Power Investment: Can Battery Storage Wean Us Off Fossil Fuels?

With climate change a serious threat, many innovative companies are looking at how to store the intermittent energy produced by wind and solar farms as the answer to finally weaning us off fossil fuels, at least for electricity use.

Most people are familiar with battery storage via hybrid and battery-electric vehicles like the Toyota (TM) Prius, Nissan’s Leaf, and Tesla (TSLA). These are low-emissions cars, but even if they don’t burn any crude oil—like the Tesla—as long as the electricity comes from a coal or natural gas utility, they’re still indirectly burning fossil fuels.

Progress is being made on the battery storage front. In its Technology Outlook publication, BP forecast in late 2015 that combined hybrid and battery electric vehicle sales will grow from approximately 2% of global vehicle sales in 2014 to approximately 10% in 2025.

Additionally, “batteries for vehicles and electricity-grid applications, such as energy storage technologies, have significant potential to influence future fossil-fuel demand in the transport sector and enable greater penetration of intermittent renewable energy,” BP said.

Energy Storage Grows

From 2014 to 2015, according to Advanced Energy Economy, the energy storage market in the U.S. increased tenfold, from $58 million to $734 million, said Peter Ledford, regulatory counsel at the North Carolina Sustainable Energy Association.

Several reasons are behind the growth in energy storage. Renewable energy costs are falling, which has led to more market penetration of intermittent resources. Energy storage is starting to meet additional grid challenges such as frequency regulation, fast response services, and load shifting.

“As production and supply of energy storage systems increases to meet the new energy storage demand, prices fall, further increasing the use in new applications in a positive feedback loop,” Ledford said.

Who’s Who in Energy Storage

Because of the battery array it’s building, some investors think of Tesla as a battery maker, not an electric car company.

A lot of the battery stocks are still small-cap, highly volatile names like China BAK Battery (CBAK). Better-known names aren’t pure-plays, like Johnson Controls (JCI), which makes batteries along with other technologies, and EnerSys (ENS), which makes batteries for motive power, reserve power, aerospace, and defense applications. There’s also the Global X Lithium exchange-traded fund (LIT), which comprises lithium miners, battery companies, and other related firms.

Ledford said U.S. manufacturers have some catching up to do on the lithium-ion battery (LIB) front.

“Despite the progress being made in the U.S., Asian countries continue to dominate the global production of LIBs, with Japan, Korea, and China accounting for 85% of all manufacturing capacity. … Because the U.S. LIB supply chain only accounts for 7% of the global market, and it is relatively new to the industry, the U.S. does not have the same advantages as their global competitors. While it is possible for U.S. LIB manufacturers to succeed, they will face challenges competing with more established producers,” he said.