* State proposes target for 1.3 gigawatts of storage
* GE, LG Chem among companies entering growing market
* Utility ratepayers on hook for cost, but grid to benefit
* Silicon Valley venture capital also behind push
By Braden Reddall and Nichola Groom
SAN FRANCISCO/LOS ANGELES, Aug 12 California,
whose green ambitions helped the solar and wind industries take
root, is taking an essential next step by proposing a sharp rise
in energy storage to better integrate renewable power with the
rest of the grid.
Power from sun and wind fluctuates dramatically, so
capturing it for later use makes the supply more predictable.
"We can't just rely on sunlight," Governor Jerry Brown told
the Intersolar conference in San Francisco last month. "We've
got to bottle the sunlight."
California's storage push comes as renewables move toward a
mandated one-third of the state's electricity supply by 2020.
The proposal has fired up a technology race that has already
attracted venture capitalists Peter Thiel and Vinod Khosla,
large-scale battery makers such as LG Chem, and establishment
forces like General Electric Co and Microsoft Corp
founder Bill Gates.
It isn't just about California. Germany is a storage
pioneer, and in the United States, stimulus funds have backed
projects in states such as New York and Texas.
But the Golden State's aggressive renewables target is
forcing the issue here: it wants storage of up to 1.3 gigawatts
by 2020. That capacity is enough for traditional plants to power
more than a million homes.
Lux Research analyst Steven Minnihan said California's
proposal is the first legislation that will have an immediate
and lasting impact on the grid storage market, which he
estimates will soar to installations worth $10.4 billion in 2017
from just $200 million last year.
But storage is costly when compared to building new gas
plants, and many storage projects were set up with the help of
stimulus funds that have since run dry, meaning utility
customers will end up with much of the tab. There are also risks
that unproven storage technologies will not deliver on their
"The ratepayers would be on the hook," said Farzad Ghazzagh,
who is analyzing the proposal for the Division of Ratepayer
Advocates, an arm of the California Public Utilities Commission.
His analysis is not complete, but Ghazzagh has seen estimates of
$1 billion to $3 billion to install so much storage.
Proponents argue ratepayers will benefit because storage
enables utilities to avoid building power plants or transmission
to meet peak demand, simply by providing extra power for a few
hours a day. The Electric Power Research Institute found in a
report for California's grid regulator this summer that
storage's cost is worth it if all benefits are considered.
As in solar manufacturing, the storage business has had its
share of difficulties as it struggled to bring costs down and
prove technologies. Battery maker A123 Systems and flywheel
maker Beacon Power LLC were among the most high profile, both
filing for bankruptcy after receiving generous support from the
U.S. Department of Energy (DoE).
Both have reinvented themselves under new ownership. A123
was bought for $257 million by the U.S. unit of Chinese auto
parts maker Wanxiang, and still makes grid-scale batteries,
selling one to Hawaii's Maui Electric Company in June.
Beacon was snapped up by energy-focused private equity firm
Rockland Capital for $30.5 million and is working on a new
project in Pennsylvania with government backing. A third project
will not need government support, according to Scott Harlan,
Rockland's managing partner.
Beyond batteries, Gates, Thiel and Khosla all invested this
year in compressed air startup LightSail Energy, which in May
was awarded $1.7 million from the California Energy Commission
to demonstrate its technology at a Ventura County naval base.
Gates and Khosla also invested together in another storage
startup - battery company Ambri.
"Grid scale storage has always been one of the areas that we
knew and know will happen. It's a matter of timing," said Andrew
Chung, a partner with Khosla Ventures.
California's push "really cracks open the door" for startups
that until now have had difficulty expanding small pilot
projects into big purchases, Chung added.
The true impact of California's initiative will be felt
between 2020 and 2030, Lux's Minnihan said, and he expects the
move to inspire efforts by other states.
Storage is seen as energy's "holy grail" because of the
efficiency it brings to any grid. For example, California has 51
gigawatts of peak capacity to handle heat that boosts
air-conditioning demand, even if only two-thirds of that is
needed for most of the year.
Still, without more government money, utilities like PG&E
, Southern California Edison and San Diego's
Sempra Energy will shoulder much of the upfront costs.
A natural gas-fired plant costs about $1,000 per kilowatt to
build, whereas EPRI's base case for a battery substitute has a
breakeven capital cost of $1,684 per kilowatt.
"We all agree, as we sit here today, storage is uneconomic,"
SunPower Corp Chief Executive Tom Werner told a
meeting of utility executives in San Francisco. "But if you go
out five years, I wouldn't bet against it."
The market potential means many are willing to play the
Entrepreneur Elon Musk, who founded Tesla Motors,
is deploying the car maker's battery technology in solar systems
installed by another company he backs: SolarCity.
"I am increasingly confident that there will be major
breakthroughs in electricity storage tech," Musk told the
Reuters Global Markets Forum chat room.
Germany, having subsidized a massive roll-out of rooftop
solar, is aggressively funding storage to balance its grid,
driving a domestic market predicted to be worth $19 billion by
Germany's Gildemeister is providing vanadium
energy storage batteries for miner American Vanadium to
market and sell in the United States. The batteries can recharge
electric vehicles, store wind and solar power for electric power
grids, and set up micro grids when main power sources are not
avialable. In Nevada, American Vanadium is developing the only
U.S. mine that will produce the little-known
American Vanadium CEO Bill Radvak sees particular interest
among building owners and public service providers on the U.S.
East Coast after the power disruptions of Hurricane Sandy.
Among power companies, AES has 1 GW of storage
planned, mostly using lithium-ion batteries, and says its
projects require no government incentives to pay off.
Most projects are still government backed. PG&E has unveiled
in San Jose a 4-megawatt sodium-sulfur battery from Japan's NGK
Insulators, while LG Chem is supplying a 32
MW-hour lithium-ion system to an Edison wind farm in Tehachapi -
California's wind power hub. PG&E's project was aided by a $3.3
million state grant and Edison's got $25 million in DoE funds.
Meanwhile, however, GE says a new sodium nickel chloride
battery system integrated into its own Tehachapi turbines is
cheaper than grid-scale batteries at wind farms because it
requires less investment in certain hardware.
The technology makes a turbine's power steady over periods
of 15 to 30 minutes thanks to a battery roughly equivalent to
one in GM's Volt electric car. Project developer
Invenergy will install three at a Texas wind farm this year.
Venture capitalists poured $2.2 billion into storage in the
last five years, according to the Cleantech Group, or well over
double that of the previous five years. Werner, of San
Jose-based SunPower, noted that the same minds behind
smartphones are moving into smart meters and storage in Silicon
"These are capitalists. They're not doing this as a science