Smart Grid Storage: Juicing Business for Lithium Battery Makers

by David Fessler, Energy and Infrastructure Expert
Wednesday, February 16, 2011

There’s no question that electric vehicles (EVs) will become one of the standard choices for mainstream transportation in the next several years.

From Ford to Ferrari, nearly every major car manufacturer has announced an upcoming model. And companies like Chevrolet, Nissan and Mitsubishi already have them in limited production.

But big volumes of EVs are still on the horizon and won’t be rolling off production lines until sometime next year. That’s a short-term problem for battery manufacturers like Ener1 (Nasdaq: HEV) and A123 Systems (Nasdaq: AONE).

Fortunately, there’s another market that’s starting to keep them busy in the meantime… the smart grid energy storage market…

Flattening Out the Demand Curve

One of the utilities sector’s biggest problems is the uneven demand for power.

Typically, it starts to rise around 6:00 when people wake up, and rises dramatically throughout the day to level off around noon. It then gradually tapers off as people switch off their TV’s, lights, and other appliances to go to bed, usually around 9:00.

That can make business tricky for utilities, which need enough generating capacity online to meet that demand… no matter the time.

Solving that dilemma has led them to look heavily into load leveling, a method of managing those fluctuations. One common example involves storing excess electricity during slower times to use when operations have to speed up.

Usually, utilities generate baseload power – the required minimum – via large nuclear or coal-fired power plants that run all the time. But they have to produce more than expected maximum demand… usually in the neighborhood of 20% excess capacity.

Most new plants, on the other hand, run off natural gas, due to America’s newfound abundance of the fuel. They’re the ones largely responsible for handling the extra 20%.

That has definite perks, since they can be brought online in a matter of hours, compared to the days large baseload plants require. But that doesn’t mean they’re instantaneous.

That’s where storage batteries come in…

A large bank of them can be brought online in a fraction of a second, easily making up for the sudden drops that affect the typical utility everyday.

Battery Makers to the Rescue

A123 Systems and Ener1 are starting to see increasing demand for their grid battery storage technologies because of this need.

Last November, Ener1 announced a $40 million deal with a division of the Russian Federal Grid Company (FGC). The order has Ener1 developing grid storage systems as part of a $15 billion project underway in Russia to modernize its aging power grid.

Bruce Curtis, company president, believes, “This is a unique opportunity for an American company to get in on the ground floor of Russia’s historic shift toward energy efficiency as a full-fledged partner. FGC is in a leapfrog mode to incorporate lithium-ion storage technology for multiple uses in an overhaul of what is one of the world’s largest bulk power grids. Russia is one of the largest countries in the world and we believe this contract is only the beginning for us there.”

Meanwhile, just last week, A123 officialized a 20-megawatt project from Chile’s AES Energy Storage. This represents an expansion of the relationship between the two.

Back in 2009, they started the commercial operation of a 12 MW spinning reserve project. That was the first energy storage system deployed in Chile.

Chris Sheldon, President of AES Energy Storage, says, The project will utilize A123 lithium-ion batteries to supply a flexible and scalable emissions-free reserve capacity installation for AES Gener. We are excited to work with A123 to improve the performance and reliability of the Chilean power grid.”

So far, A123 has shipped more than 35 MW of its advanced energy storage units to AES and other customers all over the world.

As electric vehicles and grid storage continue to drive demand for lithium, shareholders in miners like Sociedad Quimica y Minera (NYSE: SQM) will be the big winners.

Good investing,

David Fessler