Charles Stodart
When more than 190 nations gather in Paris next month for the UN Climate Change Conference, there is a strong hope that new targets on greenhouse gas emissions can be set down. If forthcoming, a new binding agreement would almost certainly be a catalyst for further policy initiatives and a strong incentive for fresh investment in ‘renewables’, including solar and wind, as part of the energy solution. However, even if an agreement is not formalised – and prior summits have fallen short of expectations – there are promising commitments already being delivered by leading individual countries, including the US and China.
The storage solution
The last five years has seen a significant increase in the installation of solar panels globally, largely driven by top-down government policy and strongly supported by generous tariff structures and subsidies. Also helpful has been a steady improvement in panel efficiency and a sharp fall in costs. These factors have combined to prompt broad take-up – there are now 1.4 million Australian households that have installed a solar system; that’s nearly 15% of all households nationally.[1] There has also been rapid adoption overseas, particularly in Germany and in the US, where residential solar installations last year increased by 51%.[2]
However, one of the challenges to date for renewables has been around its relative inflexibility. The conditions required to generate power (eg daylight) do not always coincide with when power is needed. The answer has been to use the power as it is generated and feed any excess back into the grid – often not the optimal solution.
While still early days, one exciting development that is getting closer to commercial viability is a battery solution for energy storage, which would allow households to store electricity during low-cost periods for use during peak times. Taken to an extreme, having sufficient solar power-generating capacity and storage would allow a household to go ‘off-grid’ – given that network costs make up nearly half of a typical electricity bill[3], the incentive to become self-sufficient is interesting.
Smarter grids
The effective use of storage is also being explored as a way for businesses and utilities to more practically use larger-scale renewable energy sources (like solar farms) in a way that doesn’t threaten the grid, and which can also help lower greenhouse gas emissions. It could also help make the infrastructure more reliable. Whatever the pace of introduction of energy storage solutions, utilities are already developing a better understanding of how they can incorporate large – and small – renewable energy projects into a regular utility grid network.
The investable opportunities in New Power
Companies that seek to provide solutions to the questions posed by a more challenging environmental outlook stand out as interesting investment candidates. Energy storage battery manufacturers, forward-looking utility companies, renewable energy hardware manufacturers and solution providers – especially those suppliers that are supporting the move to ‘smart grids’[4] — are among the investable opportunities.
Some companies which are already pioneering this landscape include:
Tesla – The US-listed electric vehicle manufacturer has already launched its residential ‘Powerwall’ solar storage battery product, and is planning imminent deliveries in the US, EU and Australia. The company recently teamed up with battery-manufacturer Panasonic, investing $5 billion to build a ‘gigafactory’ that will supply battery packs for both Tesla’s cars and the ‘Powerwall’ products.
Other battery providers (such as Samsung SDI and LG Chemical, both listed in Korea) are watching developments closely. It’s also worth monitoring 24M (not yet listed), which has developed an advanced manufacturing process that reduces the cost of manufacturing a battery significantly. The price of energy storage is expected to drop sharply over the next five years.
Leading utility companies, such as NextEra Energy, are also interesting. Subsidiary FPL has overhauled its grid network by integrating advanced technology through the installation of smart meters, smart devices, sensors and monitors, resulting in increased reliability and lower costs. Subsidiary NextEra Energy Resources is the largest generator of wind and solar power in the US.
Swiss-listed ABB offers solutions that efficiently incorporate renewable sources within an existing grid. ABB’s solutions include multi-directional power flow, digital substations and more efficient transmission cables. ABB sees high-growth opportunity in micro-grids – smaller grids that combine energy storage, renewable and conventional power generation with smarter automation.
The overall energy storage market is expected to grow rapidly over the next few years and could reach $1.5 billion by 2019. While the market is still in its early stages, there is significant and growing interest in the household energy storage market. Utilities companies that have sufficient experience of renewable energy and which have upgraded their grids accordingly will also be well-placed to take advantage of the introduction of energy storage solutions. Factors that may impact the pace of growth include how economical it is to retrofit existing solar systems as well as whether current tariff structures need to be overhauled.
By Charles Stodart, Investment Specialist, Zurich Investments
Read other Zurich ‘Megatrends’ articles:
- Megatrends: Technology and the ‘Smart’ Corporate
- Megatrends: Demographics and the ageing world
- Megatrends: Technology and the connected consumer
- Megatrends: Asia rising
[1] Clean Energy Report 2014.
[2] Solar Energy Industries Association
[3] Energy bills explained; ACCC and Australian Energy Regulator
[4] A smart grid is an electricity supply network that uses digital communications to detect and react to local changes in usage
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