Future Energy Solutions – Storage – The Next Big Thing for Solar?

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By: Paul Donaldson, Sales Director, Future Energy Solutions, a division of Future Electronics

The residential and small-scale commercial solar power generation market is set for a period of substantial change in the rest of this decade, thanks to a combination of advances in power storage technology and severe reductions in the incentives to feed solar power to the grid.

This article examines the changing balance of cost, risk and return for owners of photovoltaic (PV) panel installations, and shows how a reduction in the cost of new lithium-iron-phosphate battery systems is likely to lead to a rapid uptake in large-scale solar power storage, and thus provide an attractive new opportunity for manufacturers of solar energy and power storage equipment.

The Changing Economics of Grid-Connected Solar

Governments in Europe have precipitated a change in the economics of residential solar power generation with recent massive reductions in the Feed in Tariff (FiT) incentives, which previously subsidized PV panel owners to supply power back to the grid. This has upset the economic balance, and forced owners to make some complicated calculations to decide whether it is more beneficial to sell power to the grid, or to use solar power for their own consumption, thus reducing the amount of power they draw from the grid.

The complication is that most solar power is generated in the middle of the day, while most power is used at home in the evening. So if panel owners are to use their own solar power, they need a means to store electricity. This requires them to factor in the cost of buying and installing a large-scale battery system. This cost is likely to drop due to improvements in battery technology and to economies of scale, so over time the self-consumption option is going to become more and more attractive.

This means that the solar power market is set to see a spike in demand for safe, reliable and competitive battery storage solutions from equipment OEMs. Advice on, and access to, the latest and best battery technologies is therefore going to be crucial for these OEMs’ success. In Europe’s thriving specialist distribution sector, companies such as Future Energy Solutions (a division of Future Electronics) are able to offer a broad range of franchised suppliers, as well as applications engineers with experience and expertise in implementing solar power equipment designs.

Indeed, OEMs might be surprised by the rate of growth in the demand for solar storage equipment. According to some analysts, the global market for solar storage systems will be worth $2 billion US by 2018; in Italy alone the battery market is expected to reach 9GW of capacity by 2020, up from today’s 270MW.

It is reasonable to expect that, with a battery adding around 10% to 30% to the cost of a PV system, as many as 40% of PV installations will be using storage by 2015. This number might be boosted as utilities and the authorities realize the benefits that decentralized PV battery systems bring to the grid, and find ways to incentivize panel owners to install a storage system.

Cost/Benefit Analysis: Doing the Sums
To illustrate the economic case, it is helpful to examine an example. For a residential installation in the UK, the current FiT for each 1kWh generated is around 15p (€0.17). The average cost per kWh of energy used in the home is also typically around 15p. The utility company will pay the PV panel owner around 5p for each 1kWh fed back to the grid. This means the difference of 10p is equal to the profit the utility company makes. In other words, the PV panel owner gains 10p per kWh from storing and using their own solar energy instead of feeding it back to the grid.

Southern Germany – solar now cheaper grid electricity (€/MWh)

Source: UBS estimates (for a 4kWp rooftop system on a family home)

Source: UBS estimates (for a 4kWp rooftop system on a family home)

Figure 1: solar energy generated by residential PV panels is already cheaper than grid electricity

A typical 4kWp (16 panels) system in the UK would generate up to 4,000kWh annually. Let us assume 50% of this is sold back to the grid, with the rest used directly at home. This 2,000kWh of exported energy represents £200 of annual return foregone. The return on stored electricity is likely to be even larger in the sunnier southerly parts of Europe (see Figure 1).

Ideally – for the panels’ owner in the UK – the utility company would pay the equivalent of what it charges them (15p) for the energy exported to the grid. This so called ‘netmetering’ is currently available in, for example, the Netherlands, where it covers the home’s total electricity usage (up to a maximum of 5,000kWh).

In the absence of net metering, the PV panel owner can avoid feeding in to the grid by installing a battery to store electricity generated during the day for use at night (see Figures 2, 3).

Figure 2: conventional PV installations today, with no storage facility, export electricity generated at peak daytime hours to the grid, and draw power from the grid at night

Figure 2: conventional PV installations today, with no storage
facility, export electricity generated at peak daytime
hours to the grid, and draw power from the grid at night

Figure 3: the output from panels can charge a battery system during peak generation hours and discharge it at night

Figure 3: the output from panels can charge a battery system
during peak generation hours and discharge it at night

The typical lifetime of a battery array is around 10 years. With a £200 annual return to be made by avoiding feeding in power to the grid, the battery system must cost less than £200 x 10 = £2,000 to be a worthwhile investment.

Unfortunately, large-scale battery prices are still higher than this today. But how might this change in the coming three years?

Subsidies for Storage
Incentives are one means to boost the uptake of solar storage. As is often the case, Germany is the pioneer: in May 2013 it introduced low-interest loans to help fund the installation of batteries for PV systems, plus an allowance from the Ministry of Environment to cover 30% of the battery system’s cost. This incentive is available for new residential systems and solar plants of up to 30kW capacity.

Other governments might take a leaf from Germany’s book. All are striving for enhanced grid stability and reliability; indeed, this is one of the main reasons for introducing smart grids. Adoption of residential energy storage contributes to this goal as well: in aggregate, thousands of small-scale residential battery systems can act as a kind of supplementary grid, helping the utility to balance and manage electricity supply and demand more effectively. Incentive schemes such as Germany’s should now encourage investment in the development of advanced storage systems and grid services (see Figure 4).

Figure 4: rapid growth in revenues from solar energy storage is forecast

Figure 4: rapid growth in revenues from solar energy storage
is forecast

Advanced Battery Technologies
Considerable technological innovation is certainly expected in energy storage, yet remarkably the venerable lead-acid battery is today the lowest-cost technology, and is expected to be the most widely used battery in PV systems for much of this decade.

There is, however, growing interest in the use of lithium batteries in the solar sector. Sales of lithium solar energy storage systems are expected to reach $235 million worldwide by 2018. Chinese firms in particular seem likely to drive this market forward, since China’s strength in consumer electronics makes it the world’s most important source of lithium cells.

And there must be a question whether performance and environmental concerns over the use of Valve Regulated Lead-Acid (VRLA) batteries will lead to a quicker adoption of lithium types. In the VRLA (also known as sealed lead-acid or SLA) battery’s favor is its proven characteristics and low maintenance requirement (unlike other lead-acid types, the user does not need to periodically add water). It can be mounted on its side and will not leak when properly used. Of low energy density, it is large and heavy – although for residential applications this is seldom an important drawback.

The main limitation of a VRLA battery is that it can only be used to 50% depth of discharge. If it is discharged beyond this, its lifetime is dramatically reduced – typically to less than a year. This will tend to mean that the user will over-specify their system’s capacity to try to ensure that daily usage requirements can be met by no more than 50% of nominal capacity. This tends to dilute the main advantage of VRLA technology: the battery’s low purchase cost.

Lithium-ion battery types are in the region of two to four times more expensive to buy than the lead-acid equivalent today (see Figure 5). The high energy density of lithium battery types makes them relatively small and light, but also prone to catch fi re or explode when abused. Battery manufacturers have developed sophisticated electronic systems that provide temperature, over-voltage and over-current protection and that manage the charging and discharging processes properly. The growing popularity of large lithium-ion batteries will lead to a continual fall in prices, making them more financially viable for solar installations.

Perhaps the most promising of the lithium battery types is lithium iron phosphate (LiFePO4, or LFP). Today it is very expensive, as there are few suppliers and the manufactured volumes are small. But it has several advantages over other technologies: it is inherently safer than traditional cobalt-based lithium-ion, as it cannot release exploding gases, and it is approximately five times lighter than an equivalent lead-acid battery.

These batteries can be cycled (fully charged and discharged) 2,000 times, and can operate down to a very low depth of discharge (DoD). For instance, when repeatedly discharged to 80% DoD, the batteries can maintain an average lifetime of 6,000 cycles, offering a typical 3.5 to 4.5 years’ usage in residential PV systems, taking into account the usual environmental considerations such as the operating temperature of the battery.

By contrast, an SLA battery discharged to 70% DoD has a cycle life of 1,200, whereas after a complete discharge the SLA battery’s lifetime is shortened to no more than 300 cycles.

Figure 5: lithium-iron-phosphate (LFP) holds the most promise for reliable large-scale energy storage for PV systems

Figure 5: lithium-iron-phosphate (LFP) holds the most promise
for reliable large-scale energy storage for PV systems

Conclusion
In the short term, lead-acid batteries are rightly forecast to be the dominant type in use in solar storage applications. Lead, however, is extremely harmful to the environment. For this reason, and because of its short cycle life, low energy density and heavy weight, lead-acid seems sure to be phased out in the next few years.

The economic case for small PV installations to use energy storage to enable self-consumption, rather than feeding electricity in to the grid, becomes stronger every year as both FiTs and the cost of batteries fall. In the medium term, Future Energy Solutions’ prediction is that the LiFePO4 battery type will replace lead-acid as the preferred technology because of its superior performance and safety.

Future Energy Solutions provides battery solutions from UPG and NorthStar, PV modules from EMMVEE and charge controllers from Morningstar. The local fi eld technical marketing teams of Future Energy Solutions can provide help on the implementation of on- or off-grid solar applications.

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