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By Richard McMahon and Lola Infante, Edison Electric Institute
Energy storage has been called a “game changer,” a “panacea,” and a “disruptor.” It has garnered widespread interest from electric companies, residential customers, businesses, manufacturers, regulators, and policymakers. Its potential for growth has been described as “astronomical” and “colossal,” and its benefits sometimes touted as incalculable. Indeed, energy storage has the potential to be a true game changer.
It is a very promising technology that, along with other elements of a diverse resource mix, will benefit consumers by allowing greater penetration of renewable energy; creating more dynamic generation, transmission, and distribution systems; and enabling transportation electrification, microgrids, smart grids, smarter cities and communities, and all the visions of the future energy grid.
Energy storage technologies include batteries, flywheels, compressed air, thermal storage, and pumped hydropower. These technologies all provide a way to save previously generated energy and to use it at a later time, which is why energy storage is such a useful and versatile resource for electric companies and their customers.
Although energy storage has been around for decades in one form or another, only recently has it become a viable technology able to provide multiple benefits to customers as well as the energy grid, and energy storage is well on its way to becoming an integral part of our electricity system. While costs are still relatively high for many energy storage devices, costs are rapidly declining for some storage technologies, facilitating their deployment.
Yet, as penetration of energy storage increases, the limitations of existing rules and regulations are becoming increasingly apparent, prompting a review of state and federal policies aimed at reducing regulatory barriers and allowing these technologies to participate in the marketplace on a comparable basis with other resources.
Electric companies are the largest owners and operators of energy storage. They use energy storage facilities through the assets that they own directly and also through the ones that they contract via long term contracts, or power purchase agreements. Many large-scale storage projects – including pumped hydropower storage and thermal storage projects -would not be economical without a guarantee of use by electric companies in the form of a long term contract. According to the U.S. Department of Energy, electric companies represent more than 98 percent of energy storage projects in the United States, including pumped hydropower, and are a significant contributor to the sector’s rapid growth. Looking only at newer energy storage technologies, and excluding large-scale pumped hydropower projects, electric companies remain the largest users, representing 75 percent of U.S. energy storage capacity.
Of the 22 electric company-owned storage projects commissioned in 2015 and 2016, all but one were battery storage systems. Lithium-ion systems represented 98 percent of the battery projects, making electric companies a significant contributor to the adoption of the fastest growing energy storage technology in the United States
Energy storage can bring benefits to electric companies, businesses, and residential customers. For electric companies, the primary benefits of energy storage are added flexibility, reliability, and resiliency. More specifically, energy storage can be used in various ways to optimize and support the energy grid; increase reliability, resiliency and operational flexibility; improve the integration of variable resources such as solar and wind power; and enhance the customer experience.
Storage allows energy grid operators to better manage constant fluctuations in supply and demand. As electric companies integrate more renewable energy sources like solar and wind, energy storage can provide more flexibility to the energy grid by helping to manage these variable resources.
Energy storage can help with renewables integration in two primary ways. First, storage can help to address the variability of renewable energy production systems like wind and solar. While weather forecasting is improving, there is still uncertainty about when the wind will blow and the sun will shine. Energy storage provides an option for storing wind or solar energy that may be in excess of immediate demand and saving it until demand is high enough to draw it out of storage. In this way, certain types of storage technologies can allow a variable renewable energy resource, like wind or solar, to perform like one that is more steady and measurably reliable.
Second, the rapid response time of some types of energy storage makes them effective tools for managing changes in energy output that can occur with some renewables, such as when wind speeds fluctuate or clouds pass over solar panels. In addition to the uncontrollable weather changes, there are inherent operational challenges with variable resources. For example, when the sun rises, output from solar resources escalates quickly (and vice versa in the evening), resulting in either a steep increase or decrease in output that can make it challenging to match available resources with load requirements in real-time operations. The ability of certain types of energy storage to meet, shift, or smooth peaks in demand for energy becomes an important tool for grid operators. As it takes less than one second to dispatch many forms of energy storage, the speed of operation is a key consideration when weighing storage as an option for providing both flexibility and reliability.
The reliability of the energy grid is enhanced by energy storage in a variety of ways. Storage can provide a host of grid-support or ancillary services – including managing peak load, essential reliability services, and reserves – that are critical to managing the energy grid and maintaining service without interruption.
One use of energy storage is as a resource to help manage peak load. Traditionally, peak load is met with resources that are able to start quickly but run for limited times (i.e., peaker plants) -most often simple-cycle natural gas combustion turbine plants. Energy storage technologies can provide an alternative. Storage systems can hold several hours of energy that is generated during off-peak hours at lower cost and then deployed during more costly high-demand periods.
Energy storage can provide essential reliability services – frequency regulation and voltage support – two important aspects of system reliability. Frequency regulation is the moment-to-moment reaction to frequency deviations from the standard 60 Hz. Some types of energy storage, with near-instantaneous response times, play a key role in correcting for unintended fluctuations in output from generators. Voltage support is necessary to maintain proper operation of equipment, prevent damage to generators from overheating, and reduce transmission losses. Energy storage can serve as voltage support by providing or absorbing reactive power and by helping to maintain a specific voltage level on the grid.
Reserve capacity is another important aspect of grid reliability in which energy storage can play a role. Electric companies are required to keep certain amounts of available generation capacity that can be accessed quickly in cases of power disruption or unexpected swings in demand. Similar to the way it can be dispatched quickly for peak load management, energy storage can be used to help meet or reduce the need for these reserve requirements.
Electric companies constantly plan and prepare for restoring service safely and efficiently in the event of disruptions. In order to re-energize the energy grid after a power outage, electric companies use black-start resources to restore service quickly. Energy storage has some particular characteristics that fit the requirements of black-start resources-specifically, the ability to operate on standby and be disconnected from the energy grid until needed. Storage also provides the short-term benefit of fast response, a crucial attribute for quickly restoring power in a black-start situation, although the duration of discharge may limit the effectiveness of some storage devices for this application.
Energy storage also can serve as a backup power source to individual loads or even entire substations in the event of a transmission or distribution outage. This may be an effective alternative to a transmission or distribution upgrade or serve as an interim solution while a long-term plan is implemented. Similarly, storage resources play a vital role in microgrids. These standalone energy systems can operate in parallel with or independently of the energy grid. The value of a microgrid is its ability to maintain service when the broader energy grid experiences interruptions. Electric companies, the U.S. military, industries, and cities and communities around the country are using or considering microgrids as a way to increase their resiliency and manage their own energy needs. In all of these systems, energy storage is a vital component.
In addition to the many benefits that energy storage can provide to the energy grid, energy storage technologies also can provide services to customers directly. As mentioned above, resiliency is an important service valued by many types of customers. Other customer uses include the opportunity to maximize the benefits of private solar production by reducing the demand for grid-provided electricity, for example.
Despite its growing popularity, energy storage continues to face challenges that are preventing these technology options from achieving their market potential and maximizing the benefits that they can provide. Today, some of the main challenges for energy storage include the relatively high cost for some technologies, as well as regulatory requirements and ownership restrictions that can make it difficult for these technologies to participate in the markets on a comparable basis with other resources.
Allowing energy storage to capture multiple value streams increases its cost-effectiveness
High costs are still a challenge to wider deployment of energy storage solutions. Although the costs of some technologies are declining, energy storage devices remain expensive relative to other technologies and services. While some storage technology costs are decreasing rapidly, it is critical to remove other barriers for energy storage adoption, so that the full benefits of energy storage can be realized as these resources become more and more prominent.
The early days of energy storage development are revealing a path toward market growth and industry maturity that is sustainable and cost-effective and that relies on policy and regulatory changes rather than mandates and incentives. In this context, lowering barriers for market participation and ensuring that regulations recognize the operational flexibility of energy storage will be key to ensuring that energy storage technologies and applications develop a viable business case.
For example, although energy storage devices often are able to provide multiple energy grid services and to participate in different markets, they sometimes cannot capture all value streams due to existing market rules, requirements or restrictions. The ability of energy storage to provide the services that it is technically able to provide and to capture multiple value streams will be critically important to make these resources more cost-effective.
Rules need to recognize the flexibility of energy storage
Because existing regulations were developed at a time when pumped hydropower was essentially the only form of energy storage, they do not account for the particular characteristics and intrinsic flexibility of some newer storage technologies, such as batteries. Energy storage is a unique resource in that it requires a two-way flow as it both charges and discharges electricity. It is also a very flexible resource that can provide different types of energy grid services. It can support generation, transmission, and/or distribution operations as well as customer-sited applications.
Classification rules at the state and federal levels may need to be updated to accommodate resources like storage that are able to provide multiple services. Updating these rules will help to ensure that how a resource is classified (e.g. as generation, transmission, distribution, or load) does not hamper or preclude its ability to provide other services on a comparable basis with other resources. Market rules should be clarified or modified so that all resources that are capable of providing a product be able to participate in that market. Market products should be defined in a technology-neutral way so that market products and rules are geared toward the service needed rather than toward specific resource types. This will help ensure that product requirements and eligibility are tied to the underlying operational needs of the system and not the characteristics of specific types of generation. The Federal Energy Regulatory Commission and Regional Transmission Organizations already are working toward modifying existing rules so that classification rules accommodate multiple uses and allow energy storage devices to maximize their applications and, thus, enhance their energy grid and societal benefits.
Ownership restrictions limit growth
In certain areas of the country that have restructured their electricity markets, electric companies may not be allowed to own generation assets. Access restrictions derived from existing asset classification rules (when, for example, storage is classified as a generation asset), mean that electric companies in some parts of the country may not be allowed to invest in energy storage devices. Yet electric companies are responsible for ensuring the reliability of the energy grid. Their inability to own energy storage in some cases takes away an option to enhance the reliability and resiliency of the nation’s energy grid to the benefit of all customers.
For example, electric companies – with their extensive knowledge of the electric system – are in the best position to be able to identify the most valuable applications and the optimal locations to site resources on the energy grid. The location matters when it comes to the deployment of distribution system assets, including energy storage. The same resource can help or hurt the reliability and resiliency of the energy grid depending upon where it is located – by alleviating or enhancing congestion, for example. This is not only important for reliability, but it also has a direct impact on costs as new technologies have the potential to defer or to reduce the need for incremental investments or, on the contrary, require additional investments in new capacity or distribution upgrades.
Electric companies are uniquely positioned to continue to promote a variety of advanced technologies, including storage, due to their broad geographic reach, direct interaction with customers, experience with system optimization, experiences in deploying energy efficiency and demand response, and expertise in integrating distributed energy resources. As operators of these systems, electric companies employ advanced technologies to reduce outages by anticipating challenges and taking steps to resolve them before they create reliability problems. Energy storage will be an important tool to achieve that common goal.
Energy storage will continue to gather support as a key resource able to provide much-needed flexibility, as well as to enhance the reliability and resiliency of the energy grid. Yet, solving the regulatory challenges mentioned above will be important to ensure that the energy storage market thrives and that storage systems not only are able to fully provide all of the services that they are technically able to provide, but also that they are integrated in a way that maximizes the benefits that they can offer. Only by maximizing its grid benefits, will energy storage be able to maximize revenue streams, while also enhancing the reliability and resiliency of the electric system for the benefit of all customers.
Allowing all stakeholders, including electric companies under all regulatory models, to own storage devices will ensure that the market achieves its full potential. Equally important, it is in the interest of all energy stakeholders to ensure that electric companies have visibility and control of the systems on the energy grid. Similarly, electric companies should be involved in resource deployments across the entire electric value chain. Because energy storage can help operations in all segments of electricity production and delivery, it is a natural fit for electric company ownership and control.
Ultimately, electric companies are the ones responsible for the reliability of the energy grid and are in the unique position to plan for and promote new advanced technologies, including energy storage.
Authors:Richard McMahon is vice president of Energy Supply and Finance for the Edison Electric Institute. Lola Infante is senior director of Generation Fuels and Market Analysis for the Edison Electric Institute.
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