Dive Brief:

• Expanded use of battery storage will put pressure on merchant generators and utilities, as peak energy prices and capacity costs will decline in the long run.
• Battery prices have fallen about 50% 2010, and if the slide continues, will make commercial and industrial adoption economical in three to five years, according to Moody's Investor Services.
• New York City is likely the best market for storage due to high demand charges, followed by California and Hawaii, the report predicts.

Dive Insight:

Merchant generators will come under pressure, and to a lesser extent regulated utilities, as the expanded use of lithium ion technology puts pressure on demand charges and capacity. A new report from Moody's Investor Services predicts the trend will occur first in areas with high demand charges and pro-storage regulatory initiatives, then spreading as battery prices continue to fall.

Prices have dropped about 50% in the last five years, meaning commercial and industrial applications will become economical if the trend continues.

"New York City stands out as the most promising economic market for peak-shaving because of its high demand charges, followed by California, Hawaii and the northeastern states," said Moody's Vice President Swami Venkataraman, the lead author of the report. "Current battery prices are only about 20-25% greater than breakeven levels for peak-shaving applications in New York City."

Battery applications would economically include peak shaving and the integration of renewables. Other uses, like grid-based storage, "are less economically viable and, most likely, will need to initially rely on contracts with utilities," Moody's said. Grid modernization proceedings, such as New York's Reforming the Energy Vision strategy, will be "critical to increasing volume growth that will eventually lead to further battery price declines."

Moody's predicted that in the long term, merchant generators like Calpine, NRG Energy and Dynegy could face lower prices for their capacity if large customers begin turning to storage for their peak usage. Regulated utilities like Pacific Gas & Electric, Southern California Edison, Hawaiian Electric and Consolidated Edison of New York could also be impacted, but to a lesser extent.

"Peak shaving will lower power bills for commercial and industrial customers, which will lead to regulated utilities shifting costs from battery customers to non-battery customers to recoup the revenue losses", Venkataraman said. "But grid storage also represents a potential investment opportunity for regulated utilities".