There’s an energy-storage opportunity hidden in plain sight — and it has little to do with electric vehicles.
ADVANCES IN LITHIUM-ION BATTERIES
In the next 5-6 years, sourcing the raw materials for the cathode that includes the following critical ingredients and potentially, the anode is expected to drive the upcoming demand for Li-ion batteries.
- LCO or Lithium-Cobalt dioxide (100% cobalt): used in smartphones and laptops,
- LMO or Lithium-Manganese dioxide (100% manganese): used in electric vehicles such as Nissan Leaf,
- NCA or Lithium-Nickel-Cobalt-Aluminum dioxide: used in Tesla electric vehicles, and
- NMC or Lithium-Nickel-Manganese-Cobalt dioxide (e.g. Tesla Powerwall).
As batteries go mainstream, the “deepest potential” for them is likely to be in arbitrage, according to a Bloomberg NEF report Tuesday.
It would work like this: Traders buy power when it’s cheap, store it and sell it when it’s expensive, much as commodity brokers do in the oil and agriculture markets. The inability to stockpile electricity has long differentiated power markets from this type of traditional commodity trade, but declining battery costs and volatility in real-time hourly electricity pricing are creating seasonal arbitrage possibilities.
“There’s a window of opportunity each year where it can be very attractive to do this,” said Logan Goldie-Scot, a San Francisco-based analyst at Bloomberg NEF. The possibilities are especially “potent” in California in the spring, Texas in the summer and the mid-Atlantic and Midwest in the winter, according to the report.
Energy storage has long been seen as a coming game-changer for power grids. But most storage companies have focused on providing ancillary services to smooth ebbs and flows of electricity on the grid and maintain frequency, Goldie-Scot said.
Grid-scale batteries need to make almost $200 a megawatt-hour for each charge-discharge cycle to break even. But that could dip below $100 by 2020, according to the report.
Market volatility is making arbitrage more attractive, according to BNEF. That’s especially true for real-time pricing as opposed to day-ahead trading. Day-ahead electricity forecasts often show too narrow a differential between high and low power prices to justify battery costs. But real-time price data reveal occasional hourly spikes, which create arbitrage windows.
“Extremes create the opportunities for batteries,” Goldie-Scot said. “The outliers are where there’s money to be made.”