Breaking News:

OPEC Lifts Production in February

Will Battery Storage Make Gas Power Generation Redundant?

Back in 2017, Tesla switched on the world's biggest battery storage facility. Located in South Australia, the 159 MWh battery array can supply 30,000 homes with electricity in case of a blackout. For about one hour.

Fast forward five years, and we have Reuters reporting that battery storage technology has advanced so far that utilities are now canceling plans for new gas generation capacity. But that's not the whole story.

Energy companies, Reuters said in that report, had shelved or straight out canceled 68 new gas generation capacity projects in the first half of the year. The reason for the cancellations, per the sources that the news outlet interviewed, was the uncertain long-term economics of this capacity in light of declining costs for battery storage.

Indeed, the long-term economics of any baseload electricity generation capacity have changed in the past decade or so, excluding nuclear. The reason the economics have changed is that governments in Europe and, more recently, the United States and Canada, have started penalizing generation fueled by hydrocarbons.

The penalties are officially called carbon permits but are essentially payments on the part of power plant operators for using a fuel that emits greenhouse gases. In contrast, operators of wind and solar farms that need storage to offset their intermittency are not only not getting penalized but are being actively supported by these governments in terms of financing.

In the U.S., the Inflation Reduction Act was a massive help in that respect. As Utility Dive reported at the time, the IRA "significantly improves the economics for large-scale battery storage projects in the U.S."

The way that the new legislation did that was by offering an investment tax credit of 30% for standalone battery storage systems, with additional incentives that could see the price tag of a battery storage array covered at up to 70%. 

Subsidies are obviously an important way to improve the economics of certain technology, especially if there is no other way to do that. Research is ongoing in various research and business environments to improve on existing battery tech and make it cheaper and better, but for now, lithium-ion remains king, and there are limits to how much you can improve a lithium-ion battery or lower its cost.

Here's where the subsidies come in as governments splurging on wind and solar realize that on their own, these are not the reliable electricity source a grid needs. No wonder BloombergNEF has forecast that new battery storage additions will hit a record this year and grow by a compound annual growth rate of an impressive 27% by 2030.

"Targets and subsidies are translating into project development and power market reforms that favor energy storage," BloombergNEF wrote in its battery storage report. "Our increase in deployments is driven by a wave of new projects prompted by energy shifting needs. Markets are increasingly seeking energy storage for capacity services."

With all that support, and notably financial support, for battery storage, it is only to be expected that utilities might choose to build a battery array that will be heavily subsidized by the government instead of a gas power plant, which will be taxed for being a gas power plant.

In fact, this is exactly what one company in the UK did, per the Reuters report. Carlton Power had planned to build a gas power plant in Manchester back in 2016. This year, the company decided to instead build a battery storage facility. The reason: the company was not certain about the gas power plant's future revenue stability in light of expectations it would not run as baseload capacity but rather as backup for when the sun and the wind are down.

This is the general expectation of the politicians and activists promoting the energy transition. As wind and solar generation capacity grows, reliance on coal and gas generation will decline, with these power plants becoming a supplementary rather than default capacity. For this to happen, however, batteries will need to become even more giant than they are now. And they will need to become safer.

For now, most battery storage is short-term storage. It could help in an accidental blackout, but it can't supply power to a town with a solar farm during the night. That's why the focus should shift to long-term storage. Indeed, BloombergNEF mentioned in its report that long-term battery storage capacity is on the rise.

However, the forecast outlet added, "The case for long-duration energy storage remains unclear despite a flurry of new project announcements across the US and China." There could only be one reason that the case for long-duration storage remains uncertain: cost. After all, if the cost was palatable, everyone would be building long-duration storage to accelerate the shift away from gas and coal generation.

Yet it appears this is not the case, at least not yet. Until it becomes the case, chances are that despite the penalties, gas power plants will continue to make sense, at least from the energy supply security perspective, if not from the transition perspective.

By Irina Slav for Oilprice.com

More Top Reads From Oilprice.com:

Back to homepage


Loading ...

« Previous: Rystad Energy: Fossil Fuel Emissions Will Peak Within Two Years

Next: Oil Prices Remain Depressed After OPEC+ Shocked Markets »

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More