California, land of Google Inc., Apple Inc. and Hollywood, wants to add one more to the roster of industries it dominates. This time it's energy storage, an absolutely enormous emerging market where it has quietly been developing a substantial lead.
The Golden State has more engineers and entrepreneurs figuring out how to store energy in phones, cars, buildings and power plants than anywhere else on Earth. It has access to venture capital and a set of state rules and regulations that encourages it to succeed.
And its momentum is picking up as energy storage is hailed as one of the easier ways that states can go about meeting the requirements of strict new carbon pollution rules the Obama administration will announce today. Those rules will aim to cut up to 30 percent of greenhouse gas emissions from existing power plants, compared with 2005 levels, by 2030, according to multiple media reports. The plan is said to include options for states and utilities to meet the standard.
Does California have it in the bag?
Not necessarily. The existing contours of the industry indicate that energy storage's trajectory will not be a repeat of Apple inventing the iPhone, Google unlocking search or Intel Corp. perfecting the computer chip.
The reasons are many, but the biggest is that energy storage isn't as new as the buzz makes it out to be. Factories around the world have been making batteries for decades, after all. Entrenched multinational companies and hungry startups across the country have no intention of letting California's recent wave of innovation dominate a huge new market.
"California is definitely not the entire story," said Matt Roberts, executive director of the Energy Storage Association. "It will drive lots of energy and innovation, but it isn't necessarily all centered in California."
Recent estimates of the energy storage business make clear just how large and diverse it could be. Analysts say that the market for batteries for phones and other mobile devices could be $55 billion by 2017, while that for electric-car batteries could reach $22 billion by 2020.
The grid-scale market could dwarf those two, with projections between $114 billion and $600 billion, as it makes the energy system more efficient, resilient and capable of handling more renewable energy.
"There's not one part of the economy that would not be touched by energy storage if we're successful," said Jeff Anderson, the president of CalCharge, a trade organization trying to knit together the disconnected parts of the energy storage enterprise in California.
How California got ahead
"Energy storage" is a blanket term for a field that is composed of many diverging solutions, from simple and proven routes like pumped water storage, to exotic ones like high-speed flywheels and superconducting magnets.
Each is suited to a somewhat different task, and some are wildly unproved while others have been in development in other regions for decades. They range from the tiniest lithium-ion battery pack that powers an implantable medical device to giant vats of chemicals that could provide many megawatt-hours of electricity to the grid.
California has the good fortune to be a player at just about every point on the continuum. The state's multidimensional role stems from decades of experience in the field, dating back to when energy storage was known simply as "batteries."
As Silicon Valley gained expertise in semiconductors, it also developed a brain trust in batteries, where the challenges of managing electrons are similar. The energy shocks of the late 1970s impressed upon the Department of Energy the need for better energy storage, and it sent research dollars to Lawrence Berkeley National Laboratory and to the University of California, Berkeley.
In the 1990s, the rise of laptops and cellphones created a huge demand for dense, rechargeable batteries. A wave of battery startups were joined by field offices for nearly all of the world's major consumer-electronics companies, from Duracell to Panasonic Corp. to Hitachi Ltd. to LG Corp.
CalCharge identifies up to 130 companies that today have some role in energy storage, with about two-thirds in Northern California centered on the San Francisco Bay Area, and one-third down south in Los Angeles and San Diego. New York state has a substantial momentum, and Michigan has a cluster tilted toward transportation, but neither is as large as California.
The best-known company is Tesla Motors Inc., which is the most successful exemplar of California's other battery project: electric cars. Tesla just bested Toyota Motor Corp. as California's largest automotive employer, according to Bloomberg. And while its "gigafactory" is likely to be built in another state, a significant amount of its output is likely to end up in California's buildings. As much as 15 gigawatt-hours of the factory's production is expected to be devoted to "stationary" applications, many through its relationship with SolarCity Corp., the nation's largest rooftop-solar installer, a 30-mile drive from Tesla's offices.
But Tesla is hardly the only electric mobility player in town. Other electric vehicle makers range from Fisker Automotive Inc. (recently acquired by China and gunning for Tesla) to Zero Motorcycles to Boosted, which makes electric skateboards. Meanwhile, traditional industry heavyweights like Volkswagen AG, Ford Motor Co. and Mitsubishi Corp. all do research or hunt for partnerships in California.
And that's just in transportation. The preponderance of dollars and momentum are in the direction of lithium-ion batteries, which have a proven track record of operating in mobile devices and vehicles and are beginning a migration into providing backup power for buildings and wind farms.
Many other approaches are being explored at obscure and low-rent business parks across the San Francisco Bay Area.
Some, like EnerVault Corp. and Primus Power, are building "flow batteries," which stimulate electrons by trickling dissolved electrolytes through an anode and cathode. This approach could generate many hours of electricity to the grid at relatively low cost. Two weeks ago, EnerVault unveiled the largest battery in the world for its particular chemistry, iron-chromium, which is expected to store energy from solar panels and deliver 250 kilowatts over a four-hour period to run the irrigation system at an almond grove in the Central Valley.
Others, like Halotechnics, are perfecting molten salts that are efficient at trapping heat. They are intended as companions to concentrated-solar plants, where sun rays are directed at fluids that get hot and create steam that spins turbines. The better that fluid holds heat, the more capable the plant is of generating electricity after the sun goes down.
Complementing energy storage is another young industry, fuel cells, where skills are roughly interchangeable and where California is competitive, in the form of such enterprises as Bloom Energy, Altergy Systems and ClearEdge Power.
"There's as many companies developing electric vehicles as there are doing grid-level energy storage," said Keith Kepler, the co-founder of Farasis, a Bay Area company that manufactures lithium-ion battery cells and modules. "You just don't find that elsewhere."
Perfect storm of regulation
The most urgent storage problem for California to solve is one of its own making. The state is on track to meet its ambitious goal of getting 33 percent of its electricity from renewable sources by 2020. But the addition of so much wind and solar power is creating colossal peaks and valleys in energy production -- a problem that could be solved in part by energy storage.
Meanwhile, the state has been eliminating several traditional sources of power that could have made up the slack. Shuttering a big nuclear plant outside San Diego last year took 2.3 gigawatts off the grid, and a 2010 rule limited power plants' ability to use ocean water for cooling, which removed yet more power generation.
So, late last year, the state Public Utilities Commission codified yet another improbable and world-beating goal. It asked the state's three biggest utilities to add 1.325 GW of energy storage capacity by 2020. That's twice as much grid storage as existed in the world when the rule was written.
Yet more oomph came from an order to Southern California Edison to store an extra 50 MW and a bid from the Imperial Irrigation District to get 40 MW of its own storage. Add to that the state's goal of getting 1.5 million zero-emission vehicles on the roads by 2025, and California has made itself the center of the action.
"It is the market," said Tom Stepien, the CEO of Primus Power.
Energy storage is 'not for sissies'
In the last few years, Silicon Valley has been criticized for wasting its talent on trivial projects. Much venture capital these days is chasing smartphone apps, like Tinder, Airbnb or Uber. They are businesses that are relatively easy to build online and offer a tantalizing opportunity to gain a crazy number of users, sell to a bigger company and allow investors to cash out in a couple of years.
The energy-storage industry is nothing like that.
"Hardware companies are not for sissies," said Stepien, who spent most of his career in the semiconductor industry. "This is not $10 million, find some guys, feed 'em energy bars and caffeinated soda and have them pound out code. This is five years of work and trying to make the laws of chemistry work for you. It takes some time to get it right."
Innovators have been trying to store significant amounts of energy on the electric grid since the days of Thomas Edison, and there's a reason that they've failed: Doing it safely, reliably and affordably is extraordinarily hard.
"Nature doesn't like to store energy," said Craig Horne, a co-founder of EnerVault. "That energy is going to want to release. And that's why energy storage has always been such a challenging technology to commercialize because, in a way, you're defying nature."
Leaders in the California energy storage industry say it reminds them of two other weighty local industries that also solved thorny problems of chemistry and physics, but had drastically different destinies.
The first is the semiconductor industry. Beginning in the 1950s, the valley was the cradle for breakthroughs that led to the modern microprocessor and gave rise to hardware giants like Intel, AMD, Qualcomm and Apple, creating the backbone for the world-transforming age of modern computing.
Energy storage can tap the semiconductor business's deep wells of mechanical, chemical and materials engineering -- but has yet to reach a critical mass. CalCharge has pondered whether energy storage needs its own version of Sematech, the government-industry association created in the late 1980s to solve common manufacturing problems. That effort is often credited with preventing Japan from capturing the industry.
The other -- and uglier -- business that energy storage looks to is that of photovoltaic solar (PV) panels. Until the mid-1980s, California was a hub of the PV manufacturing, with one company, ARCO Solar, controlling 45 percent of the market. Since then, the lead was lost to international competitors, especially Germany and most recently China, where the bulk of the world's PV is now made.
The well-publicized collapse of the domestic solar industry, as well as widespread fears about China's theft of intellectual property, has led some energy storage startups to consider following in the footsteps of Tesla and manufacture in the United States. A CalCharge analysis concludes that it is only 4.7 percent more expensive to manufacture in San Jose, Calif., than in China.
Energy storage firms interviewed for this story say that even in the Bay Area's cutthroat hiring market, they are having little problem recruiting talent. Engineers are drawn by the challenge of a hard problem, especially one that is allied with the use of renewable energy, the shape of the power grid and the specter of climate change.
"We get a lot of inbound interest from those who want to tackle big macro problems using cutting-edge technologies," said Leesa Lee, the marketing director at Stem, an energy-storage company. "We get an inordinate amount of interest considering that we're small and up-and-coming."
One surprising challenge, though: Even talented engineers usually arrive knowing little about batteries. At San Jose State University, what could be the country's first graduate engineering program specifically tailored to batteries starts this fall.
Why the Golden State might not be golden
Despite all this momentum, it is unlikely that history will look back at California as the one place where the tough knot of energy storage was untied.
One reason is that even in the boldest technologies, California does not have the field to itself. Japan has 25 years of experience developing sodium-sulfur batteries, one of the more flexible approaches for supplying storage to the grid. Another promising chemistry, sodium-nickel chloride, has been deployed to the grid in North Carolina, with batteries from FIAMM, a company from France.
Some of the most promising startups are literally all over the map. One of the leaders in grid-scale lithium-ion batteries is AES Corp., based in Arlington, Va., while a contender in flow batteries, ZBB, operates outside Milwaukee. Other rapidly growing firms are Aquion, which grew out of Carnegie Mellon University in Pittsburgh, and Ambri, which started at the Massachusetts Institute of Technology.
Then there are huge multinationals with long histories in batteries and resources that are hard to beat, like Panasonic and Toshiba from Japan, American firms like General Electric Co. and Johnson Controls Inc., and European leaders such as Saft of France.
An early sign of traditional players' dominance comes from the Imperial Irrigation District, the municipal utility that serves a chunk of California's southeastern desert. Last month it announced a shortlist of nine finalists for the 40 megawatts it wants to add to the grid. Only two were based in California. All the others were deep-pocketed and experienced players from out of state including AES, Hitachi and Duke Energy Corp.
It is unknown whether California's venture capital community has the patience for the long, profitless slog that most energy storage companies are sure to suffer. Venkat Srinivasan, an energy storage researcher at Lawrence Berkeley National Laboratory, says the industry shorthand is that it takes 10 years and at least $100 million to build an energy storage company. That's an eon to investors who have become accustomed to the valley's lightning-fast funding cycles.
It is also uncertain whether the industry as a whole can figure out how to mass-manufacture batteries without consuming vast amounts of energy and raw materials -- a key concern in the green state of California.
A study by a pair of Stanford University researchers published last year said that bringing several of the leading battery chemistries to global scale would require using the equivalent of the entire world's production of their raw materials. They concluded that the only way to make the industry ecological -- not to mention affordable -- would be to increase battery life span tenfold.
While battery density is improving at the rate of about 5 percent a year, that may not be adequate to the ecological challenge, not to mention the expectations of Silicon Valley. Venture capitalists are more comfortable with the heady expectations of Moore's Law, which posits that the density of transistors on a computer chip doubles every other year.
One skeptic of the industry's prospects is John Petersen, a former board member and general counsel of Axion Power, an energy storage company based in Pennsylvania. "It's a very, very tough economic problem," he said.
"The reason it can't work is that the battery is a bottle for storing electricity. It is a $500 bottle that you're going to use to store a product that you want to buy for 25 cents. If you have that bottle that you spent $500 on, and you fill it once a day, you're going to get $7.50 a month of energy coming back out of that bottle. It's going to take you forever, at the rate of $7.50 a month, to recover your $500," he said.
Also, while storage mandates have made California the market of the moment, other territories are quickly catching up.
New York has made generous subsidies available for battery and thermal storage, while the Long Island Power Authority has made a request even larger than California's, for 1.6 GW of grid-level storage, partly to replace older power plants that are nearing the end of their lives. The Hawaiian Electric Co. put in a request for up to 200 MW in early May.
Meanwhile, some of the largest independent system operators in the country are instituting market rules that are attracting storage projects. PJM Interconnection, which serves a swath of 13 states from Illinois to Kentucky, has added 87 MW of grid storage since late 2012, with an additional 294 MW on the drawing board.
Finally, the energy storage industry has already shown that even high-profile and well-financed ventures can collapse, as happened to Beacon Power in 2011 and Xtreme Power earlier this year. It is likely that many of California's startups will meet the same fate.
"There are a ton of these kinds of still-in-R&D-phase, kind-of-science-project companies around, and I think there are some of them that are very exciting, and they could be on to something," said Vic Shao, a founder of Green Charge Networks, another Bay Area storage company. "What I find to be severely lacking is a business case."
Shao's company is thriving in one realm of energy storage where you'd expect Silicon Valley to excel: combining lithium-ion batteries with computer analytics.
Green Charge Networks, along with other startups like SolarCity and Stem, are finding plentiful customers among hotels, small factories, hospitals and other businesses that are hit with high electricity bills because their energy use peaks in the middle of day, when electricity is most in demand and expensive.
The companies offer them attractive boxes packed with batteries from trusted manufacturers, like Samsung and Tesla. The real value, though, is the computer backbone, which combines past usage data with weather forecasts to predict energy needs in fine detail. The batteries charge when power is cheap. When it gets costly, the batteries send pulses of power that maintain the user in a lower billing bracket.
Green Charge Networks expects to double its staff from 20 to 40 by the end of the year, Shao said. Like other players in the field, the company is preparing to have its same batteries serve a second customer: the utility.
While it manages a building's energy, the batteries have enough capacity to also store a marginal amount of electricity for the power company. When the utility asks, Green Charge Networks delivers en masse from its aggregate fleet. The revenues are shared with the sites that hosts the batteries.
The industry is in broad agreement that by doing several jobs that each earns a stream of revenue, called "stacked services," energy storage will come to pay its way.
While California seems to have the cards stacked in its favor, the energy storage industry is likely too big for even Silicon Valley to dominate. One of the potentially largest industries of the 21st century is shaping up as a global one.
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