NextEra plans $1bn energy storage investment drive in 2021

BY RICHARD HEAP:

“With the significant recent growth in our battery storage backlog, we increasingly see storage as an important standalone business in its own right.”

Jim Robo, chairman and chief executive at NextEra Energy, last week reiterated the US utility giant’s commitment to energy storage in its first quarter conference call. This is similar to comments he has made in recent results. But this time Robo went further by announcing that NextEra is planning to invest $1bn in batteries in 2021.

“We believe [this] would be the largest-ever annual battery storage investment by any power company in the world,” he said, adding that it would support enough electrical capacity to power the equivalent of Rhode Island for four hours.

Every revolution has a tipping point, and investment on this scale could make a vital contribution. It also burnishes NextEra’s reputation as a key player in US renewables.

Its current market capitalisation is $115bn and its 45.5GW portfolio includes 15GW of wind farms and over 3GW of solar, as well as 21.6GW of natural gas and coal and 6.2GW of nuclear. However, NextEra has only 140MW of energy storage – or 0.3% of its capacity. Big deal, right? That’s why its $1bn drive in batteries seems notable.

There are a couple of reasons to watch this investment plan.

The first is NextEra’s record in both renewables and fossil fuels. When Robo talks about a “rapid transition to the next phase of renewables development that pairs low-cost wind and solar energy with a low-cost battery storage solution”, we should listen. And we should listen even harder when it’s underpinned by $1bn next year. This will mean major changes by 2025.

“We continue to expect that by the middle of this decade, without incentives new near-firm wind and new near-firm solar will be cheaper than the operating costs of most existing coal, nuclear and less fuel-efficient oil and gas-fired generation units,” he said.

The second reason to take note is what this means for gas-fired peaking plants. NextEra said in mid-2019 that gas-fired peaking plants would be “cannibalised” by renewables as battery costs decline as manufacturing scales up.

This echoes previous comments from the company, and there is evidence that this was happening even before the Covid-19 crisis sapped demand and rocked fossil fuels.

Other analysts are now predicting further pain for natural gas operators in the coming years. For example, Norwegian research firm Rystad Energy said the oversupply of liquefied natural gas would suppress prices until 2022.

Batteries versus gas

NextEra’s confidence in batteries over gas peakers is supported by research released by Bloomberg New Energy Finance this week, which said battery storage is now the cheapest new-build technology for peaking purposes in gas-importing regions such as Europe, China and India.

The BNEF definition of ‘for peaking purposes’ is technology that can discharge electricity for up to two hours to help provide stability for grids in times of peak demand.

The numbers in its outlook bear out the NextEra view.

BNEF said its benchmark levelised cost of energy for battery storage has fallen to $150/MWh, which is half its level in 2018. This shows that battery storage is on a steeper cost decline than wind or solar have enjoyed in the last five years; and these falls will accelerate as the average size of battery projects continues to grow and as manufacturers scale up their production capacity.

The research estimated that the average capacity of storage projects globally is now 30MWh, which is four times higher than the 7MWh four years ago.

Finally, it said China is home to the cheapest storage LCOE globally, at around $115/MWh, due to the proximity of Chinese storage firms to developers and raw materials. Such price falls will increase investor interest in storage.

They will also show that companies in the US and Europe must fight to avoid losing the a large slice of the storage market to China, as they have done with solar. Major investment by firms like NextEra can play an important part in that.

NextEra is not the only US utility to outline big investment plans this week. On Tuesday, Duke Energy committed to double the size of its renewables portfolio to 16GW by 2025, which is set to include investments in storage.

Both utilities show this is a market poised for major growth.

According to the Lawrence Berkeley National Laboratory and the Electric Power Research Institute, there are 4.6GW of utility-scale hybrid renewables-and-battery schemes online in the US with 14.7GW set to be development immediately. Behind these, there are projects totalling 69GW in prospect. NextEra will make a big contribution to this market – but it won’t be the only one.

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