PESTLE and Grid-Scale Energy Storage

I’ve been thinking about energy storage recently, and what may affect the industry in the coming months and years.

PESTLE is a framework for analysing external factors that can affect an organisation or an industry. It’s an acronym that stands for Political, Economical, Social, Technological, Legal, and Environmental.

Below is a quick outline of grid-scale energy storage, followed by a PESTLE analysis of the industry.

The transition to renewable energy sources is also a transition to intermittent ones. Already solar farms and wind turbines at times have to be temporarily shut down because they’re creating too much clean, cheap energy, when there is no-one needing to use it. This is known as spill, and it is, of course, a total waste.

One solution is grid-scale energy storage solutions. I’ve discussed energy storage before a bit in my post here, and outlined the main technologies and their relative advantages and disadvantages. Grid-scale solutions include mechanical (e.g. pumped hydro, compressed air), thermal (e.g. molten salt, heated bricks), and electrochemical (e.g. lithium-ion batteries, redox flow batteries).

As more renewable energy is generated and spilled, the economics of energy storage systems improve, as they enable this otherwise-wasted energy to be utilised. Electrochemical storage systems (batteries) are most likely to fill this gap, at least in the short term, as they take relatively little space, can be installed anywhere, and are a well-known and efficient technology. According to the IEA, annual grid-scale battery storage additions increased from 0.3GW in 2015 to 6.4GW in 2021, and Fortune Business predicted this market would experience a 21.9% CAGR between 2022 and 2029.

Currently, the largest grid-scale lithium-ion battery system is Vistra Moss Landing in California, USA, at 1600MWh. The average UK home uses 15MWh per year, so this is a big battery! Such large batteries don’t yet exist in the UK, but there are several 50MWh ones, and there are plans to make a 800MWh one in Scotland within the next twelve months.

Government policy: With the move to Net Zero, policies are likely to support sustainable technologies, such as through subsidies. However, in the interest of safety and security, regulations concerning areas such as planning, connections, and usage may hinder deployment.

Trade policy and international relations: The largest battery manufacturers are Chinese, Korean, and Japanese. While relations with the latter two are relatively good, there are tensions with the former. Additionally, governments may introduce tariffs in an attempt to stimulate local economies and reduce supply chain risks, which could make importing batteries more expensive.

Recession: A contraction can result in less energy consumption, as there is generally less activity which would consume energy. This may benefit energy storage, as more energy may need to be spilled - the sun shining and the wind blowing are uncorrelated with unemployment. However, if demand for energy drops too low or for too long, so will prices, making the project unable to make a profit.

Interest rates: Grid-scale battery projects are expensive, and will need a lot of financing. Increasing interest rates, as they currently are, increases the cost of borrowing, making the project less economically feasible. Additionally, it could also reduce the number of renewable energy projects, meaning the rate of increase of spilled energy may decrease, making energy storage less urgent.

Environmental awareness: People are becoming more conscious of environmental damage, and hence more supportive of renewable energy systems, along with those that support them. This may help with overcoming NIMBYism and other objections.

Changing demographics: Older people generally use more energy, and the population is aging. The increased demand for energy may drive up energy costs, meaning battery companies could make more profit. Older people may also have different energy usage patterns to others, meaning the flexibility of batteries could be particularly advantageous.

Improvements: A lot of research is going into energy storage systems, increasing performance and decreasing costs. As this continues, projects will becoming increasingly viable - for example, in 1975, solar energy cost US$106 per Watt; in 2020, it cost US$0.20. While there are costs beyond the raw materials, the batteries will make up a large cost of the overall system.

Innovation: New chemistries and materials are constantly being experimented with. While lithium-ion is the current favourite, it may not be the case in ten years. A new breakthrough could be a step change, a “10x” improvement, causing a rush of new projects. On the other hand, some companies may hold off investing now until the next breakthrough, delaying the rollout of projects - similar to how nuclear fusion is always only ten years away.

Climate laws: Due to the damage caused by fossil fuels, polluting technologies are being phased out. ICE cars being banned will result in more EVs, driving up electricity demand, potentially increasing energy prices, meaning more profit for battery operators. Gas-based peaking power plants may be outlawed too; batteries would be able to fulfil this need, as they have fast response times.

Liability and safety: Lithium batteries can catch fire in certain circumstances, which can cause damage to property or life. These factors need to be considered when planning a project, to minimise liabilities and the impact of an incident, through design and/or insurance. While it’s unlike battery storage could have a Chernobyl-level event, a bad fire could cause major reputational damage to the industry. As such, alternative battery chemistries, such as sodium or redox flow batteries, may be considered, as they are non-flammable.

Materials: Some battery chemistries contain materials that, using current methods, cause harm during acquisition, such as environmental damage or child labour. Beyond the inherent negative consequences, this can cause reputational damage or result in legal action. Considering different battery chemistries that don’t rely on such elements, or utilising recycling, can reduce this impact.

Weather: As climate change causes more extreme weather, batteries have an increased risk of weather-caused damage. Hurricanes, wildfires, tornadoes, and floods, can all destroy battery systems. Risks need to be assessed and managed, such as risk reduction (location, protective measures) and risk transference (e.g. insurance).