Battery storage is roughly where the PV industry was in the early 2000s: a tiny but exploding market with rapidly evolving economics, standards changing like quicksand, and investor funds pouring in.
The hockey-stick growth of the energy storage industry is likely to surpass the solar industry. All the pieces are in place for battery companies to proliferate.
But as with the solar industry, there will be spectacular train wrecks and quiet failures along the way.
How much have we learned from riding the solar coaster over the last 20 years? Here are eight mistakes from the solar industry that storage companies should avoid.
Mistake #1: Constraints on critical upstream components (Li or Co = Si?)
There was a worldwide shortage of semiconductor-grade silicon starting in 2004. Silicon manufacturers required take-or-pay contracts to deliver this critical raw material for solar wafers. Some companies purchased wisely, matching their actual requirements. Other companies over-bought or reneged on contracts. Litigation took years and bankrupted some module manufacturers.
Similar dramatic swings in lithium and cobalt supplies are occurring now. As happened with silicon, will we see panic-buying, chaotic supply ramp-ups and a pricing crash with lithium and cobalt? The dynamics of commodities markets make this mistake almost impossible to avoid.
Mistake # 2: Live by incentives and die by incentives
Incentives in the solar industry are generally designed as a short-term bridge until customer economics are favorable enough so that businesses are self-sustaining (although there are some permanent incentives for certain energy industries).
When these incentives disappear suddenly (such as limited RPS requirements or sunsetting net metering policies), companies that depend on them experience a sudden drop in sales — sometimes to a fatal degree. Will the storage industry manage to reduce costs quickly enough to grow sustainably without incentives?
Mistake # 3: Releasing half-baked products
Some of the early PV inverters experienced very high failure rates, were noisy (in terms of both audio and EMI), did not function efficiently, or were missing key features that doomed them in the market. Solar installers have a long memory. As a result, these manufacturers were unable to recover from the customer ill will that these problems created.
I’m aware of anecdotal reports of storage system inverters/control systems that have severe reliability problems, lack critical software, or are simply missing the key “reason to buy” that customers demand. Will early entrants in the battery storage/inverter market be able to sell “good enough” products to capture sufficient market share, without burning their customer partners and running out of money?
Mistake #4: Ignoring software
Software is nice to have with solar, but is a critical part of all energy storage systems. Once upon a time, there was a company that made a great microinverter, but skimped on the control system and software that was required by customers. Without this software, there was no complete customer solution. The company ran out of money before it was able to develop the necessary control system and software that customers demanded.
Similar problems are now being encountered by battery storage system manufacturers. Although it is possible to electrically connect the necessary hardware components and put them in a box, getting the phone app, software and embedded firmware to work properly together is complicated. Will storage companies dedicate enough resources to make sure their software works as well as their hardware?
Mistake #5: Assuming electricity rates will always go up
To reduce payback times and improve perceived economics, many solar companies assumed that electric rates would increase steadily into the future. This assumption was based on fairly good historical data (sometimes cherry-picked over favorable time frames), and was projected for the lifetime of the equipment. Unfortunately, some of these escalation rates were optimistic, and did not account for changes in electric rates structures.
For example, changes in time-of-use periods reduced the benefits of daytime solar production (the peak in California used to be 10 a.m. to 2 p.m.; now it is 3 p.m. to 9 p.m.). To make matters worse for customers, some financing programs added a payment escalator. As a result of changing electric rates and escalated payments, some customers are discovering they are spending more with solar than without.
It is worth mentioning that electric rate structures are primarily influenced by utilities, which have a natural aversion to behind-the-meter solar and storage. Will storage companies base their long-term value propositions only on short-term electric rate structures?
Mistake #6: Not paying enough attention to safety issues
The solar industry evolved somewhat slowly, and safety standards generally kept up with this growth. Except for relatively few fires, solar has an admirable safety record. But solar panels and inverters do not have a natural tendency to explode.
Will the battery storage industry be mindful enough of the hazards of high energy densities in consumer products — and supportive of standards and installation practices that will minimize hazards? Otherwise, regulators (encouraged by utilities) may put the brakes on cost-effective deployments of behind-the-meter storage.
Mistake #7: Selling commodity components, not bankable systems
Commodity solar panels sold by the kilowatt are analogous to batteries sold by the kilowatt-hour. Just as a pallet of solar panels won’t do much, a stack of batteries is similarly worthless — and even more so if the manufacturer is not bankable.
Successful solar module manufacturers achieved bankability and allied themselves with partners who could deliver complete systems. The successful battery companies will focus on bankability, quality and warranty integrity — otherwise they will be forced to sell cells by the kilowatt-hour at liquidation prices.
Mistake # 8: Inevitable black swan events
This mistake is almost impossible to avoid because, by definition, it is completely unpredictable.
Every year, there's always something big hitting the solar industry, both positive and negative. These include raw material shortages, policy changes, surprising bankruptcies, damaging standard changes or new tariffs. On the positive side, developments include tax credits, new technologies and new state incentive programs.
Storage companies need to think about a wide range of black swan events, like battery fires, commodity shortages or ill-advised, protectionist tariffs. Their ability survive the darkest days will determine the long-term health of the industry.
As a solar guy starting to deploy behind-the-meter battery storage, I’m always happy to learn from mistakes — preferably from other people.
What other lessons have we learned in the solar industry that will help the storage industry? Share your experiences in the comments below.
Barry Cinnamon is the CEO of Spice Solar. He's also the host of The Energy Show podcast.
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