Cheap Solar PV + Batteries: The next energy transition

An Arabic version of this piece has been published in Al-Akhbar Newspaper Economic supplement

Renewable energy sources, solar and wind, are projected to account for nearly half of global electricity generation by 2050. Such a feat would only be feasible if investments in Energy Storage Systems (ESS) continue to be injected. Technology and cost improvements would allow for greater integration of intermittent solar and wind power into the power grids.

Solar Photovoltaics (PV) has currently the highest share of non-hydro renewables in terms of installed capacity, which is almost at 10 percent of the 5700 GW global installed capacity of all power sources. However, Solar PV only accounts for 2–3 percent on the worldwide energy generation. This huge gap between what is installed and what is generated highlights the huge potential for storage solutions to increase the share of renewables in the global energy mix. Without storage, today’s solar PV projects are cost-effective with recent bids in the United Arab Emirates and Saudi Arabia went below 3 cents per kWh. Even in countries like Jordan and Egypt, where the cost of finance is higher, solar bids have also been very cost competitive at prices below 4 cents per kWh.

This not only achieves the so-called “grid parity” where the cost of generation is equal to the cost paid by the end user, but it even makes solar PV cost competitive with natural gas-fired power plants. If we include storage, costs would be higher, of course. According to Lazard, a financial advisory firm, the costs of utility scale solar PV is between 3.6 and 4.6 cents/kWh. On the other hand, Lithium-ion storage costs range between 11 and 14 cents per kWh. Consequently, the current range of solar PV + Storage is between around 15 to 19 cents per kWh. This is clearly not cost competitive yet with other power generation alternatives.

Storage costs, however, have witnessed dramatic decline in the last few years. For example, costs of lithium-ion storage dropped by 80 percent since 2010, primarily due to investments influx promoted by the emergence of electric vehicles that led to achieving substantial cost and technologically efficient production.

According to Navigant Research, by 2030, battery costs are expected to fall further by more than 50 percent, a number that appears to be an under estimation given the current dynamics of the energy storage market. Furthermore, market rules are changing, ownership structures are evolving, and this will eventually lead to develop new business models and financing mechanisms around renewable + storage projects.

Given that the cost of gas-fired electricity currently stands between 4 and 7.4 cents per kWh, the turning point for solar PV + storage is when their costs combined is within this range.

Worldwide Battery prices ($/kWh) — 2014–2024

On the other hand, solar PV + storage can beneficially contribute to increased levels of energy security in any country’s energy system. Energy Security can be seen as security of electricity supply and as security of energy supply, along with the consideration of the famous 4As: availability, accessibility, affordability and acceptability.

Storage systems will allow continued electricity supply (less electrical outages) and reduce the sheer dependency on fossil fuels, or on power imports from other sources, thus offering diversified energy supply. It will also offer grid flexibility, stability and mitigate the risks of intermittency. Not to forget the role storage can play in promoting decarbonization of the industrial and mobility sectors and supporting the transition to a low-carbon green economy.

In terms of worldwide installed capacity of battery storage, 1.9 GW of grid-scale capacity was added in 2017, a 4.6 percent increase compared to 2016. According to Bloomberg New Energy Finance (BNEF), the global energy storage market will grow to a cumulative 942GW/2,857GWh capacity by 2040, and will attract US$1.2 trillion in investments.

Global energy storage installations by country in 2017 (MW)

As for the MENA Region, although not being the energy storage market right now, it is expected to become the second-fastest growing one after South Asia. The key prerequisites for energy storage growth (demand, competitiveness and legal frameworks) are increasingly materializing, especially with the projected rapid growth in renewables capacity in both distributed (off-grid and grid-tied) and utility-scale markets. The first will likely generate a total revenue of around 520 million USD in 2025 while the latter a revenue of 2.6 Billion USD by the same year.

Energy storage technologies will become an inevitable part of the power system in a 100 percent Renewable world and will play a crucial role in enabling the next phase of the energy transition. Cheap battery storage will mean that it becomes increasingly possible to deliver electricity from wind and solar when the wind isn’t blowing, and the sun isn’t shining.