products, along with Daimler, the parent company of Mercedes-Benz. But the Gigafactory promises to be a price-setter for the market. By 2020, Tesla Energy anticipates the facility will produce more Li-ion batteries than were produced globally in 2013.

“Certainly, it will lower the price—most people estimate [by] 30 percent,” said George Crabtree, director of the Joint Center for Energy Storage Research (JCESR), a consortium of national laboratories, universities and private industry focused on reducing energy-storage costs. “That would make a dent in how we use storage.”

Energy storage is beginning to insert itself into electrical transmission and distribution systems. However, while the idea of homeowners pairing rooftop solar panels with a battery system and essentially becoming energy independent is intriguing, less alluring applications might currently make greater economic sense. There actually are three distinct markets for energy storage—utility-scale, commercial and residential—and each has its own particular demands.

Utility-scale opportunities

Currently, electric utilities are the biggest energy-storage customers in the United States, and that’s expected to remain the case for some time. Crabtree said large-scale energy-storage installations can help utilities accomplish two important tasks.

“There are generally two things you want in the grid,” he said. “You want to time-shift production of energy [and] you want power, and the classic example of that is voltage regulation. These two things are really different.”

Time-shifting production—in other words, storing electricity produced at one time for use during a different time—is becoming increasingly important as intermittent solar and wind resources become bigger contributors to our overall electricity supply. For example, solar production tends to ramp down in late afternoon just as demand is reaching its peak. Storing electricity at midday for use in the evening could limit the need to power up peak-generation plants.

Not surprisingly, California, which has the nation’s highest rooftop-solar penetration rate, is interested in exploring such a time-shifting approach. In fact, the state’s three major investor-
owned utilities face a mandate from the California Public Utility Commission to collectively purchase 1.3 gigawatts (GW) of energy-storage capacity by the end of 2020.

“In California, they have so much rooftop solar that, in the afternoon, they’re actually turning down the solar. They’d like to be able to store that electricity in the afternoon,” Crabtree said. He cited the contract Advanced Energy Storage (AES) won from Southern California Edison for one of the company’s containerized Advancion Li-ion energy-storage systems with a capacity of 100 megawatts (MW) as an example. “That could be a harbinger of what’s to come.”

Eos Energy Storage is another manufacturer seeking to crack the utility-scale market. However, its batteries feature a different, zinc-and-water-based chemistry called “Znyth,” which the company developed with time-shifting in mind. The Aurora 1000|4000 [(1,000 MW, 4,000 MW-hours (MWh)], featuring the technology, launched in January, and Eos has since received inquiries and qualified orders totaling 8 gigawatt-hours (GWh), or approximately 2,000 Aurora units, according to Philippe Bouchard, vice president for business development. Commercial delivery won’t even begin until 2016, but the price point of $165 per kilowatt-hour (kWh)—almost $100 per kilowatt-hour cheaper than Tesla’s PowerPack utility-scale product—has utilities from around the globe lining up for a look.

“This is a chemistry and a technology that’s been designed specifically for grid-connected applications,” Bouchard said. 

The Aurora units can support a continuous four-hour discharge and, like AES’s Advancion system, are containerized to enable easier shipment and installation anywhere a distribution system requires “locational” capacity—for example, in areas with high solar penetration, where the evening ramp-down in electricity production might be particularly problematic.

Going commercial

Though their power requirements aren’t as demanding as a utility’s, commercial building owners also represent a market for energy storage. However, unlike residential utility customers, commercial customers generally face a “demand charge” based on the 15-minute period in the month or year during which their electricity demand is highest. So, instead of shifting electricity production, these users are seeking to even out their demand peaks. This goal requires different functionality from their battery systems.

“Increasingly, utilities are shifting their rate structures to be more on the demand-charge side than the energy side,” said Brent Harris, chief technology officer for Eguana Technologies, a Canadian company developing power electronics for inverters, including those used to interconnect on-site battery systems with the utility grid. “It’s really incentivizing commercial building owners to reduce their peak.”

In these cases, then, owners need batteries to kick in quickly, for brief periods of time when, for example, a hotel and conference center might be experiencing a rush on its elevators—a particularly high-demand load. Software and controls are especially important elements in these applications, because of the rapid-response requirements. Sonnenbatterie, a company with experience in Germany’s technologically challenging energy environment, is launching a packaged system for commercial customers.

“Each of the segments have their own applications, and we are offering solutions and applications for residential and commercial, but right now, we are seeing the most impact on the commercial side for peak shaving,” said Stefanie Kohl, the company’s U.S.-based marketing director. “Our value is that we are offering a complete, engineered package, with our own software and controls.”

Another opportunity for energy storage in commercial buildings is to produce electricity that can be sold to utilities to help with voltage and frequency regulation and other ancillary services. Because of the expertise required to participate in the ancillary services market, these installations are generally owned by third parties—for example, SolarCity is active in this market in California—with building owners essentially leasing space to energy-storage companies in return for access to the batteries for peak shaving and backup at a reduced cost. Harris said Eguana is working on such a project in Maryland that is now in the planning stage.

No place like home?

So, what is the business case for homeowners? Though this application is getting the most press lately, it’s currently the least economical use of today’s Li-ion batteries if backup power is the primary motivator.

“I can do it with a battery, or I can do it with a generator,” is how Crabtree describes the choices homeowners now have when seeking backup-power support. Looking at initial costs and fuel over each piece of equipment’s lifespan shows generators are still the clear economic winner. “The cost is about a factor of five different.”

However, batteries can do things generators can’t, such as respond almost instantaneously to remote command signals, and those advanced capabilities offer advantages beyond simply keeping a homeowner’s refrigerator running during a power outage. As a result, some electric utilities are exploring options that would allow them to call on customer-sited batteries throughout a distribution territory to provide grid support and limit their need to fire up peaking power plants during high-demand periods. In essence, the collection of distributed residential batteries would be performing the time-shifting functions of a single, large-scale utility-sited battery system.

Harris believes both the time-shifting function and ancillary-­service support, which is similar to the advantages commercial battery users enjoy, will make batteries a no-brainer accompaniment to rooftop-solar installations in the near future. Such pairings could end up having the side benefit of allowing even greater solar penetration by limiting the impact a large number of panels at a local level can have on related transformers and other equipment.

“The interesting thing about solar is it has very strong income-clustering,” Harris said. 

In other words, the keeping-up-with-the-Joneses effect tends to concentrate solar in neighborhoods populated by residents wealthy enough to purchase the panels. Harris said such density can multiply the impact passing clouds and other intermittent events can have on a utility’s distribution system. 

“Using the batteries, you avoid those localized problems,” he said.

Crystal ball predictions

Harris is so bullish on solar-storage combinations that he predicts the majority of new solar-power systems will have companion battery packs by 2020, which adds up to a whole lot of batteries. With the United States adding up to 1 GW per year of new solar capacity, his prognostication could add up to 1 to 2 GW of installed storage capacity in the next five years.

Tesla Energy is likely to have plenty of customers for the batteries its Gigafactory will start producing in the next year or so. Beyond the advantages for consumers and the grid, such an outcome also could gain the United States a foothold in a market that has largely passed it by, up until now.

“Most lithium-ion production is in Asia, so here’s a chance to change that paradigm. If it works as promised, it would double worldwide battery production,” Crabtree said, noting the appropriateness of a certain big thinker in the role of battery technology’s booster-in-chief. “Tesla’s gotten there first, and Elon Musk is the perfect guy to get everybody excited.”