Investing in the Energy Revolution: Storing Energy in the Cloud

David Fessler By David Fessler, Energy and Infrastructure Strategist, The Oxford Club

Alternative Energy

We’re in the midst of an energy storage revolution… and it presents a great opportunity for savvy investors.

We hear a lot about “the cloud” when it comes to internet storage and data backup. A similar phenomenon is taking place on the energy grid.

For more than 100 years, nearly all of our electricity has come from large, utility-owned generation facilities. Engineers designed the facilities for one-way energy flows – from the generator to you.

Simple buy-sell transactions and electric market structures govern electricity sales. It’s all highly regulated by state-run public utilities commissions.

This is how we’ve always made and used electricity. It’s a system that’s technologically inflexible.

Houston, We Have a Problem… And It’s Growing Rapidly

Energy supplies are rapidly changing. Wind and solar power are on the rise.

That means distributed sources of energy are also on the rise. We now have multiple inputs to the energy grid, resulting in two-way energy flows.

The grid is becoming smarter… We’re starting to see digital control of the electromechanical infrastructure, and behind-the-meter energy management systems are becoming more commonplace.

But the grid isn’t just smarter. It’s also more resilient, more flexible and more dynamic. (See Fessler’s First Law of Technology: “Technology marches on.”)

Of course, all this added complexity comes at a price. Transactions and market structures are no longer simple.

In fact, they are increasingly complex…

State-run public utility commissions are rewriting regulations around renewables. Net metering and distributed generation sources (microgrids, solar and wind) are under review.

What’s Driving the Transformation?

If I posed this question to average electricity users, they would likely say “solar” or “wind energy.” But that’s not the case.

The driver in all of this is energy storage. You see, we’ve never been able to store energy cheaply before…

But now we can. And it’s at the heart of the energy storage transformation.

It makes everything in the “energy cloud” more valuable, less costly and more efficient.

Being able to store electricity reduces its dependence on time. Currently, we use electricity as soon as utilities generate it.

Being able to store it means we can time-shift energy to a period of higher demand. We can then meet peak demand with batteries. We would no longer need natural gas-fired “peaker plants” – plants that are used only when there is a peak demand in energy.

For a moment, imagine a cloud drifting over a solar field. A peaker plant wouldn’t be able to respond fast enough to keep the power supply from dropping.

A drop in voltage (known as a brownout) would occur. Lights would dim, and some equipment or appliances would stop working.

The solution is simple… Utilities need to put batteries near vulnerable power sources like solar or wind farms.

When sensors detect even a small drop in voltage, the batteries make up the difference. It’s a great way to balance grid intermittency.

But it gets even better. Natural gas-fired peaker plants take 12 to 18 months to build…

Whereas a utility company can order, build and bring a battery storage facility online in less than six months.

Distributed sources of power generation – solar, wind and others – are here to stay. And utilities must integrate storage into the grid to accommodate the renewable revolution.

As of the end of 2016, there were about 40 gigawatts (GW) of solar generation capacity, almost double from the year before. Projections show that between 2017 and 2025, U.S. customers will install 71.8 GW of distributed solar.

While smart inverters offer some control over distributed solar or wind, utility companies will have to continue to meet the rising demand for storage assets. Since storage assets can be placed anywhere, they offer the ultimate flexibility.

The Energy Storage Inflection Point

How fast is storage growing? In 2016, the U.S. market grew by a blistering 284%.

By the end of 2016, the U.S. had 2,276 MW of battery storage capacity. This year, experts expect it to grow by another 47%.

In fact, through 2020, utilities are expected to deploy another 29.4 GW of new storage capacity globally. That’s a compound annual growth rate of 60%.

The current means of energy storage is lithium-ion batteries. That will remain the case for the foreseeable future.

High-speed, automated manufacturing continues to drive battery costs down. That will only speed up adoption and deployment of battery storage.

Early investors are in a position to clean up on some lithium miners. If you’d like to know the four I’m recommending to subscribers of my research service, click here.

Good investing,

Dave