Timing Is Everything: The Clean Energy Challenge
While Europe prepares for what could be a painful winter with skyrocketing energy prices amidst a potential global recession, there are reasons to be optimistic as the green energy generation reaches tipping points around the world. This is not only a cause for celebration but is also a tailwind behind a renewable energy challenge that is all about timing.
The issue with most renewable energy sources is that they ebb and flow in ways that may not be in sync with energy needs. Solar only works when the sun is up, and the wind isn’t always blowing. Energy demands vary significantly over the day, so the energy supply must be flexible. Today, most of the flexibility in the energy grid comes from coal or natural gas, but as renewables become more widespread, batteries will increasingly replace those sources.
Growing Tailwinds
There are three significant tailwinds for utility-scale energy storage:
- Nearly 90 countries have reached the point at which they will likely experience accelerating adoption of renewable energy solutions.
- The invasion of Ukraine is pushing many European nations to accelerate their renewable energy targets to more rapidly reduce their reliance on Russian fossil fuels.
- In many parts of the world, the existing energy grid cannot meet peak demand, negatively affecting economic output and living standards and pushing governments to address energy grid deficiencies.
According to BloombergNEF, 87 countries generate at least 5% of their energy from wind and solar, a point at which adoption typically accelerates:
- The U.S. reached the 5% level in 2011 and passed the 20% mark for renewable electricity in 2021. If the trend set by other countries at the leading edge of renewables is a decent predictor, wind and solar will account for half of U.S. power-generating capacity by 2032, beating even the current forecast by the U.S. Energy Information Administration.
- China reached around 30% of renewable electricity generation during that time.
- In Japan, the Fukushima disaster accelerated the nation’s adoption of commercial solar, which rose from 1% to over 20% over the past seven years.
- Germany remains just under 20% commercial solar 14 years after crossing the 1% adoption threshold. Europe’s Ukraine war-driven energy crisis is likely to help accelerate adoption.
Acceleration in Renewable Energy Generation
Worldwide, renewables generated nearly 8,000 terawatt-hours in 2021, accounting for about 13.5% of our primary energy. Hydropower accounted for 53.9% of renewables, wind 23.2%, solar 13.3%, and other renewables 9.6%. Renewable energy generation worldwide rose 6% in 2021 after a 5% increase in 2020. The U.S. saw a 7% increase in 2021, following just a 2% increase in 2020.
As for what percent of a nation’s primary energy comes from renewables, Iceland is the world leader, generating 87% of its energy from renewable resources. Norway, a country that ironically has amassed enormous sovereign wealth from the sale of fossil fuels, generated 72% of its energy from renewables last year. Sweden is at 51% renewable energy; Brazil is 46%; Spain is 22%, while the U.S. is just over 4%. Renewable energy sources include hydropower, solar, wind, geothermal, bioenergy wave and tidal.
Batteries: The Key to Energy Grid Stability
Power supply management is evolving as renewables make up a more significant portion of energy-generating capacity. This past summer, much of the world again endured record-breaking heat waves, and California was no exception. This year was different, however, in that the state avoided the usual blackouts during the heat-driven demand peak thanks to batteries.
According to the recent annual report from the California Independent System Operator (CISO), the state’s summer on-peak battery capacity rose from just 0.1% in 2017 to 6% this past summer. That is a 60-fold increase and means that batteries accounted for more summer maximum on-peak capacity than geothermal, nuclear and wind.
This need to augment peak demand that exceeds the energy generation capacity is not just about renewables but is also a problem with existing power grids. According to the U.S. Energy Information Administration (EIA), the average American home was without power for more than eight hours in 2020. In 2021, winter storms in Texas left over 10 million people without electricity and were estimated to have generated economic losses as high as $130 billion for the state.
This is a global problem. During peak power consumption in both the summer and winter, China has experienced blackouts that led to global investment banks cutting their forecasts for the country’s economic growth. In 2021, Goldman Sachs (GS) estimated that as much as 44% of China’s industrial activity was affected by power outages.
We can already see evidence of accelerating growth. The American Clean Power Association announced that utility-scale battery energy storage system installation in 2021 grew by nearly 200% to 2.6GW. Total operating capacity grew 131% in 2021, a massive acceleration after growing at a compound annual growth rate of just 26% between 2009 and 2020.
Key Companies
Now let’s look at some of the most important companies addressing the global utility-scale energy storage market. While Tesla (TSLA) may be best known for its EVs, it is known in the energy industry for its Megapack product, a high-capacity rechargeable lithium-ion battery designed for power generation facilities. Energy deployment due to Megapack rose 32% in 2021 compared to 2020.
No discussion of batteries can ignore the growing demand for lithium. Lithium-based batteries have high energy storage capacity while typically being many times lighter than other types of batteries, which is why they are so prevalent in the EV market. Albemarle Corp (ALB) is the world’s largest lithium producer, sourcing from its salt brine deposits in Chile and the U.S. and hard rock joint venture mines in Australia.
NextEra Energy (NEE) is not only the largest operator of electric utilities in the U.S., but it also manages an enormous network of wind, solar, and battery storage.
Rather than focusing on building the batteries themselves, California-based Stem Inc (STEM) provides AI-driven software to help customers maximize renewable energy generation and optimize energy storage. The company expects battery storage to be a $1.2 trillion revenue opportunity through 2050, driven by the generational transition to zero-carbon energy. The company enjoyed topline revenue growth of over 100% in 2020 and 250% in 2021, and 246% YoY in 2022 Q2, with 402% YoY growth in books with a backlog of $727 million.
Another essential part of renewable energy storage solutions is semiconductors. On Semiconductor Corp (ON) is the second-largest power chipmaker in the world and is focused on the automotive and industrial markets. The company produces infrastructure-class power semiconductors that help customers create suitable solutions for their evolving power grids.
The bottom line is that the shift towards renewable energy is accelerating amidst existing power grids struggling to meet peak demand. This means the need for flexible supply solutions will only increase. Rapid advances in battery technology and renewable energy capture solutions will create more stable energy grids capable of handling peak demand while allowing us all to enjoy cleaner air and water. That is a future worth reimagining.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Lenore Elle Hawkins
Lenore Elle Hawkins has, for over a decade, served as a founding partner of Calit Advisors, a boutique advisory firm specializing in mergers and acquisitions, private capital raise, and corporate finance with offices in Italy, Ireland, and California. She has previously served as the Chief Macro Strategist for Tematica Research, which primarily develops indices for Exchange Traded Products, co-authored the book Cocktail Investing, and is a regular guest on a variety of national and international investing-oriented television programs. She holds a degree in Mathematics and Economics from Claremont McKenna College, an MBA in Finance from the Anderson School at UCLA and is a member of the Mont Pelerin Society.
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