This morning, the Energy Storage Association released its whitepaper “35 X 25: A Vision For Energy Storage,” which lays out a plan for deploying 35 gigawatts (GW – a gigawatt equals 1,000 megawatts) of storage by 2025. The report – developed in collaboration with Navigant Research – outlines a number of developments that argue in favor of energy storage, including:
- a growing need for grid reliability and resiliency, especially as more critical networks like transportation, HVAC, manufacturing, and data become increasingly electrified and demanding on our aging infrastructure;
- an economy that is becoming more dependent on sophisticated computer networks and society becomes increasingly automated and interconnected;
- a rapid increase in deployment of cost-effective renewable resources, which will benefit from having storage as a dance partner;
- an increasing need for a more flexible and adaptable power grid that will benefit from storage resources that are modular and require short development lead times;
- a dynamic of continuing improvements in storage technologies; and
- a steady and rapid decline in costs – especially for lithium ion batteries, which are expected to shoulder much of the burden
A view from the bridge
It is by ESA’s own admission, an ambitious plan. However, in a conversation prior to the report’s release, ESA CEO Kelly Speakes-Backman expressed confidence that these trends are aligning to help realize this vision. A large infusion of storage can add tremendous value to the grid and to society.
Speakes-Backman noted that while the storage addressed in the report includes all energy storage technologies, many stationary storage deployments will utilize lithium-ion technologies, and that associated costs are dropping steadily, benefiting from economies of scale resulting from their use in consumer electronics and electric vehicles. Over time, she observed, supply chains will continue to become more efficient, further driving down battery costs. And – similar to the experience in the solar industry – affiliated costs, ranging from customer acquisition and financing to inverters and balance of system, will plummet as well.
Grid battery technology is similar to consumer electronics and EVs, so there is a massive economy of scale, coupled with increasing power densities and increasing efficiencies of installation costs. So all-in costs are dropping quickly, up to 50% every three or four years. We expect that to continue for some time before it begins to level off.
The ESA report projects that the majority of storage installations will occurr at the grid scale, as there are numerous efficiency gains to harvest in a grid that typically runs at scarcely 50% of capacity. For example, storage could help to eliminate the need for peaking plants that exist only to supply power during the greatest levels of demand, and that are utilized only 5-7% of the time. Storage could also help to address the fact that our grid infrastructure is also oversized in order to meet peak demand (for example, the report observes that investments made to address the top 10% of demand can account for more than 40% of the total system cost. In New York, it is estimated that the top 100 hours in cost $1.7B per year.)
And although lithium technologies may take the lion’s share of the market, Speakes-Backman emphasized that the report includes all storage technologies, such as pumped storage, compressed air, thermal storage, electrochemical and flow batteries, flywheels, ultracapacitors, and other forms of energy. This includes specific applications such as flow batteries, that are capable of longer duration tasks. At the same time, she predicted that lithium-ion technologies will continue to evolve, stating that, “We see increases in power density and more megawatt-hours in the same footprint.”
The regulatory conversation must catch up with the opportunities
Despite the impressive opportunity and the ability to create grid efficiencies, some critical impediments nonetheless stand in the way. The key challenge involves the need to change the existing regulatory framework, which was developed decades ago for a different, centrally planned grid. The current regulatory construct does not adequately address the value that storage can bring, nor the fact that it is a unique hybrid resource. Energy storage is not a load – yet it can absorb power. It’s not a generator either, but it is capable of providing both energy and capacity to the system when required. It also serves at times as a transmission- and distribution-type resource, replacing the need for costly system capacity upgrades.
Thus, setting up the rules of the sandbox to effectively and efficiently integrate – and provide compensation for – these services will be critically important. This process must happen at the federal level, notably within the context of the Federal Energy Regulatory Commission (FERC), which has been working on a Notice of Public Rulemaking (NOPR) for some time. It also has to occur at the grid level (the Texas grid, for example, is not governed by the FERC), and also at the state Public Utilities Commission level, since much of the value will be gleaned by integrating storage assets into more localized transmission and distribution systems.
A former Maryland Commissioner, Speakes-Backman acknowledged the challenge related to the fact that the same storage resource can be applied in many different ways over the lifetime of a single asset.
There needs to be acknowledgement that classification of storage may need to be different over the course of the lifecycle – it may need to be classified as transmission and distribution, but also generation or load, since it has DR aspects. It’s all three of those qualifications.
She also pointed out that current interconnection rules require certain equipment is require to connect any asset to the power grid (for example, a physical governor is required in some wholesale markets). However, being a digital asset, this is unnecessary for storage. Without a regulatory exemption, this cost burden remains.
Assigning a value to resiliency
Another area where regulators have not yet assigned value is resiliency. Resiliency and grid hardening become increasingly critical topics as our society grows more reliant on a digital economy, automated technologies, and datacenters. One proof point of the enormous resiliency value storage can bring is the recent experience of AES’s 10 MW, 30-minute duration storage system in the Dominican Republic, which helped keep the nation’s grid from going down during Hurricane Irma. The graph below aptly demonstrates how energy storage helped to stabilize the grid, addressing frequency disturbances that lasted more than ten hours and delivering 56% more energy throughput than under normal conditions.
At all regulatory levels, there is the challenging issue of how to quantify the value of resiliency. How much is it worth to mitigate or recover from outages, and who should pay for that capability?
Then there’s the issue of black-start, i.e., the ability to bring back the grid from a complete black-out. Batteries have been successfully tested to demonstrate this capability as well. How much value should be assigned to this capability? The New England and Texas grids both have programs to determine this value, but other markets need to address this as well
Speakes-Backman commented that a key challenge related to resiliency will be to get the market signals right. If DOE Secretary Perry wants to compensate reliability with a payment to generation resources that have 90 days of fuel on hand, she asked, then how much value should be accorded to storage?
The FERC NOPR and DOE NOPR related to reliability and resilience will be interesting. At federal and state level – nowhere is there a way to comprehensively quantify the value of resilience.
Better models and up-to-date pricing
Some of the recommendations of the report seem obvious, such as ensuring that up-to-date models and costs are utilized. However, Speakes-Backman indicated that this is a bigger problem than one would think – particularly in a rapid falling-cost environment. In fact, she commented that in reviewing a financial model just recently she saw an estimate of $1,000/kWh. That cost is outdated, because it was “from a couple years ago.” That’s how fast things are changing.
ESA’s CEO indicates that recent installed costs have fallen quite considerably, and estimated that “Right now the lower end of the range is around $400/kWh… By 2021 or that low-end comes down as far as $200-250/kWh.”
Speakes-Backman observed that this cost decline roughly parallels that of solar energy in recent history, and that this analog holds true with respect to jobs as well. Just as the solar industry became more efficient so that the same project now requires less then one-sixth the labor required in 2008, a similar trend will occur with storage. The ESA white paper estimates that the same job will require approximately one-eight as many workers within just five years. That’s what happens when industries mature.
Coupling storage with renewables and traditional generation
Speakes-Backman also emphasized the attractiveness of storage as a key enabler of increased renewables on the system. Storage assets can help provide capacity values. And they can mitigate the issue of curtailment and negative market pricing, since “you can store the energy and use it back on the grid, as opposed to prices going negative.”
Storage can also effectively be coupled with traditional base-load generation to help meet constantly fluctuating electricity demand, reducing the amount of cycling required of traditional facilities. This can occur either close to the generation facility or – better yet – at the distribution level closer to where the load and congestion actually occur.
Taking the long view
Speakes-Backman observed that getting to 35 GW of storage by 2025 will require some heavy lifting and commented,
Our 35 by 25 vision is aspirational. It’s a strong stake in the ground. But if we continue to work on regulatory and market and legislative hurdles, I think we can get there, because we are trying to get to a more efficient grid.
A more efficient grid means less waste, faster reaction to potential negative prices, more room for renewables, and higher capacity utilizations of the grid infrastructure. Whether the U.S. electric grid reaches 35 GW by 2025 or some other number, we should expect to see enormous amounts of storage installed in the visible future. Storage is a critical tool to help address many problems while realizing the promise of a smarter, more resilient, and more efficient power grid, which is itself the critical central nervous system of our society.
Energy storage holds out the promise of releasing us from the yoke of the last century’s need to constantly balance supply and demand in real-time and having to super-size our grid to make that happen. It allows us to evolve in our planning from a sledgehammer to a scalpel approach. Speakes-Backman pointed out that for the first time in the history of the electric grid, “You are essentially decoupling the element of time from the balance of supply and demand.”
And that simple statement has enormous implications, if we can truly understand the value of energy storage and act accordingly.
Peter Kelly-Detwiler is a principal at NorthBridge Energy Partners, a consulting firm providing expertise and market intelligence to companies navigating today’s complex energy landscape.