As major players jostle for market share in large-scale power storage, American Electric Power and Nissan Motor Co. are testing new technology that reuses old electric vehicle batteries to slash costs.

The pilot study in Ohio will road-test technology that could lower system costs by about half and extend the life of lithium-ion batteries by about a third, according to its Australian developer.

The costs of energy storage systems are falling globally on technological improvements, larger manufacturing volumes, increased competition between suppliers and growing expertise in the sector, BloombergNEF said in an October report. That’s driving an expansion in investment in projects to store power, with as much as $5 billion worth of deals possible this year for systems paired with renewable energy, according to the forecaster.

American Electric’s Ohio study is using expired Nissan Leaf batteries and is intended to test the innovations at scale after laboratory work in Australia and Japan.

Results so far appear promising, Ram Sastry, American Electric’s vice president for innovation and technology said by phone. “It’s in a facility that we own, but connected to the real grid,” he said.

The technology is developed by Melbourne-based Relectrify and uses old, or second-life, vehicle batteries and reduces the number of components needed, the company said. That can reduce costs for key parts in typical industrial or grid storage systems to about $150 per kilowatt-hour.

That compares with a current average price of $289 per kWh for similar technology using new batteries, according to the BloombergNEF 2019 Energy Storage System Costs Survey.

Companies like BMW AG and Toyota Motor Corp. are already putting reused cells to work in applications including renewable energy storage and electric vehicle charging, and to power street lights and homes. About three-quarters of vehicle batteries are eventually likely to be reused, according to London-based researcher Circular Energy Storage.

Cheaper energy storage with batteries could provide an alternative to adding more capacity at electricity substations, or building more transformers. It could also be harnessed to provide backup power and bolster reliability for consumers, according to American Electric’s Sastry.

“There are many use cases that we have for batteries that are predicated on the cost,” he said. “If the battery goes lower in cost, it can compete with the wires.”

Yet even as the price of lithium-ion battery cells has fallen, it’s been difficult to reduce the costs of components such as inverters, which convert direct current electricity into alternating current.

“The inverter is the Achilles heel of energy storage,” said Bradley Smith, president of Covington, Louisiana-based Beauvoir Consulting Services and previously an executive developing second-life battery products at Nissan.

Relectrify’s system reduces the need for separate electronics for both the inverter and battery management system, lowering costs, Smith said.

The technology can also extend the lifespan of either reused or new batteries by offering more precise management of individual cells, according to Valentin Muenzel, CEO of Relectrify, a 14-person firm launched in 2015 that has collaborated with companies including Volkswagen and IBM.

Some potential end users remain wary of reusing lithium-ion batteries over concerns about their longevity and the cost of re-purposing cells, according to BNEF’s head of clean power Logan Goldie-Scot. “Many customers are not yet comfortable with second-life batteries even at a steep discount,” he said.

Relectrify, which is in talks with battery companies, sees the potential to eventually help improve performance of batteries for the auto sector, in addition to energy storage.

“We see stationary storage as the low hanging fruit,” Muenzel said. “We’re already getting demand for use in some mobility applications and we expect that is an area that will continue to grow with time.”

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