Many manufacturers in Asia, Europe, and the United States are expanding their lithium-ion battery production to meet the needs of the electric vehicle industry and other power applications. With advancements in low-cost battery manufacturing and technological progress, the cost of manufacturing a battery pack was nearly $1,000 per kilowatt-hour in 2010, but dropped to $230 in 2016.
McKinsey research has found that storage costs are now quite economical for many commercial customers, effectively reducing their peak consumption levels. At the same time, with current low prices, energy storage is beginning to play a broader role in the energy market, expanding from simple grid balancing to a wider range of uses, such as providing power quality services and supporting renewable energy grid integration. Furthermore, combining solar energy with storage, enabling residential units to generate, store, and consume electricity on demand, rather than constantly feeding or feeding electricity into the grid, will bring greater convenience to more solar energy users.
McKinsey's report, "Battery Storage: The Next Disruptive Technology for the Electricity Industry," discusses how energy storage technology will transform electricity market operations, customer consumption, and electricity production as these trends evolve, as well as the role of utilities and third parties. The report primarily analyzes energy storage development in Europe and the United States; however, markets in other countries and regions may hold even greater potential.
Energy storage devices can be deployed in the power grid, or in the homes of individual consumers or businesses. Due to its inherent complexity, the economics of energy storage technology are influenced by customer type, location, grid demand, regulations, load conditions, rate structures, and application nature. It also offers unique flexibility, allowing value streams to be stacked and their scheduling altered to meet varying demand scenarios, from one hour to even one year. These value streams are growing in both value and market size.
Energy storage technology can also help address the challenges of planning and operating the power grid in markets where load is expected to be flat or declining, thus benefiting utilities. For example, regulators in some U.S. states are testing new compensation models that offer incentives to utilities for distributed generation projects. This will also help utilities postpone expensive new investments and reduce the risk of unused long-term capital projects.
Utility companies can purchase energy storage equipment to meet both long-term regulatory requirements and short-term electricity demand. As energy storage costs decline, these projects will continue to reduce generation costs, thereby lowering electricity bills for consumers and putting further pressure on existing conventional natural gas and coal-fired power generation. Utilities must understand low-cost energy storage technologies and adapt themselves in two ways:
First, compensation structures should be redesigned to explore new opportunities. Regulators and utilities need to find new ways to revitalize their investments in the power grid.
The power grid is a long-term asset, and its construction and maintenance are costly. Consumers don't like the fixed fees associated with grid connection. However, charging a fixed fee ensures that everyone using the grid pays, and people are accustomed to paying for the energy they use. But as more customers produce their own energy, reliable and market-accessible grid connection becomes more valuable than electricity itself.
Because any rate design changes are slow and gradual, especially those transitioning to fixed rates, utilities need to explore new market ideas by generating new revenue opportunities from expanded services and new transaction fees. In Australia, utilities are offering consulting services to solar and storage installers; in the US, there's a new pilot program selling advanced analytics and data management services to consumers to help them manage energy use; and utilities in several states are exploring new services and investing in grid modernization and electrification.
Secondly, utility companies need to rethink grid system planning. To fundamentally change the approach to grid system planning, utilities need to invest in sophisticated analytics software and advanced algorithms to modernize the grid. This requires abandoning traditional system planning methods, rethinking codes and standards, shifting towards circuit node planning, and employing asset health assessments to ensure the highest priority needs are addressed to resolve system problems.
