While saying that “we remain far and possibly decades away from a battery technological breakthrough that stores energy for weeks at a time,” S&P Global Ratings also argues in a recent report that the odds of a future major battery improvement are “ever increasing.”
This reflects the rising research and development costs that companies and government entities are investing “in addition to the diverse projects they're undertaking to advance batteries and energy storage,” S&P said in the Nov. 3 report, “Future Shock: Will Better Batteries Dim Electric Utilities’ Prospects?”
The report offers examples of specific projects and investments in the area of battery technology. For example, Tesla Inc. boosted its research and development costs by more than 40% annually since 2010. The company's approximate $5 billion investment in its lithium-ion battery Gigafactory, which is currently under construction in Nevada, has the potential to further reduce the cost of this battery type through advancements and improved efficiencies in both battery production and capability, the rating agency noted.
“Additionally, the company is building the largest battery project to date with capacity of about 100 MW,” S&P said.
Also, companies such as Panasonic Corp., Johnson Controls Inc., and LG Chem Ltd. collectively continue to invest billions in the battery industry.
The federal government is also playing a role in the area of battery investment and research. S&P noted that the Department of Energy continues to invest about $80 million annually in energy storage technology, including batteries.
New battery technologies
Meanwhile, S&P said that while the lithium-ion battery is the predominant battery type used today, “researchers are developing many other technologies that could ultimately be cheaper and more effective than the lithium-ion battery. The end result may provide customers with an affordable, efficient, and portable way to store energy for weeks.”
New battery technologies could come in the form of advanced hydrogen-bromine flow batteries, lithium-air batteries, molten metal batteries, saltwater batteries, sodium-ion batteries, and zinc-air batteries, the report said.
For now, lithium-ion storage continues to be the dominant battery storage technology used in the U.S. A September 2017 ESA/GTM report (U.S. Energy Storage Monitor) on second quarter 2017 storage activity said that lithium-ion batteries dominated the energy storage market for the eleventh straight quarter, holding 94.2% of the market in the second quarter.
Not all utilities are expected to face the same risks
Even if there is a technological breakthrough in batteries, resulting in reduced prospects for regulated utilities, “we don't expect all utilities will necessarily face the same risks,” S&P said.
“First, utilities will have time to adapt to this new reality, and we expect that the better management teams will reduce risk by gradually decreasing the size of their generation portfolio, investing in battery solutions, or other advanced technologies, reducing their operations and maintenance costs. This will drive down their cost to deliver electricity, marketing the utility as an affordable and reliable competitor to the new distributed generation system,” the report said.
Moreover, S&P believes that transmission and distribution only utilities will be less affected. “Even with a battery technological breakthrough, most customers would prefer to pay a competitively priced monthly fee to have the utility as a backup in the event of a very cloudy month or a mishap with the battery. Our lives today are so dependent on electricity that few would be willing to risk the potential consequences of living, even for a short while, without electricity,” the rating agency said.
The report argues that “generally risk-averse U.S. households conservatively maintaining a competitively priced backup for their power would be similar to the story of the significantly less critical landline phone.” While wireless phones have become ubiquitous, “nearly 50% of U.S. households have retained their landline phone,” S&P points out.
Most vulnerable utilities
S&P said that utilities most vulnerable to a battery technological breakthrough would be fully integrated utilities located in areas with above-average sun strength, serving customers with above-average incomes.
“These utilities would initially be most susceptible to declines in electricity sales given the desire of customers in sunny areas to take advantage of this improved power source and their ability to afford the steep upfront costs of installing an enhanced distributed generation system,” the report said.
Based on states identified in the report, S&P identifies U.S. utilities (all investor-owned) that it thinks could face increased risk if there was a battery technological breakthrough. One caveat noted by the rating agency is although the list includes all three of California's large electric utilities, “these utilities have been proactive in managing their generation supply commitments, moving their utilities closer to a T&D-only model.”
The utilities that could face heightened risk from a battery technological breakthrough are:
- Arizona Public Service
- Black Hills Energy (Colorado, Wyoming)
- Public Service Co. of Colorado
- El Paso Electric (Texas)
- Entergy Texas
- Hawaiian Electric Co.
- NV Energy (Nevada)
- PacifiCorp (Utah, Wyoming)
- Pacific Gas & Electric (California)
- San Diego Gas & Electric (California)
- Southern California Edison
Risk to utility sector more than 10 years away
“Our long-term view incorporates our assumptions that a breakthrough in battery technology remains years away, possibly more than the next decade,” S&P said. “Furthermore, even after a technological breakthrough, battery adoption may be somewhat slower compared to other technological breakthroughs.”
The rating agency said that this resistance “reflects society's dependence on quality and reliable electricity and our expectation that individuals--risk averse to power outages caused by technical failures--would be less likely to adopt early and completely.”
In addition, S&P said “it is possible that utilities may modify their business model, forestalling such competition. On these premises, we believe the risk to the utility industry is more than 10 years away.”
The American Public Power Association plans to publish a paper focused on energy storage this winter.