Advanced energy storage systems, like grid-scale batteries, pumped hydroelectric storage, and chemical storage have the potential to bolster renewable energy deployment, improve the efficient use of fossil-fueled power plants, reduce electricity production costs, and increase the grid’s resiliency.
With all emerging technologies, the regulatory systems governing them tend to lag behind the rapid pace of technological development. GPI is working to identify and prioritize energy market reforms to allow the grid to capitalize on all the benefits energy storage has to offer.
Advanced energy storage plays a unique role in the electricity world; no other technology connected to the grid can do what energy storage can do.
As such, there is a lot to unpack to fully understand where the system is now and the vision we are working toward. To see the whole picture, this blog series will examine emerging storage technologies, the services storage offers, the regulatory structures governing them, immediate and future market opportunities, and the critical barriers standing in the way of storage’s full participation and integration into the electric grid.
Why storage? Why now? Because of Batteries
Energy storage had been around for a long time in the form of pumped hydro-electric facilities and flywheels. These technologies are effective, but limited in their capabilities. The emergence of advanced battery technologies that are energy-dense, reliable, durable, and efficient is a game changer in the energy storage space.
In addition, batteries* are rapidly becoming more cost effective. Lithium-ion battery costs have dropped 40 percent since 2010 and as manufacturing scales up to meet emerging demand, costs will continue to decline (see Figure 1).
Energy Storage Making its Long-Awaited Debut
That’s right, energy storage is quickly emerging as an economically viable and implementable energy asset. PJM, the Regional Transmission Operator (RTO) for the mid-Atlantic U.S., has incentivized fast-ramping for frequency regulation in its markets with pay-for-performance compensation, resulting in 217 MW of storage capacity operating or under construction. California has passed an energy storage mandate resulting in 37 MW of storage capacity that is currently operating or under construction. The total mandated storage capacity will hit 1.3 GW in 2020, including 220MW of behind-the-meter storage.
Interestingly, growth in storage capacity in these two regions is driven by completely different forces; a statewide mandate vs. a market incentive.
As costs continue to decline, developers are exploring ways to maximize the value of their installations through creative business models. As a result, the industry could see an explosion of growth in the coming decades.
Many Services for Many Customers
As with any emerging technology, there are a variety of market participants and business models aimed at capturing the value energy storage has to offer; utility companies, third party developers, and individual customers are all getting in on the action. As a result, installed energy storage systems are variable in size, location, design, and application. Figure 2 shows the potential services battery storage technology can offer as well as the levels of the energy system at which storage assets can provide these services.
It is important to note that the Rocky Mountain Institute study which produced this figure made the critical assumption that all regulatory and market barriers that currently exist for storage were cleared. Under that assumption, storage assets and “stack” services to provide multiple services to the grid, even within the same day. The value proposition for storage in many applications is reliant on this assumption. More on this later.
Rapid Growth in Commercial & Industrial Applications
According to UBS Global Research, the primary market for energy storage right now is commercial and industrial (C&I) facilities interested in reducing their energy bills. There are two primary reasons the C&I sector is primed for rapid growth. First, the economics are favorable and actionable now. Large consumers of electricity are subject to significant demand charges, which are based on peak consumption of power, usually for a 15-minute window, for that customer throughout the entire year. Storage allows customers to spread out their demand across the entire day, dramatically reducing their peak demand, and thus the associated demand charge.
The second driving force is policies creating financial incentives to invest in storage. Right now, California’s investor-owned utilities offer a $1.46/W of installed storage capacity through the state’s Self-Generation Incentive Program. New York’s Con Edison utility offers up to $2.10/W for advanced battery storage installations. These incentives are minimizing financial risk to allow entrepreneurs to innovate in a sector that has relied on 20th century technologies and business models too far into the 21st century.
However, high demand charges and incentive programs are not homogeneous across the whole country. The Midwest in particular has relatively low demand charges and no storage incentives in place. Under these conditions, regulation, which allows energy storage to stack services is even more important for their economic viability.
Challenges ahead for energy storage
Needless to say, there are still many barriers standing between where we are now and a system that fully utilizes energy storage assets. The following list is far from exhaustive, but highlights some of the overarching challenges energy storage will need to overcome.
- The regulatory system is designed for a system of generation, transmission, and distribution assets, and the load they serve. Storage can act as any and all of these. To unlock the full potential energy storage has, the regulatory system will need to reflect this reality. This is an especially restrictive barrier for small-scale and behind-the-meter storage.
- The benefits to the grid energy storage can provide are not easily monetized. For example, energy storage owned by a third party developer can firm capacity for a wind farm, making it more valuable. Yet, except for a bilateral agreement, there is no way for the storage owner to monetize this benefit.
- The revenue streams available to energy storage could shrink as a result of their superior ability to meet the needs of the electric system.For example, once PJM opened its ancillary services market to battery systems for frequency regulation, their superior performance meant that the needed capacity for frequency regulation of the system shrank by 35%.
- Storage can delay or offset the need to invest in costly upgrades to transmission and distribution infrastructure. The industry is very good at figuring out how much money it will need to spend. It is not as good at figuring out how much it will not need to spend. Developing a consistent method for valuing cost offset attributable to energy storage projects and unlocking that revenue stream to support storage development will be a significant hurdle moving forward.Looking Forward
Over the coming months, we will dig into the details of the specific services storage can provide, the value and beneficiaries of these services, and the unfolding market and regulatory reforms in the energy storage space.
GPI is working to shape the future of energy storage in Minnesota and the broader Midwest and we’ll keep you posted along the way.