Morgan Stanley
  • Research
  • Mar 6, 2017

Renewable Energy Storage: The Next Play

Learn how renewable energy storage tech has the power to turn solar and wind energy into a reliable source of electricity generation for U.S. utilities.

Storage makes renewable energy available when it’s needed the most. Peak electricity usage happens in the early morning and evening, whereas peak production of solar energy is midday and at night for wind. Given the U.S. electric grid’s lack of storage capacity, conventional power plants, including gas-fired ones, are utilities’ most reliable source of electricity.

That could be about to change.  In a new collaborative report, “An Underappreciated Disruptor,” Morgan Stanley’s Utility and Clean Tech analyst, Stephen Byrd and Shared Mobility & Auto analyst, Adam Jonas, argue that the price of both solar and wind energy, as well as new storage units, have reached a point where renewable energy can finally become a dependable rather than an unpredictable source of energy.

 “Demand for energy storage from the utility sector will grow more than the market anticipates by 2019-20,” the report posits. The demand for storage is expected to grow from a less than $300 million a year market to as much as $4 billion in the next two to three years, says the Morgan Stanley report. Ultimately there’s about a $30 billion market for storage units, with capacity for around 85 gigawatt-hours of power storage. That’s enough electricity to light up most of the New York City metro area for a year.

There will be winners and losers. Companies with gas-fired plants might suffer margin compression as utilities increase their use of cheaper renewable sources on tap in battery storage units. Energy storage will also release stored power during periods of high demand in the early mornings and evenings, when power prices are at their highest — another negative to the bottom line of gas-fired plant owners. “Storage effectively provides a low-cost source of power, eliminating the need for the highest cost, least efficient conventional power plant,” says the report.

Companies creating the storage units are the likely winners, although new entrants will find it hard to compete with the two biggest market leaders, say the analysts.

Utilities will have good reason to want to buy the storage units. “We think utilities could deploy storage as a way to enable the growth of renewables and/or defer costly transmission and distribution projects,” says Byrd. Having renewable energy on tap to supplement peak electricity periods will also reduce the likelihood of blackouts.

More affordable battery storage units could also lead to significant utility bill savings for customers with solar panels, as well as those in states where utilities add a “demand charge” to utility bills to recover transmission and distribution grid costs.

As for the grid, the proliferation of electricity storage could eventually transform it into a “plug and play” for the units, used by utilities, solar customers and electric vehicles.

 “The grid of the future is becoming more complex, necessitating improved grid infrastructure to accommodate a proliferation of distributed energy resources,” the report says.

For more Morgan Stanley Research on energy storage and related industries, ask your Morgan Stanley representative or Financial Advisor for the full report, “An Underappreciated Disruptor.” Plus, more Ideas.