State-of-the-art electricity storage systems: Indispensable elements of the energy revolution
Comment of the Day

March 08 2012

Commentary by Eoin Treacy

State-of-the-art electricity storage systems: Indispensable elements of the energy revolution

Thanks to Deutsche Bank for this educational report which may be of interest to subscribers. The full report is posted in the Subscriber's Area but here is a section:
The disadvantage of the mechanical storage systems discussed so far is their lack of, or only limited, long-term storage capacity. Apart from large storage power plants, they are only designed to operate for storage cycles of hours or a few days and, as such, they carry out all those functions which are needed up until 2025. However, they are not capable of compensating for regular week-long periods of strong or light winds or seasonal fluctuations. However, this is precisely what will be needed by 2040. Power-to-gas storage could solve this problem.

Hydrogen (H2) can be produced from water and electricity by means of electrolysis. It has a very high energy density and can be stored in caverns practically without loss in virtually unlimited quantities for unlimited periods.27 This makes it ideally suited for storing energy for periods of weeks or whole seasons. H2 can be converted back into electricity using fuel cells, gas turbines or gas-powered engines.

Eoin Treacy's view There are some novel storage solutions discussed in this report, at least some of which will need to be brought to fruition if the ambitions of the renewable energy sector are ever to be realised. Maintaining base load without keeping a whole range of conventional power plants functional but idle is one of the greatest challenges facing the renewable energy sector. Hydrogen and natural gas storage solutions discussed in the above report appear to hold great promise but significant investment will be required to make them viable.

The report distinguishes between coal and lignite, even though lignite is the most common form of coal used for power generation. From the table on page 4 we see that by assuming the cost of wind and solar collapses by 2050, renewables will only be competitive with lignite today. In addition, the report appears to take no account of the real possibility that natural gas prices will be considerably lower in Europe a few decades from now than they are today, provided unconventional gas resources continue to be developed. Considering the arbitrage between US and European natural gas and the potential for the USA to become an exporter, it would seem to be only a matter of time before Europe dispenses with an oil based pricing for gas.

From an investment perspective, there is every reason to expect that European governments will continue to support their renewable energy objectives over the short to medium term; not least because they are broadly popular with electorates. At some point the economics of cheap gas may force a reappraisal of this strategy but there is no sign of such a move at present. Therefore, renewable energy infrastructure is likely to continue to receive funding. Most of the storage solutions discussed in the above report require some form of turbine to help convert the stored energy back into electricity. .

The UK's Rolls Royce is the world's largest turbine manufacturer. The share broke emphatically out of a yearlong range in mid-October and has since rallied impressively, testing the 850p area this week. It is somewhat overbought in the short-term but a sustained move below 700p and susceptible to mean reversion back towards the rising 200-day MA. (Also see Comment of the Day on October 27th).

In the USA, Precision Casting has found support in the region of the 200-day MA on successive occasions since mid-2009. While the share has lost momentum somewhat over the last 9 months, a sustained move below $150 to be needed to suggest a change to the medium-term demand dominated environment.

Germany's Man SE fell abruptly with the wider market in August but broke out of a Type-2 base (as taught at The Chart Seminar) in January and continues to extend its advance. While becoming increasingly overbought in the short-term a sustained move below €75 would be needed to check medium-term recovery potential.

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