ESS inks largest-ever US flow battery purchase with Sacramento utility

The Sacramento Municipal Utility District will soon be decarbonizing its power supply — in part by pumping iron.

The city-owned power company has committed to ending its carbon emissions by 2030, an aggressive timeline compared to California’s statewide 2045 deadline to do the same. That means the state capital can’t wait any longer to figure out how to close the gap between abundant daytime solar production and post-sunset demand for electricity.

Last week, SMUD took a decisive step toward its clean energy goal when it signed a contract with iron flow battery company ESS to deliver 200 megawatts/​2 gigawatt-hours of its products, which store electricity in a liquid electrolyte containing dissolved iron.

A purchase of this size is a massive step forward for flow battery storage, a technology that just might help rid the grid of fossil fuels if it ever gets sustained market traction.

The deal contains a master supply agreement for ESS to deliver units over the course of the next few years. It will start with several megawatts over the next 18 months, said Hugh McDermott, senior vice president for business development and sales. Then it will ramp to tens of megawatts in the second phase and then potentially up to the 100-megawatt level.

The multiyear commitment is meant to track the natural planning cycles of utility procurement and project development, McDermott told Canary Media in the expo hall of the RE+ convention in Anaheim, California last week.

“This is a very uncertain supply situation for the rest of this decade, for everybody,” McDermott said of the grid storage market. “[SMUD is] going to get certainty on supply — a major bonus — and they’re going to get a commitment that we’ll have the manufacturing behind that. We’ll get the visibility [to future demand] so we can plan our manufacturing expansion.”

ESS did sign a deal with developer SB Energy last year for up to 2 gigawatt-hours of storage. But that customer was also an investor in ESS, which happened to announce its intention to purchase flow batteries in the immediate run-up to the startup’s listing on the stock market. The SMUD deal marks a massive purchase by a customer with no financial stake in ESS’ success.

Local workforce development included

The agreement also contains novel workforce-development commitments. Publicly traded ESS manufactures its storage technology near Portland, Oregon, but it will work with local colleges and universities around Sacramento to train workers to install, commission and service the units.

“Right now, we’re the only people on the planet who know how to service our equipment,” McDermott said. ​“We need to build out those legions.”

If all goes well, Sacramento will become a hub for ESS installations for the California market. California is one of the only places in the world that has an official requirement for long-duration storage purchases in the next few years, as regulators hope to keep the lights on while fossil gas plants shut down and the grid needs other sources of on-demand power. ESS could end up shipping key components for local assembly in Sacramento, as it is doing in Australia per a recent agreement.

In Sacramento, ​“you’re only six hours’ drive from [most places in] the state,” McDermott noted.

New glow for flow batteries

Flow batteries have been kicking around in research laboratories for decades without gaining a foothold in the field. As lithium-ion batteries became the dominant form of grid storage over the last decade, flow battery evangelists tried to make the case for why their technology was superior to the front-runner. But storage customers, oblivious or unconvinced, kept picking conventional batteries 99 percent of the time.

ESS is one of the few flow battery companies to survive long enough to see the arguments in favor of flow batteries start to resonate due to global upheavals in the battery supply chain and domestic policy changes in the U.S.

Flow enthusiasts have long praised the technology for its ability to store massive amounts of renewable electricity and discharge it for longer periods of time than is economical with lithium-ion batteries. Few to no utilities were interested in that kind of bulk storage, but as renewables gain considerable market share in certain locations, more governments and power companies are recognizing the need for long-duration storage.

Meanwhile, the familiar critiques of lithium-ion batteries have taken on new force. After a decade of readily available batteries that were declining in cost each year, the grid storage market hit a wall in the Covid era. Supply-chain hangups created scarcity and drove prices up at the same time that demand surged, thanks to rapid growth in both electric vehicle purchases and grid battery development.

As McDermott alluded to, this scarcity is likely to continue as demand for both electric vehicles and grid storage grows faster than new manufacturing capacity. Companies like ESS use readily available, abundant materials that aren’t spiking in price like the components of lithium-ion batteries are (see this stunning chart, for instance), and they don’t have to compete with demand from the massively larger electric vehicle market, because flow batteries aren’t used in vehicles.

What’s more, flow batteries, being mostly liquid, don’t catch fire the way lithium-ion batteries sometimes do. Fire risk hasn’t stopped the momentum of battery storage, but incidents continue to generate headlines. On the same day of the ESS announcement, one Tesla unit at PG&E’s Moss Landing battery plant in Northern California burned itself up, forcing road closures around Highway 1 to protect people from potentially hazardous emissions.

ESS also manufactures its products in the U.S. and thereby stands to benefit from energy storage tax credits in the recently passed Inflation Reduction Act. Developers can claim a 30 percent tax credit on battery projects built with prevailing wages, but they can get an additional 10 percent off by using domestic content.

Exceedingly few other storage manufacturers have production lines up and running in the U.S. today, McDermott pointed out, so ESS expects to be one of the only suppliers to qualify for the domestic content credit in the near term.

The company will also be able to claim corporate tax credits based on the capacity of domestically manufactured storage products it ships. That’s valuable for companies that are scaling production to compete with lithium-ion, which enjoys economies of scale from the ramp-up in EV manufacturing.

“It’ll help us to achieve break-even profitability sooner in our scale-up than we were otherwise planning,” McDermott said.

As was pointed out again and again at the clean energy trade show, the details of the new tax credits still need to be written. But the direction of the policy is clear enough for manufacturers like ESS and its customers to get moving on deals.