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April 2021 | GSAM Connect

How Battery Storage May Ease the Shift to Renewables

Renewable solar and wind power are cleaner and increasingly cheaper than fossil fuels. They’re also more variable, which can lead to intermittent power outages. Jon Yoder, head of GS Asset Management’s Renewable Power Group, explains how grid-scale battery storage stations can offer a solution.

In most parts of the US today, solar and wind are the cheapest source of energy. But neither produces power around the clock. That can be a problem because demand for electricity starts to ramp up each day before the sun rises and continues into the evening after the sun sets, while wind is often strongest overnight when demand is lowest.

California, which produces some 30% of its power from renewable sources, much of it solar, offers a good example1. Prices spike in the morning when people wake up, turn on appliances and offices open while the sun is still rising, and again in the evening when people return home and turn on lights and appliances as the sun is setting. But they plunge around midday when the sun is high in the sky and the output from solar arrays flood the market. Wind presents similar challenges: it blows strongly overnight when electricity demand is low.

This creates volatile price movements and intermittent outages that may get more common as countries move from fossil fuels to even greater reliance on renewables. Fourteen US states have passed legislation requiring them to eventually generate 50-100% of electricity from renewable sources, and the Biden Administration has set the same goal for the country by 2035. This will require huge upgrades to the generation, transmission and distribution capabilities of a 150-year-old power grid and significant investment capital and technical expertise.

A Storage Solution

In our view, battery facilities that can store massive amounts of renewable energy may be the glue that holds everything together. These grid-scale facilities can charge up when the sun is flooding the system with power and discharge it when demand is high to help limit price fluctuations and supply disruptions.

Batteries can also help the system cope with spikes in demand, which we expect to increase as electric vehicle usage becomes more widespread. Charging an electric car battery can pull as much of 150 kilowatts from the grid—the equivalent of 1,500 100-watt lightbulbs—in less than an hour.  Eventually, it will be possible to charge a car battery in as little as 10 minutes, which will strain a grid that was not designed for such large spikes in demand.

We estimate meeting this demand will require investment to the tune of tens of billions of dollars a year over the next couple of decades (and tens of billions more annually in new renewable energy capacity). Put simply, the conversion of our power grid from one based on fossil fuels to one dotted with batteries, solar panels, wind turbines and more will be one of the biggest infrastructure investment opportunities in our lifetime.

Private Capital’s Role

So who pays for such a massive project? That’s likely to vary by country. In the US, we think private capital will play the leading role. Utilities can pay battery owners a fee to provide stability to the grid by maintaining standby power capacity that can be discharged during emergency spikes in demand—a heatwave in the Northeast, for instance, or a polar vortex of the sort that hit Texas recently.

We see other revenue streams for battery operators as well. For instance, New York will be getting much more power from offshore wind in the near future, thanks to a law that requires 70% of electricity to come from renewable sources by 2030. A battery storage project near the point where that power travels via underwater cable into New York City and the right to connect to the grid is likely to retain long-term value.



Source: The California Energy Commission

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