Join Ginger Elbaum, E3's Managing Director, and Chris Wright, E3's Executive Director and head of the Energy Storage Practice, as they look at the trends impacting the renewable energy sector.
Join Ginger Elbaum, E3's Managing Director, and Chris Wright, E3's Executive Director and head of the Energy Storage Practice, as they look at the trends impacting the renewable energy sector.
Speakers
Times
Ginger Elbaum
00:00:08
Welcome to The Top Three by E3, a monthly podcast about the intersection between engineering energy and project finance. I'm Ginger Elbaum, managing director at E3, and I'll be your host. Today, I'd like to introduce Chris Wright E3's energy storage lead. Welcome to the podcast Chris.
Chris Wright
00:00:24
Ginger.
Ginger Elbaum
00:00:26
Today, Chris is going to tell us a little bit about what's going on in the renewable space. There have been a lot of exciting developments, I think as, as people know. So why don't we, Chris, just start with something open-ended here. You know, what's, what's going on in the overall renewables market?
Chris Wright
00:00:42
Well, Ginger, we, you know, you might say we have headwinds and tailwinds if you can say such a thing, right? So we have some, some headwinds are slow us down, right? We've, we've seen this last year, year and a half commodity pricing spikes, and we've seen supply change disruptions and delays. We've seen lithium on battery pricing or costs go up, and we've got solar module tariffs and trade investigations. According to the Energy Information Administration, the US saw about 20% of utility scale. Solar capacity was delayed in the first half of 2022. Also, Vestas reported in 2021 at their year end report that they had the largest ever wind turbine price increase.
Chris Wright
00:01:24
They cited continued supply chain instability and inflated raw material costs, primarily driven for them by steel and module supply challenges led to about 4.2 gigawatts installed in the first six months. That was less than half of what was originally expected. The slowdown really started on module deployments in early in like the first quarter of la of this year, due mainly to supply chain disruptions and also part of the forced Labor Prevention Act that was signed in December, 2021. And then it was further exasperated by the anti prevention investigation announced on March 28th. According to Wood Mac, the average, you know, anti dumping counter tariff level of about 41%, which is 15% for countervailing and 26% for anti dumping.
Chris Wright
00:02:12
That's what they're expecting is around 41%. I mean, if those tariffs are imposed. The final tariff levels will vary between manufacturers. But this broad average assumes, very importantly that the new tariffs will be similar to the ones currently imposed on China's imports. So that can increase today's blended average module prices, 30-34% depending on the module technology and the market segment. And lastly, on August 23rd, the US Commerce Department announced that they've delayed their initial ruling that was due that week, further throwing uncertainty in the solar module procurement process. We've also got lithium battery deployments slowing down due to supply chain challenges and price increases.
Chris Wright
00:02:52
The average price of a lithium battery pack has dropped about 90% from 2010 to 2020. But has, you know, roughly on average increased 10% in 2022. We've seen CapEx increases for stationary storage projects, though going up to 25%. Now, one of the main source of the, the cost increases is materials, is particularly lithium, nickel, and cobalt. Those all kind of skyrocketed. Beginning in late 2021, we were kind of used to seeing nickel cobalt. The lithium caught a lot of the market off guard and really affected the lithium iron phosphate chemistry. And that was really kind of unexpected. Attempts to domesticate lithium by manufacturing could have the same effect because we still have to have the raw material to mine.
Chris Wright
00:03:37
So we could still see raw material price increases based on additional capacity being brought into the market. And that's kind of a summary of the, the headwinds. You know, good news is we've got a lot of great tailwinds in the market that are, that are helping us along. You know, some of the tailwinds are lithium mine battery pricing is, is stabilizing, but not really falling. EV demand has been slightly down in certain markets. You know, the passage of the inflation reduction a the two year delay on solar tariffs, the executive order that was issued to, to essentially stay the tariffs for two years. And we have a very interesting MISO announcement and some updates from Cal ISO's work they've done in the battery space along the lines of material price, like commodity prices like steel is seeming to calm down.
Chris Wright
00:04:23
Started seeing some of it go a little bit lower in March, but then energy, energy costs are kind of going up so that we may see that turn the other way, Lithium battery pricing is stabilizing somewhat. Bloomberg expects lithium battery cost to trim back down toward the end of 2023. So they would expect an overall decrease in 2023 of predicting an overall decrease in 2023 of lithium mine batteries. And the Inflation Reduction Act extended the ITC and the PTC and made standalone storage eligible. And I think we'll talk more about this little subsequent podcast. But point B, this is a huge driver for battery storage. Now you can get an ITC take on a standalone battery storage project.
Chris Wright
00:05:06
While previously you had to couple the battery storage project with solar related to the anti circumvention for solar. You know, while the initial deadline from the Department of Commerce was delayed, as we mentioned above, the final determination is expected to be January 26th, 2023. So hopefully that won't be delayed. And once that's done in January, then at least we'll have some certainty on where solar module pricing is. Interesting news related to battery storage on September 6th, MISO, you know, or the mid continent independent system operator announced they are allowing electric storage resources or ESRS to participate in their energy and operating reserve markets.
Chris Wright
00:05:46
Great news, since that was a, a particularly tough market to operate in for battery storage, they had actually asked MISO to actually asked for, for a delay through 2025 on implementing the ESRS and they push back, decline the delay. So they actually have brought it in early. So it's good, good to see MISO bringing in battery storage or energy storage resources into their system wide planning. And they have a, a, a market structure to deal with them. And you know, another very interesting thing here is what we're seeing here in the last few weeks, as Cal IO continues to support system reliability with their flex alerts, the use of battery system to support the grid has really been monumental. You're seeing the most extreme mismatch between supply and demand and Cal ISO generally comes between about seven and 9:00 PM in the evening peak.
Chris Wright
00:06:34
And on September 5th, Jill Anderson from Southern Cal Edison posted on her tour account a graph from Cal ISO showing that around 7:00 PM on that day while over 3000 megawatts of battery capacity was discharging to the grid. So battery storage is doing what we claim and is contributing to energy, resiliency and reliability real time and CAL ISO.
Ginger Elbaum
00:06:56
Wow, that's, that is really cool. I didn't see that. That's really neat and exciting. So, alright, so you're, you know, you lead our energy storage practice. Tell us what, you know, what do you, how do you see these affecting the battery storage deployments in the us?
Chris Wright
00:07:10
Well, the, the solar module tariff and investigation slowed down utility solar deployment. And you know, as long as there's significant uncertainty in solar modules, a lot of these hybrid projects we're calling solar plus batteries. Some of those, you know, will continue to be delayed, right? Until, until the modules can come along. You know, it'd be interesting if these end up being built as storage only. But, we'll see. Hybrid projects I think continue to see some delays until we get some certainty in the solar modules. The inflation reduction act being passed, you know, the standalone ITC will just increase demand for battery storage projects. And it, and that really starts bringing in the case of, you know, you really need to be looking at long term supply agreements. They're becoming very important because the market is moving so fast that, you know, battery supply is, you know, it's here and then it's gone and it's here and then it's gone.
Chris Wright
00:07:58
Having some flexibility, you know, the tier one battery sale suppliers are really running out of capacity if they haven't expect when you're out there in the market to see lesser known battery sale suppliers start showing up in proposals and start showing up, you know, in projects essentially. But supply chain issues are still disruptive, You know, I mean, we're seeing the power electronics realm affecting everything from inverters to, you know, energy management systems. And we're also even seeing meat and bull transformers that are still, you know, significant amounts of delays and, and lead times exceeding 40 weeks, 50 weeks on something that we used to believe were nearly a, a disposable asset. And again, raw materials surprising for lithium batteries tends to be stabilizing.
Chris Wright
00:08:40
We've seen lithium stabilize over the last few months. It hasn't gone down, but it's stabilized not seeing as many lithium index contracts for batteries in the market, which is a good sign. Those, those, those contracts were difficult to finance because you essentially had an untapped risk in the, in the, in the contract. So that should bring back some certainty and it should let, let us get battery storage projects deployed better. You know, we're still seeing merchant projects, they're still in vogue with the standalone ITC. I I suspect they'll be more risk taken because the ITC will provide the project owners or the investors some upfront return. CAL ISO dispatch, what we just talked about earlier about the CAL ISO dispatching battery storage is, is really validating the, the pretense we had that battery storage can provide reliability and resiliency services.
Chris Wright
00:09:30
And we're seeing not in CAL ISO now, and you know, overall we're gonna continue to see the market grow and open up opportunities for lower tier lithium battery suppliers. And when I say lower tier, I really just mean less known. I don't really mean as much lower quality and we're, you know, still possibly there's all options for non lithium alternatives.
Ginger Elbaum
00:09:49
Yeah, that's, that's interesting and exciting for the battery energy storage market. So looking forward to seeing what's next and what happens, what happens now. All right, so Chris, we're The Top 3 by E3. So if you have to boil this down to three, you know, key takeaways for our listeners, what would you like for them to walk away with today?
Chris Wright
00:10:10
Well, I think number one, the solar module and certainty is still high. You further delays and the tariff ruling will definitely be detrimental to deployment that not only affect standalone solar projects, but affect solar plus storage hybrid projects. Number two, I think lithium arm battery pricing is stabilizing, top tier supply is still limited. So we're seeing, you know, like I said, the second tier suppliers come to, to move into the market. But the, the plastic stabilizing, which is great to see and we're seeing, again, we're not seeing lithium mine in lithium indexed contracts really anymore. That's kind of gone away. We kind of saw that for about six months. And third, you know, really the Inflation Reduction Act, extending the ITC and PTC and allowing standalone energy storage to be eligible just means we have a lot of work to do.
Chris Wright
00:10:56
Lot of, a lot of renewables be deployed, A lot of standalone energy storage will be deployed too under the ITC. So exciting times.
Ginger Elbaum
00:11:03
Yeah, it's really exciting. Well, this has been great Chris. Thank you so much. It is a really exciting and a really fun time to be part of the energy industry. So I'm excited to be a part of it and appreciate your work on the podcast. So to our listeners, you know, thank you for joining E3's discussion. If you have any questions for Chris or any suggested future topics for our podcast, please let us know. You're welcome to reach out to us at e3@e3co.com. again, thanks for listening and thanks again Chris.
Chris Wright
00:11:34
You're welcome.
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