Storage developers struggle to manage battery costs but see promising new tech

Energy storage companies are struggling to manage soaring lithium-ion battery costs, but alternative technologies could soon help to alleviate raw material bottlenecks, industry executives said.

Larger developers such as Vistra Corp. are having an easier time navigating the supply chain crisis, but they still face risk from significantly higher costs, according to CEO Curt Morgan.

"It's one thing to have a supplier increase costs once, but every time you negotiate now with a supplier, they'll say, 'But I can't guarantee that right now,'" Morgan said during an April 20 panel at Bloomberg New Energy Finance's New York City summit. "And you go back to your counterparty and you say, 'Look, we've got to leave that open-ended.' And they'll say, 'What? ... There's no way.'"

Vistra's Moss Landing Energy Storage Facility, with 400 MW/1,600 MWh of installed capacity under contract with PG&E Corp.'s Pacific Gas and Electric Co. remains out of service after separate plant troubles in February and September 2021.

In January, PG&E proposed another 350-MW, four-hour contract with Vistra at Moss Landing, but those discussions "were not easy," Morgan said.

"They're going to try and push as much risk to us, and we're going to try to push as much risk to them," Morgan said about negotiating with counterparties.

Costs have ballooned 30% to 45% in the past year for battery enclosures and modules combined, said Jae Choi, head of North America for China's Jiangsu Trina Solar Storage Co. Ltd. Of all system components, battery modules have experienced the biggest increase in prices due to raw materials, according to a Wood Mackenzie report in March, with lithium-ion storage system price reductions nearly "wiped out" by the surging cost of raw materials and shipping.

California crunches

If current project plans tracked by S&P Global Market Intelligence pan out, the California ISO could see an additional 9,172 MW of net nameplate capacity in 2022, largely lithium-ion batteries and solar photovoltaics frequently installed together, augmented by additional wind, geothermal and biomass resources.

That would far exceed the 2,436 MW of net capacity added in 2021, when California relied on new battery storage facilities to help ride through several capacity crunches, and the 3,379 MW added in 2020 when the Golden State experienced consecutive days of rolling blackouts amid a regionwide heatwave.

The 2020 event forced stakeholders to more urgently discuss California's need for reliability and storage, Shinjini Menon, Southern California Edison Co.'s managing director for state regulatory operations, said during the panel.

"When the rolling blackouts happened and CAISO dropped load for the first time in 20 years, it was very unfortunate, but the silver lining was that it got the conversation going," Menon said. "There was an urgency; there was a lot more collaboration."

An emergency proclamation to prevent blackouts enabled the Edison International utility to fast-track 537.5 MW of utility-owned battery storage to fortify grid reliability for summer 2022. But construction and engineering company Ameresco Inc. declared force majeure on its $1.2 billion contract for the project due to COVID-19 lockdowns in China. Ameresco said April 10 that its supplier might not be able to deliver batteries in the agreed-upon timeline.

Alternatives to lithium-ion

Emerging technologies could eventually provide alternative options to lithium-ion batteries.

Trina's Choi said sodium-sulfur batteries represent an "excellent" option for harsh environments but are about twice as expensive as lithium-ion technology.

Vistra's Morgan is banking on hydrogen production as the most viable lithium-ion alternative as investors, utilities, states and the federal government explore other mechanisms like iron-air and flow batteries and compressed-air and gravity-based storage. Some of these technologies are vying for a piece of today's standard four-hour market. Others are playing the long game of days or months of storage, and many are targeting the middle ground.

"Redox flow batteries, sodium-based batteries have some promise. I think, frankly, when it comes to storage of energy, hydrogen seems to have the most promise, and the technology is actually mature. It's just a cost issue," Morgan said, adding that "a bunch of money" flowing into that technology right now will make it a "game-changer at some point in time."

S&P Global Commodity Insights produces content for distribution on S&P Capital IQ Pro.