US energy storage major AES Corporation recently installed India's first grid scale energy storage unit with Tata Power. Andres Gluski, President and CEO of this Fortune 500 company, talks to Business Today's Anilesh S. Mahajan about the global energy storage market and how India - with its ambitious solar energy and electric vehicle plans - can gain from the latest trends. Edited excerpts:
Help us understand the trajectory of the energy storage space. In India, we are looking for solutions which can be scaled up quickly, and in the entire conversation there is a price point, too.
A. The time for the energy storage technology has come. The price is a critical part of this equation across the world. In the last five years, it has come down by about 70 per cent and, with this, we are already seeing the market taking off. Globally, five years ago, a total of 200 MW energy storage (grid connected) was installed. Last year, the figure reached 4 GW. This is a factor of 20. Some markets are much more advanced and some are laggards, but there is no dispute that this technology is fundamental to the grid of the future.
Markets progress at their own speed and a lot of that has to do with regulations and price of energy. In the US - perhaps the most advanced market globally - there is a tremendous influx of renewable energy, especially solar. To stabilise the grids, one option is fossil fuel-based thermal power plants. The other is energy storage systems which soak up energy and allow you to inject it when you need it the most. It is the key for India as well. It allows for flexibility while designing the grid and laying transmission lines. For example, if there is growth in demand at the other end of the transmission line, conventional planning requires an increase in capacity of the entire line even if the demand increase is for 15 minutes or two hours a day. Installation of the energy storage system at the end of the line can meet the demand. In India, which has a target of 175 GW renewable energy capacity by 2022, storage will play a critical role.
What are your calculations of movement in price points over the next five years? What's your vision for the future of storage?
I'd say that in next five years, it may not be a 70 per cent cut, but long-term costs will certainly continue to come down. There are several factors at work. One is technology, as we have better designs, but it really comes down to economies of scale, which has been the big driver for renewables. In solar panels, there have been technological improvements, but it's mostly been scale. The same thing happened in wind turbines. It is a matter of getting scale. That will improve once you are selling not 4 GW but 10 GW around the world. That depends on electric vehicles, as in any forecast I have seen, the breakdown is usually 90 per cent vehicles, 10 per cent grid. At the most it may be 80:20.
The input has been lithium. The world has a lot of lithium and people are opening up mines. It will also get cheaper as you become bigger. There were some bottlenecks with cobalt, mostly from Africa and some difficult geographies. But they are coming up with new chemistries, using more nickel and magnesium, and no cobalt. Tomorrow they may come up with a much cheaper battery with different chemistry. We are fine with that. We just put those batteries into the kit. We are not betting on one specific chemistry equation or one specific battery, but we really think it will be lithium-ion for a foreseeable future. We realised these batteries are for the most part the same as the ones you put in electric vehicles. So, the bigger that [electric vehicle] market becomes, the more economies of scale there will be for grid-scale energy storage.
Are you also moving to the mobility side of the business? Are there some lessons from the Chinese that we can take?
We are doing some incubation project, because if you have a lot of electric vehicles out there, you have two things. One, you have to charge them effectively like mobile storage units. So, you have to incorporate what happens in the electric vehicle market. It will also affect the price of batteries. We see that as natural progression. We are not doing anything yet, but it's natural progression of the business we are in. As far as lessons from Chinese experiences are concerned, it depends. China is a very different market. It is much less market-driven than India. For example, users there have to change their routes to suit an electric bus.
Are the Chinese companies on a shopping spree to capture sources of materials for storage?
Not really, because the biggest resources of lithium are in South America - Bolivia, Argentina and Chile. Most of the production is happening with either western firms, big mining companies or local firms. And they are the most successful companies. The Democratic Repbulic of Congo had more cobalt but is reducing the amount used. There are other sources such as Australia as well. This is not a case of the Chinese having a lock on this. This is much more in what are called precious metals and things like that. It's interesting as those aren't so rare, it's just very dirty to produce them. So, quite frankly, that's why China has a lock on them, as other countries don't want to produce them. This sort of rare metals, as they are called, go into electronics.
So what are the unique points for companies to cut prices?
We are aggregating. Take India. We get demand from several large customers. No one large customer is likely to have those economies of scale. Plus, we bring the experience. What is very interesting that one of the first successful grid-scale energy storage system was in Chile, not in the US, associated with a coal plant. Because we are in different countries, we have a lot of experience and we can try different things.
How do you rate the Elon Musk gigawatt factory? Will his venture be able to disrupt the pricing of storage?
It is a good addition. They are gearing up to fulfil vehicle orders primarily. They are using some of the same batteries for their energy storage. I'd say it is welcome, because the more batteries you produce, the cheaper they will become.
The product is the same. The chemistry can vary a bit, or the designs vary. You can optimise for one or the other. I'd say that in the energy storage space, he does not have the desire or the chemistry to be disruptive from what we have. He is certainly a competitor in some markets but has much less reach than we do. We generate energy from all possible sources excluding nuclear. We have a wealth of experience that no car manufacturer can match. We have a fundamental view that we need an open architecture. Battery technology is changing rapidly. The cost has come down, the efficiency has increased. So, the battery of today is going to be very different from the battery we will get five years down the line. It is going to be more efficient and cheaper. So, the world will not be tied up to one giga factory. We can go out and source batteries from multiple players and go to the latest and best technologies at the time. For India, the potential for grid [storage] application is so big that it may be bigger than the potential from electric vehicle at first.
In India, the energy mix is changing rapidly. We may have some dysfunctional gas-based projects, then we have coal, and now we are adding renewable to the energy basket. Do you envisage drastic change in the energy basket once these storage facilities come up?
India is a big market. Not all states generate at the same speed. But I am certain that it will make a very big difference in the Indian grid over time. It will be good for the local environment, for the global environment, and also for consumers. I also think it will allow India to become a leader in a very interesting technology. What we will see in India is what you are going to see in the rest of, for example, Southeast Asia. India could establish itself as a leader for the region in energy storage.
India has a very different market from the US or western countries. There is less policy clarity. Then there are hurdles from regulators. How do you see yourself in the India market, especially as you have selected the Tatas, probably one of the most reliable partners. What were the things going on in your mind?
Tata Power is one of the most prestigious groups in India, and if you look at our partners around the world, they are of the same league. The success of the partnership is important for us. With Tata Power, there is an opportunity to expand to their entire portfolio.
Along with this, energy storage is bit like a hammer, as you can have various avenues to remunerate, such as making solar power more reliable and avoiding fines in case of inaccurate predictions. The grid can be made more resilient. You may want to use the electricity stored instead of a peaking plant or replan transmission investments. We understand that the regulations are going to be different in different countries. The applications will also be different and we value partners creating this knowledge for us.
I think India will be one of the biggest markets, and that too with a very ambitious renewable programme. In various markets, renewable energy is cheaper than the variable cost of fossil fuel. The future is renewable. The storage is making it available round the clock. India can't have 100 GW energy storage capacities overnight. So, it requires conventional energy as well. But the future is much more renewable and much more energy storage. It will be cheaper and more green power. Think of the air quality in your cities.