Japan's market ideal for distributed storage, but battery players are pricing too high

By Steven Minnihan

In the weeks after the devastating and tragic natural disasters that struck Japan, many large battery manufacturers have announced storage battery units for back-up power for residential and small commercial sites in the Japanese market.

GS Yuasa announced units that can provide three hours of power for personal computer and small data centers (generally 1kW) and telecom backup (generally 2 kW-5 kW) for $19,000 and $71,000, respectively. Sanyo will offer battery packs rated at 1.6 kWh and 3.2 kWh for $15,000 and $18,500, respectively. Toshiba will offer 1 kWh, 3 kWh, and 5 kWh units, with the 1 kWh unit priced at $6,200. Finally, Panasonic will offer an 8 kWh unit, but pricing hasn't been announced. All companies plan to unveil the products during the summer months between June and August, although most companies initially planned to release the products in late 2011 or 2012.

These distributed lithium-ion (Li-ion) units carry staggering price tags ranging from $4,700/kWh to $10,000/kWh –700% to 1,400% of the cost of Li-ion batteries for electric vehicles or bulk-energy storage units. Even if these residential and commercial units were priced on par with the Li-ion packs used in vehicles (between $700/kWh and $1,000/kWh), adoption would be extremely limited among residential and commercial building owners due to the insufficient economic benefits of distributed storage.

However, the Japanese market is facing unique challenges after the natural disasters reduced the baseload generation capacity of Tokyo Electric Power Company (TEPCO) - the largest generation utility in Japan. The Japanese government has requested that TEPCO residential and small commercial customers reduce their peak power consumption by 15% during the summer months, although no formal penalties are in place for customers who do not meet the target.

Additionally, the TEPCO's grids are still experiencing rolling brown-outs and black-outs. While the lack of peak power capacity makes Japan an ideal market for distributed storage, these battery players are pricing their systems too high to see adoption. While it is probable that TEPCO and/or the Ministry of Economy, Trade, and Industry will offer healthy subsidies on the battery systems, TEPCO and the Ministry will have to subsidize upwards of 75% of the initial cost or implement hard economic penalties around its 15% power reduction target in order for the Japanese market to tolerate these costly storage systems.

Steven Minnihan is an analyst for Lux Research, which provides strategic advice and on-going intelligence for emerging technologies. For more information, visit the Lux Research site.

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