Countries in the Organization for Economic Cooperation and Development – i.e,. the developed world – will be decoupling economic growth from energy consumption over the next 25 years or so.  Non-OECD countries, in contrast, will be responsible for most of the increase in energy consumption globally, and the most important driver for this increase will be economic growth.  Burgeoning middle classes in many of the non-OECD countries will adopt energy-intensive lifestyles similar to those found in high-income economies.  The absolute cost of energy is bound to increase over time, and the burden on infrastructure will expose frailties in grid infrastructure that were easy to ignore before.  The end of the world is nigh.

Or maybe not.  Economies such as Germany, France, the United Kingdom, and the rest of Western Europe fall into the OECD classification, along with other major economies such as Japan, Australia, Korea, Canada and the United States.   These countries make up a staggeringly large percentage of the wealth in the world, and the majority of these countries are planning to use less energy  The key to doing less with more is to improve efficiency and energy storage improves the efficiency of the grid as a system.  Therefore, in the broad terms, the answer to the question “Why do we need storage?” is illustrated by the chart below.

Europe, or more specifically, the European Union is in an even more difficult position than North America or OECD Asia thanks to the federation’s 20/20/20 initiative – and even more ambitious targets are on the table for 2050.  Truthfully, EU policymakers have seen the writing on the wall in terms of non-OECD economies’ voracious appetite for energy over the next 10 to 40 years.  Resources will become scarcer, efficiency will be king, and energy diversity will mean energy security.

In true European Union fashion, the Commission gives a guideline for Europe to follow and then works with individual countries to develop specific targets for each nation that take into account that country’s resources.  Once targets are agreed upon (or rather, negotiated), it’s up to each national government to decide how to reach the targets.  It comes as no surprise, therefore, that there are such great disparities between countries and targets.

Countries such as Sweden will rely heavily on biomass whereas Germany and Denmark will rely significantly on wind and even solar.  Hydro will undoubtedly play a large role in reaching the 20/20/20 targets, which will include a significant amount of pumped storage.

Some of these projects will expand upon existing hydro and pumped storage installations.  However, hydro and pumped storage still require a long lead time for permitting – we would expect that a quarter to a half of the capacity additions for hydro and pumped storage will in fact be in the form of upgrades of existing facilities.  Thus, solar and wind (along with other renewables) will continue see significant uptake, as it’s easier to add incremental capacity to these resources.

The chart below shows the stark difference in the renewables burden on each country within the EU.  Countries such as Sweden and Latvia stand out because of their impressively high renewables burden.  However, the greatest opportunity for energy storage will be provided by the countries that show the highest disparity between 2008 shares and 2020 shares.  These include Belgium, Denmark, Germany, Ireland, Greece, Spain, France, Italy, Cyprus, Malta (N.B. small island nations present their own special value proposition for energy storage), the Netherlands, and the United Kingdom.

Europe’s energy burden is severe, but as a result, the continent will lead the way in innovation.  Europe has been known to take the long view on economic issues, and the 20/20/20 initiative is a classic example of ambitious, long-term policymaking.  Other major economies plan on time horizons ranging from every two years (the United States) to every five years (China); in many cases, this does not give the market the clear signals investors require in order to invest in long-term projects.  One of the benefits of Europe’s energy burden is that it gives the cleantech industry a clear signal that Europe is open for business.

One of the difficulties of the energy storage market is that technologies have such diverse cost and performance characteristics that making fair comparisons across technologies is difficult (some would claim impossible). In building Pike Research’s database of energy storage projects globally, we take an application-based approach to evaluating the value of the market.

If we look simply at cumulative capacity by storage technology, pumped storage is the obvious winner.  (The energy in a pumped storage installation is stored as water in a reservoir.)  This is no surprise, as it has been commercial for a hundred years and is a materials-based energy storage technology, meaning that it’s cheaper on an energy basis than mechanical (such as a flywheel) or electrochemical-based storage (such as a battery).  That’s why traditional pumped storage installations dwarf newer, less mature technologies such as advanced batteries.

However, if we highlight the relatively small number of installations based on newer technology, it becomes clear that there is a great deal of diversity in the emerging portion of the energy storage market.  Advanced batteries, variants on pumped storage, compressed air, flywheels, and hydrogen all have significant niches, though collectively they’re still only a small percentage of the overall market.  Over time, as the markets catch up and begin to recognize the value that these technologies offer, this percentage will grow. The tipping point will likely be in the 2014-2015 timeframe, when the technology costs come down enough, and the markets structures allow the value of the technology to be commoditized.

For now, long lead times, even for battery systems, are holding up installations and delaying growth in these newer technology segments.

If we use a different metric than capacity, and focus on installations (or number of projects), the outlook is turned on its head. The chart below shows greater diversity and activity in the industry, particularly if we are comparing only “new” technologies.  This view offers a fairly optimistic view of market diversity.

These two charts demonstrate that, in the energy storage industry, there are so many measurable characteristics that it’s easy to take a pessimistic or an optimistic view of the market, depending on how your view the data.  Over the next few years the half-empty glass will undoubtedly start to look more than half-full.

One of the most promising aspects of energy storage is that it’s used to make an existing system more efficient.  If you think of the grid as the system, then energy storage can help make generation, transmission, distribution, and even customer energy use more efficient.

How many different systems are there? The grid is the most obvious example.  Microgrids are another type of system.  A more relevant system to the average consumer is a transportation system.  And there are several examples of companies in the energy storage space targeting transportation systems. 

How does it work? An energy storage system (specifically, a battery) is paired with an electricity-powered train system; the battery captures the energy from regenerative braking, just as the battery in a hybrid-electric vehicle does (which is part of the reason why these vehicles have high gas mileage).  In the case of transportation systems, the battery is situated not on the train itself, but at a station the train travels through.

Hitachi is supplying two 1 megawatt lithium ion battery systems to the Seoul Metro in Korea, after successfully trialing what the company calls the B-CHOP system in a train station in Kobe, Japan.  In this case, the batteries will collect energy from passing (and braking) trains and use that energy to run other electric trains on the system.  The goal is to reduce the overall energy consumption of the electric trains passing through the station.

NGK Insulators has also installed several sodium sulfur battery systems at rail stations in Japan, although it is not clear whether these systems are being used to capture energy from the braking trains themselves, or to manage how much the stations and trains are taxing the grid.  A subtle difference in applications, but an important one. 

SEPTA (Philadelphia) is trialing a battery from SAFT at a busy rail station and is using it to store and release energy. The transport agency is also partnering with Viridity Energy (also based in Philadelphia) to participate in demand response programs and the and frequency regulation market.  Thankfully for SEPTA, PJM Interconnection – the independent system operator for the region – is one of the most progressive system operators in the country and allows even relatively small assets (like a modestly sized battery) to participate in the frequency regulation market.  Programs like these could make railways and urban transit systems even more efficient ways of transporting large numbers of people.

Last week, my colleagues Bob Gohn, John Gartner and Kerry-Ann Adamson hosted a webinar on “The Year Ahead in Cleantech: Top Trends for 2012.”.  There were several good questions from the audience in that webinar, one of which specifically asked about the energy storage for the grid forecasts for the North American market.  I’d like to address this question in this blog post. 

Pike Research expects the Smart Energy market to reach nearly $300 billion in revenue in the next year. This includes our entire Smart Energy practice, which comprises a large number of technologies and markets. 

This diversity is reflected in energy storage for the grid, or ESG.  This area alone includes five technologies and five separate applications.  Overall, this market is expected to reach $1.7 billion in revenue in 2012. 

More specifically, North America will be a strong market for a number of ESG technologies.   The region currently has the most activity in the ESG sector as far as the diversity of technologies is concerned.   This factor, paired with the large number of local vendors (and locally held intellectual property in innovative technologies) and the diversity in the supply chain found in the United States, gives North America an advantage over other regions.   

Although the North American market will be lucrative, mechanical technologies will dominate most of the market share, followed by a nearly even split between the battery technologies.   In the case of compressed air energy storage, the United States has the innovation base and willing project integrators.   In the case of lithium ion and flow batteries, the country has a significant number of “next‑generation” developers.   

This expertise should serve the market well throughout the forecast period.   Now, whether the sodium-sulfur (NaS) battery portion of the market will end up being served by NGK Insulators, another NaS battery vendor, or another technology altogether remains to be seen.