Batteries may rewire world's power grids, spell trouble for utility firms

Battery storage technology is nearing a tipping point like the one that accompanied the 'massive' adoption of solar power some years ago, say experts

It's just a marketing gimmick. But it casts a spell.

A pale orange-and-gold sunset bathes the macadamia plantations and avocado orchards that sweep down to Australia's Byron Bay. The coming dusk is a cue for two sleek Tesla battery packs in the garage at Amileka, a secluded holiday villa nearby. They stir silently into action—powering the appliances in the five-bedroom home's twin kitchens, recharging a $100,000-plus Model X SUV, driving a filter pump for an 18-meter swimming pool sparkling in the shade of a century-old native black bean tree.

From first light on this Southern Hemisphere autumn day, a bank of 33 rooftop solar panels has been capturing the sun's energy. At times, the electricity is directed back to the local grid. But mostly it's funneled into the garage and stored in Powerwall units, in the same type of rechargeable cells that fuel the automaker's vehicles. The batteries—as tall as refrigerators, as thin as flat-screen TVs—will power this unusually energy-hungry villa deep into the evening.

But not all night. The solar array and batteries meet just half of Amileka's average energy needs. So after a few hours, the 25-acre, $1,160-a-night miniresort that Tesla Inc uses to promote its products must tap into the local electricity grid.

The photogenic demonstration on Australia's eastern coast presents a vision of what some see as the most significant shift in the energy sector since the late 19th century: rechargeable batteries—in electric vehicles, homes, industrial plants, and power grids—that will make the transition to renewable energy possible.

The actual future of energy may be less postcard-worthy. It may look more like a fleet of electric school buses. And the end of utility companies as we know them.

"If you are wanting to run your home just on solar and batteries ... it's going to be tough. ... At this point it's pretty overstated."

By 2050 solar and wind will supply almost half the world's electricity, bringing to an end an energy era dominated by coal and gas, according to forecasts by BloombergNEF, Bloomberg LP's primary research service on energy transition.

It can't happen without storage. The switch from an electricity system supplied by large fossil fuel plants that run virtually uninterrupted to a more haphazard mix of smaller, intermittent renewable sources needs energy storage to overcome two key hurdles: using power harvested during the day to supply peak energy demand in the evening and ensuring there's power available even when the wind drops or the sun goes down.

"We think storage can be the leapfrog technology that's really needed in a world that's focused on dramatic climate change," says Mary Powell, chief executive officer of Green Mountain Power Corp, a utility based in Colchester, Vt, that's worked with Tesla to deploy more than 2,000 residential storage batteries. "It's the killer app in a vision to move away from bulk delivery systems to a community-, home-, and business-based energy system."

Utilities aren't panicking yet. The prospect of large numbers of residential consumers moving fully off the grid is probably overstated, says Zak Kuznar, managing director of microgrid and energy storage development at Duke Energy Corp, a Charlotte-based utility that supplies electricity to more than 7.5 million customers in six American states. "If you are wanting to run your home just on solar and batteries," he says, "from where the technology is today, it's going to be tough. It's something we are keeping an eye on, but at this point it's pretty overstated."

Lithium-ion batteries continue to have limits in terms of the amount of energy they can store, and they're typically able to supply energy to grids for just hours at a time, not days or weeks. What's more, concerns are rising over the environmental costs of mining lithium in Chile's parched Atacama Desert and over a cobalt industry that's tarnished by the use of child labor in the Democratic Republic of the Congo to supply battery manufacturers. And the sector is just beginning to prepare for the future need to recycle or dispose of a torrent of expired battery packs.

Still, optimism abounds. Battery storage technology is nearing a tipping point like the one that accompanied the "massive" adoption of solar power some years ago, says David Frankel, a partner at McKinsey & Co in Los Angeles whose clients include energy and industrial companies.

Mainstream adoption of electric cars is the third great stage in the transformation of the global energy sector—a natural outgrowth of the first two: the spread of cheaper renewable energy and the evolution of batteries, says Marcus Fendt, a managing director at Mobility House GmbH, a tech company in Munich.

And it's coming, however slowly. By 2040, according to a BNEF forecast in May, almost 60 per cent of new car sales and about a third of passenger vehicles on the road will be electric.

On the Portuguese island of Porto Santo, a 16-square-mile outpost in the Atlantic where Christopher Columbus lived for a time, the convergence of automaker and utility company is plain to see. Renault SA and Empresa de Electricidade da Madeira are testing a suite of storage technologies as the isolated community strives to curb imports of fossil fuels. Twenty electric cars—rising to 100 or so next year—cruise the streets. Some are taxis, some are shared by residents, and one is even used by the police as a patrol car.

Islanders are also testing a network of about 40 charging stations. Banks of second-life batteries—cells that are no longer powerful enough to be used in a car but remain adequate for less-intensive storage applications—have been connected to a local grid to soak up excess energy from wind and solar farms.

The French automaker has a second project on Belle-Ile-en-Mer, off the northwest coast of Brittany. At a school on the island, rooftop solar panels and batteries power classrooms during the week and a fleet of rental cars over the weekend. Renault has struck an agreement with Electricité de France SA to expand these experiments elsewhere.

The next step in storage technology is to turn electric cars into money makers for their owners. The latest global experiments along these lines entail hooking the cars' batteries directly to power grids. These vehicle-to-grid connections enable reversible charging, the two-way transfer of electricity from cars to houses or back to power grids. A vehicle's battery can power home appliances, sure. But more significantly, whenever it's parked and plugged in, the car can make money by storing energy or helping stabilise supply and demand on the grid.

Drivers will be able to carry renewable energy wherever they go. "You can be a virtual grid," says Fendt, of Mobility House, which works with Nissan Motor, Renault, the Dutch grid operator Tennet Holding, and other clients. "I take the sun around with me."

Fendt calls the pilot projects "playgrounds for the future." Renault has begun tests in Utrecht, in the Netherlands, where electric cars have been fitted with reversible chargers. In Utrecht and elsewhere in Europe, says Yasmine Assef, program director of Renault's new-energy business, "we're not so much testing the technical part. What we really want to test here is the business case."

Customers can already earn some money by charging their cars on a schedule determined by the availability of energy on the grid, Assef says. Under a program Renault operates in the Netherlands, a typical consumer makes €60 ($67) a year from the utility for charging during low-demand periods only, she says. "As a customer," she says, "the journey is quite easy—you plug in, you forget, and you make money."

In Hagen, Germany, a Nissan Leaf has been connected to the country's power grid since January. By storing energy when there's a surplus and returning it to the grid as demand rises, the car could eventually earn about €1,000 a year, Fendt says.

America's iconic yellow school bus is getting into the act. To go electric, a vehicle that size—one that sits idle for much of the time—requires a huge battery. Macon, Ga-based Blue Bird Corp, which sells battery-powered models that carry 84 passengers, says it will begin selling vehicles with two-way connections to the grid before the end of the year.

Ride-hailing companies such as Uber Technologies Inc and other operators of large fleets will likely find ways to generate additional revenue from cars that are parked and not taking fares by plugging them into the grid, Fendt says: "They will connect the car and squeeze every last cent, every last euro out of it."

Automakers are becoming "a part of the electricity ecosystem," as Renault's Assef puts it. They're not just making EVs that can return power to the grid. Like Tesla, Nissan produces and sells energy-storage products, while Volkswagen AG—the carmaker with the most aggressive timetable for adding electric models—plans to supply homes and small businesses with renewable energy through a retail power subsidiary, Elli Group GmbH.

Oil giants are also investing in storage. Through its New Energies division, Royal Dutch Shell Plc is spending about $2 billion a year on these technologies. The company says it wants to become the largest electrical power company in the world by the early 2030s. In addition to acquiring a UK electricity provider and a car-charging operator, Shell this year bought Germany's Sonnen GmbH, a leading supplier of residential storage systems. In May, Shell announced plans to install industrial-scale batteries at two facilities in Ontario, a crude refinery and a motor oil plant. Chevron, Total, and BP have also made investments in electric car charging or storage companies.

In parts of the US, storage batteries are already a cheaper option than so-called peaking plants. These typically are environmentally unfriendly fossil-fuel-fired power stations that are needed only for a couple of weeks each summer, when electricity demand spikes, and are idle the rest of the time. As some coal-fired power stations are retired, "there could be a situation where, instead of building that new peaking plant, I am putting more storage on the grid," says Duke Energy's Kuznar.

Duke has outlined plans to invest more than $500 million in battery storage projects over the next 15 years. Other utilities from California to China are also considering how battery systems can be added to existing networks, potentially deferring or eliminating the need for some investments in power plants.

Investors probably underestimate the impact falling battery prices will have on the energy sector, as well as the speed at which change will come, says Tom King, chief investment officer at Nanuk Asset Management Pty, a Sydney-based fund that focuses on renewables and energy efficiency. The consequences, he says, "will be profoundly negative for conventional utilities. That's an almost unstoppable outcome." 

At a remote site about 150 miles north of Adelaide in the state of South Australia sits the Hornsdale Power Reserve. This is the world's largest operating lithium-ion battery facility, a city block-size cluster of 2-meter-high Tesla battery units tethered to a field of 99 towering wind turbines.

The French renewable energy company Neoen SA spent €56 million on Hornsdale, which can deliver enough electricity to power 30,000 homes. But the plant's key task is to help stabilise fluctuations in supply and demand, preventing outages in a state the size of Egypt where a rising share of renewables now accounts for almost half of power generation.

Australia is a natural testing ground for renewable energy research. Vying with Africa as the world's sunniest continent, the nation of 25 million people grapples with some of the highest power prices in the world. This year, as many as 60,000 homes—admittedly, a minuscule fraction of the total—will add battery storage systems, making Australia the world's largest residential storage market.

Glorious beaches, fine weather, a counterculture vibe—these things have drawn surfers and eco-conscious hippies to Byron Bay since the 1960s. More recently, stylish resorts and swank holiday homes have moved in. Most, like Amileka, have installed rooftop solar panels. And more and more, storage batteries are joining the list of eco-accoutrements.

At the Arts & Industry Estate—a collection of boutiques, galleries, artist studios, and the like—a microgrid and storage battery setup will enable about 30 tenants to pool and share solar energy, lowering their bills. Nearby, a refurbished 1949 passenger train runs on solar power, shuttling tourists between the town's main shopping strip and a beachside resort and sending surplus electricity back to the local grid. This isn't exactly an eco-warrior's utopia, but maybe it's enough to give conventional electricity producers pause.

"I wouldn't want to be a utility provider, particularly in the suburbs, in another 30 years," says James Kennedy, chief technology officer at Brisbane-based Tritium Pty. The company, which manufactures some of the world's fastest electric car charging stations two hours north of Byron Bay, is also studying the integration of vehicles into power grids. "What might sound like science fiction is in reality only two or three years away."