Original article appeared on www.forbes.com on October 22nd 2015 by Peter Kelly-Detwiler. View the original article here.

 

The prevailing sentiment that I heard multiple times during the event was that the storage industry is in the nascent stages and ready to break out shortly. Many said that it feels much like the solar industry did ten years ago.

The amusing thing was that I heard that exact same comment last year from the mouths of many attendees. I didn’t expect anybody in San Diego to actually say “This feels like the solar industry did nine years ago” as that would be somewhat unusual and perhaps too precise. But while we appear to be stalled in the impression of a ten year time warp, I also got the very distinct impression that a lot has happened in just 365 days.

Last year, the conference was smaller, with about 1,500 attendees compared with over 2,000 this year. And last year it felt a lot more like inside baseball, with vendors, technologists, and regulators talking to each other. This year, the discussion was less theoretical and more practical. And perhaps most important of all, in November last year, Southern California Edison (SCE) injected some steroids into the conversation with its award for 235 megawatts (MW) of battery storage projects to be installed by 2021. Real money at stake tends to change a lot of things.

 

Representatives at the numerous storage companies’ booths told me that this year more business was being discussed. There were also more conversations about financing, and about experience gained by practitioners with the first of actual projects in the ground (utility scale is somewhat ahead of customer-sited storage in that regard).

Another fact struck me as quite interesting: many of the attendees – more than half in one breakout session on finance that I attended – identified themselves as having been in the solar industry at some point. There are a lot of parallels between the solar and storage industries. These include:

1)   the ability to deploy at utility-scale or on-site.

2)   multiple technologies competing for primacy in the early days of the industry (these include lithium ion, advanced lead acid, flow batteries, and other new entrants).

3)   a sharply declining cost curve with advanced technological developments and economies of scale (indeed, Bloomberg NewEnergy Finance has a slide from April 2014 showing that the slope of cost declines for storage and photovoltaics are roughly parallel. Many analysts, such as UBS expect prices to decline by 50% or better in the next five years.

4)   the imperative to reduce both hard costs (hardware) AND soft costs (such as financing, permitting, and interconnection).

5)   the need for third-party financing models to help the industry take off.

Image: Bloomberg NewEnergy Finance follow me!

Image: Bloomberg NewEnergy Finance
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The body of experience is only going to grow in the coming year, as the storage awards from SCE begin to move from concept to projects on the ground and as markets in New York and Hawaii develop from a few projects to something more significant (in Hawaii, there are already reports of ‘rogue’ solar/storage combinations being installed without the utilities being notified, which should tell you something).

At the same time, while the future appears extremely bright and the ascendance of storage would appear inevitable over some timeframe, there are still many challenges in front of the industry:

1)   each market is still very vulnerable to the stroke of a regulatory pen. The vulnerability is both at a state and a federal level (the current Supreme Court Case on demand response and FERC 745 may have a long-term impact on how and whether customer-sited storage resources can interact with wholesale power markets).

2)   the economics of storage are still highly reliant on subsidies until costs decline further. Only a few states such as New York and CA CA -3.70% have subsidies at present. If more states enact subsidies (as was the case for solar), markets could rapidly increase.

3)   absent subsidies, costs really do need to fall significantly in order for the industry to prosper.

4)   finance needs to become increasingly comfortable with the storage industry. In the solar industry, customer-sited installations didn’t take off until third party financing sent the industry on a trajectory that supported up to 75-80 percent of total installations through leases and power purchase agreements. Since the physical assets and the economic models are somewhat different, this will take some time to mainstream.

That said, many companies are forging ahead, confident that a confluence of tailwinds will drive them towards prosperity. Solar was the same at one point: costs were falling, technologies were battling it out, subsidies were being put in place, markets were developing, and banks and financiers were eying an emerging opportunity that eventually translated into billions of dollars. It’s a similar level of uncertainty and opportunity. Just like the solar industry felt nine years ago…