Energy Storage Could Flip the Script on How Electricity Is Managed
By Daniel Shea
Electricity is a fleeting commodity. It must be consumed the instant it’s generated. Supply must always meet demand, fluctuating up or down with the flick of a switch.
Since its inception, electricity’s immediacy—driven by the inability to easily store it for later use—has set it apart.
However, all of that is changing as new technologies shift the energy landscape. It’s now possible to store electricity: An electron can be generated and purchased at a certain price and a certain time, only to be sold at a different price and consumed at a different time.
In essence, it’s the ability to hold onto something until it’s most useful.
It’s called energy storage. And it’s coming off several big years.
A Bit of Policy, a Bit of Luck
A combination of supportive public policy, industry readiness and a bit of luck has caused a surge of interest in energy storage technology.
In 2016, a massive leak at the Aliso Canyon natural gas storage facility in Los Angeles threatened the reliability of the grid, leading the governor to declare a state of emergency and California regulators to rapidly approve around 100 megawatts of energy storage installations.
That’s a lot of energy—as much as one-tenth of an average nuclear reactor’s generating capacity or enough to power around 75,000 homes. The energy storage projects largely surpassed expectations, bringing attention to the technology’s potential.
Lawmakers, too, became interested in the possibilities storage technology offers. “The development of energy storage technology and its long-term deployment [is a] critical component to energy cost reduction, system reliability, carbon footprint reduction and energy diversification,” Massachusetts House Minority Leader Bradley Jones Jr. (R) says.
New energy-storage technologies are a “game changer, offering greater resiliency, efficiency and lower rates in the near future.”
—Representative Laura Sibilia, Vermont
In 2017, legislators in nine states enacted measures supporting the development of greater energy storage capacity, with several states enacting storage targets.
That momentum has carried into this year. Currently, California, Massachusetts and Oregon have energy storage targets on the books, while Connecticut, Nevada, New Jersey and New York have directed state regulators to establish them.
New York Deputy Senate Majority Whip Joseph Griffo (R) says it’s important that energy storage receives policy supports similar to those for renewable energy resources to help them “evolve and become more affordable.”
“The same support was afforded to solar and wind technologies in order to advance these renewable energy technologies and ultimately help reduce their overall costs,” Griffo says. “It is important to embrace a diversity of clean energy fuel sources and technologies.”
Other states have advanced different policies. Hawaii and Maryland enacted tax credits for energy storage, while at least three other states—Maine, Minnesota and New Mexico—have considered tax credits or rebates.
Colorado, Louisiana and Virginia have passed measures that support storage, either by commissioning studies, funding demonstration projects, requiring storage to be considered in utility planning, or enshrining the right of utility customers to connect batteries to the grid.
Vermont Representative Laura Sibilia (I) believes energy storage is a “game changer, offering greater resiliency, efficiency and lower rates in the near future.”
Apparently, many legislators agree. Since 2017, lawmakers have introduced more than 70 measures in at least 18 states in support of energy storage development.
This year may prove to be the tipping point. In January, the Federal Energy Regulatory Commission directed grid operators to develop rules to enable energy storage systems to participate more fully in electricity markets, allowing owners to be compensated for their full range of services.
This should allow energy storage systems to operate more profitably. And where there’s money to be made, investment follows.
Building Better Batteries
Energy storage is a kind of catchall term that describes a variety of technologies that all work very differently, but all take electricity and store it for later use.
The ability to store electricity has been around since the 1920s, when hydroelectric facilities began controlling the release of water to generate electricity. Although pumped hydro is very reliable and facilities can last up to 60 years, it requires significant space and infrastructure.
New technologies—often called advanced energy storage—are easier to site and build and offer a variety of benefits, such as injecting the grid with extra capacity during peak demand.
“The primary benefits of bringing energy storage onto the electric grid are to relieve stress on the system and to provide storage for energy produced by intermittent renewable energy sources,” Griffo says. This makes the grid more flexible and reactive to system requirements.
In the past three years, advanced energy storage has more than tripled its utility-scale capacity to around 700 megawatts, according to the U.S. Energy Information Administration.
Currently, lithium-ion batteries rule the storage roost. These batteries—similar to the batteries in most smartphones—have been the clear market leader over the past three years and accounted for more than 90 percent of new storage capacity in 2017.
Lithium-ion batteries have benefited from their ubiquity. Used in everything from handheld electronics to electric vehicles, they fuel an expansive tech industry that’s helped reduce their cost significantly.
A downside is that lithium-ion batteries typically need to be recharged every several hours. And like most smartphones, the constant charge-discharge cycling causes the batteries to degrade over time.
Other storage technologies, however, are arguably better suited for storing energy for use in grid operations—though they’re struggling to become competitive alternatives to lithium-ion.
A flow battery is a rechargeable battery that contains two chemical components dissolved in an electrolyte liquid that not only creates electricity but also recharges within the same system. Flow batteries can run for long periods, don’t degrade with recharging and can be instantly recharged by replacing the electrolyte liquid.
Flywheel batteries store kinetic energy created by the rotation of an object and are well suited to provide the grid with standby capacity and frequency regulation.
Other chemical-based batteries and compressed-air storage technologies have also tried to carve out places on the grid.
Round Peg in a Square Market
The potential benefits of storing energy are easy to list, but harder to capitalize on.
Stored energy can fill in at times of peak demand and complement the variable output from renewables to provide a steady energy supply. It can also recharge on excess renewable energy and release it back into the grid when the sun isn’t out or the wind isn’t blowing. In fact, the manner in which energy storage allows utilities to get more renewable energy on the grid is a prime selling point.
“Storage is the key to allowing more renewables onto the grid to achieve our state’s goal of 100 percent renewable energy by 2045,” Hawaii House Majority Whip Christopher Lee (D) says. “It is probably the single largest leap in technology that’s going to enable lower costs for consumers and avoid the need for additional power plants and other grid upgrades that could otherwise cost consumers hundreds of millions of dollars.”
For Hawaii and other states and territories frequently exposed to natural disasters, the technology has significant energy security benefits. Not only does storage have the potential to build resiliency into the electric grid, but, in Hawaii’s case, it helps generate cheaper domestic energy by reducing the state’s dependence on imported fossil fuels.
“We are as susceptible as Puerto Rico to the kinds of hurricanes and other weather events that could disrupt our electric grid and shut down power.”
—Representative Christopher Lee, Hawaii
Stored energy can also restart power in the event of widespread blackouts. And it can supply emergency power for critical facilities in the aftermath of a disaster, or provide services that support the smooth operation of the grid.
“We are as susceptible as Puerto Rico to the kinds of hurricanes and other weather events that could disrupt our electric grid and shut down power,” Lee says. “As a result, we look at energy storage as a solution to enable not only electrical backup but also to leverage existing renewable resources that are also resilient themselves to a greater degree on the electric grid.”
Energy storage projects will enable cost savings of about $5 billion through avoided capital investments, Lee says.
“Balancing an electric grid like ours, which is the size of a large city’s but not connected to any other electric grids, means installing greater amounts of energy storage, which ultimately gives us a balanced grid at a cheaper cost,” Lee says.
Proving Its Promise
But the diversity and flexibility that makes energy storage so attractive has also proven limiting under the current regulatory and market structures.
Energy storage doesn’t fit into any recognizable package. It can both supply energy and consume energy, but due to the current design of energy markets, it hasn’t been able to fully capitalize on its ability to provide several services—a concept called “value stacking.”
One recent report suggests that energy storage could provide up to 13 fundamental grid services, depending on how it’s deployed. Any one system might be able to provide two or three services, and going from one revenue stream to three can make the difference between a risky business and a smart investment.
The industry’s challenge is to prove that storage can perform all those functions and remain cost competitive. Convincing grid operators and regulators that this new technology can deliver as promised is a tall task.
Texas regulators denied a recent push by a distribution grid owner to use storage as an alternative to transmission and distribution system upgrades. Despite the storage option coming in at about one-sixth the cost of the upgrades, regulators rejected the proposal because grid owners are prohibited from participating in the generation and sale of electricity—something a storage project would inevitably allow them to do.
Investigators are now trying to determine how storage should be treated in the state’s restructured electricity market.
This is what FERC’s order is designed to do: force markets to open up to the full range of energy storage capabilities, to force them to value versatility.
Bringing Down Costs
Although some of the recent surge in energy storage development has been a result of public policy, the industry is working to address one of the main deterrents: cost.
Storage systems have dropped in price in recent years, and those reductions may accelerate. Advanced storage costs are expected to drop 8 percent year over year through 2022, according to the market analysis firm GTM Research. By that time, advanced storage should cost about the same as natural gas, the current benchmark for low-cost electricity.
In fact, recent deals may signal that this is already taking place in some areas. Arizona’s biggest utility, for example, recently chose a 65-MW solar farm paired with a 50-MW storage system to supply electricity between 3 and 8 p.m., during peak demand. The bid reportedly beat out natural gas proposals.
Colorado’s largest utility has received record-low bids for both solar-plus-storage and wind-plus-storage, the latter also proving competitive with the cost of natural gas.
Arizona is currently mulling a proposal from the state regulator that would establish a 3,000-MW energy storage target by 2030—part of a “Clean Peak Standard.” This new mandate would require utilities to deliver higher levels of renewable energy during peak demand hours, which would encourage storing solar and wind energy for use when the weather isn’t cooperating. Massachusetts is considering similar legislation.
The industry’s forecast is sunny for the next five to 10 years, at least. Some analysts have predicted that, with market reforms and price reductions, advanced energy storage could reach 50 gigawatts in a decade, due to a combination of market service applications, transmission and distribution system investments, and behind-the-meter customer investment to complement solar installations.
Advanced energy storage is sure to grow and become an integral part of our energy infrastructure. And as that happens, state lawmakers will play a vital role in encouraging and regulating the technology’s development.
Daniel Shea is a policy specialist in NCSL’s Energy Program