Battery Storage - The Missing Middle

By Ross Douglas

We’ve all heard the argument that renewables cannot work because the sun does not shine and the wind does not blow all the time. Murdoch’s Australian Sky News spends a load of time arguing that Australia needs to stick with coal. While solar panels drop by 20% in price for every doubling of global demand, solar without storage is limited. It can only be used when the sun shines and selling it back to the grid often results in negative energy prices, given that everyone is trying to sell at the same time.  

Solar Storage Revolution

There are two options to this solar oversupply – ship it on ultra high voltage  power lines to where the sun is not shining, or store it for when the sun goes down, which till now has been unfeasible due to battery storage costs. But today a CATL battery storage pack costs only $100 per kWh; this includes the battery management system (BMS), power conversion system, inverters and fire suppression. Meanwhile, Tesla sells their battery packs (Megapacks), which run on CATL cells, at $250 kWh. Despite the huge price premium, there is a 2-year waiting list for Tesla Megapacks. Tag Energy is using them for France’s largest energy storage project, in Marne, to the east of Paris. The large-scale batteries come with Tesla’s autobidder, a real-time trading and control platform that performs market bidding and dispatch control for value maximization. Autobidder is part of Autonomous Control, Tesla's suite of optimization software. As we’ve come to expect from them, Tesla is making a margin from better software, not hardware.

Solar panel prices have fallen by around 20% every time global capacity doubled

Costs are measured in US dollars per Watt, adjusted for inflation.

Battery-Powered Disruption

There are alternatives to Tesla Megapacks. NW-Group in Paris recently raised €430 million and is valued at over €1 billion for its battery solution, which follows this simple model: build a box with Chinese batteries and some clever French software and voila, the JBox. With the JBox you can rent 100m2 of farmland near a grid connection and play the energy arbitrage game. The payback period with today's tariffs is 5 to 6 years, on an asset that has no maintenance and lasts 20 years. But timing is important. Battery prices are falling quickly;  the later you enter the market the better. However, if there are too many entrants, it erodes off-peak prices, eating into profits.

Not only will battery storage disrupt the energy market and reduce the need for gas peaking plants, it will also disrupt transport. There is perhaps no better example of this than in South Africa, where entrepreneur Joubert Roux plans to disrupt the continent's busiest trucking route.  Every day 9,500 trucks move goods from the port of Durban 600 kms inland to the economic capital, Johannesburg. As companies commit to going carbon neutral, they put pressure on logistics companies to ship with zero emissions, creating massive opportunities for entrepreneurs who can answer the challenge.

Lithium-Ion Battery Pack Prices See Largest Drop Since 2017

Lithium-ion battery pack prices

Note: Historical figures have been adjusted to real 2024 dollars. Values are volume-weighted averages across passenger EVs, commercial vehicles, buses, two- and three-wheelers and stationary storage. Includes cell and pack.

Solar-Powered Trucks: A Game-Changer for Africa

The South African grid is unable to support electric trucks, and anyway their electricity is heavily reliant on coal. Joubert’s answer is to have solar farms at the charge station. He is buying a fleet of 200 Chinese trucks that use battery swapping, and building charge stations 200 kms apart along the route, each boasting 300MWh of battery storage, and each  powered by a nearby solar farm. He chose to go with battery swap so that the logistics companies could lease the vehicles for less than an ICE equivalent, and it fitted his model of being the energy provider. As solar and battery prices continue to drop he will increase the size of his fleet. A model like this has great promise for Africa, where everything is moved by trucks from the ports. The combination of cheap land, plentiful sunshine and expensive fuel makes for the perfect disruption to diesel trucking.  

Battery storage will increasingly connect cheap solar energy with EV charging, bringing down total ownership costs for fleet managers. While EV adoption among European leasing companies has slowed due to low resale value (which reflects in their balance sheet), commercial fleets are well-placed to pick up the demand. Commercial fleets have strong incentives for EV adoption: consistent high mileage; back to base charging; and pressure from clients to decarbonize. My conversations with commercial fleet managers reveal that they are excited about EVs, and especially so given that EVs guarantee fixed energy costs. Unlike oil, the price of the sun does not fluctuate.

Tesla Energy Storage Deployments (MWh)

Integration: Europe's Edge in Energy Transition

The energy transition will also throw up opportunities for integrators, i.e. those who can manage the interface between renewable energy, energy storage, and buyers and sellers. Given the economic law of comparative advantage, European companies should focus on high-margin businesses such as integration, and less on low-margin businesses such as manufacturing solar panels and battery cells. Tesla makes a  20% margin on their Megapacks compared to only 7% on their EVs; and with Trump’s proposed tariffs, they could get a lot more expensive. Rho Motion’s analyst Lola Hughes, expects tariffs on Chinese cells to jump as high as 60%, which would present an opening for European entrepreneurs. Stellantis is partnering with CATL on a battery factory in Spain to make EV batteries. But the numbers suggest they would be better off switching to battery storage, which is a higher margin business, and where they could compete with Tesla.  

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