Grid-scale energy-storage advocates prepare for a ‘flood’ of business

The days of May 27-29, 2015 may not have been the best time to use the word “flood” in Dallas as an analogy for business opportunities. Amidst daily rainstorms, roaring creeks, flood-ravaged neighborhoods, and nightly lightning shows seen from upper-floor hotel windows rivaling a Pink Floyd concert, the storage industry gathered at the Energy Storage Assn’s (ESA) 25th Conference and Expo to assess the state of the market, technologies, and policies.

Those who build, own, and operate gas-turbine and combined-cycle assets need not worry that grid-scale storage is going to “eat their lunch” anytime soon. But, clearly, it is time to pay close attention; the tipping point, courtesy of government policy, may be near.

Indeed, the mismatch between storage-system supply and storage-system demand, at least for the technology (Figure) that currently prevails in the market, was one takeaway. Many have read about Tesla’s plans for storage and the company’s 35,000-MWh lithium-ion (Li-ion) “giga-factory” in Nevada (nicely subsidized by $1.5-billion in state taxpayer funds, with the parent company receiving billions more in federal and other subsidies).

Li-ion battery storage facility is installed in Portland General Electric Co’s 5-MW Salem Smart Power Center. The technology currently prevails for new grid-scale storage opportunities

Li-ion battery storage facility is installed in Portland General Electric Co’s 5-MW Salem Smart Power Center. The technology currently prevails for new grid-scale storage opportunities

Another company, Alevo, reported at the meeting that it has built a factory in North Carolina with a maximum annual supply potential of 16,000 “GridBanks,” 2 MW/1MWh Li-ion storage systems. That’s 16,000 MWh.

Other storage companies, like SAFT America Inc, already have built large factories in the US and others plan to. This is in addition to current global supply in Asia and Europe.

On the demand side, Oncor Electric Delivery Co LLC, a Texas “wires” company and the state’s largest regulated utility, has offered up a plan to install 5000 MW of storage systems dotting ERCOT. The company has recently built 1000 miles of transmission lines under the state’s Competitive Renewable Energy Zone (CREZ) program mandated by the government. The irony of a transmission system “mandate” for an “open market” in electricity should not go unnoticed. Clearly, Oncor is seeking a similar policy framework for its storage plan.

But Oncor’s VP of transmission operations, Wes Speed, stated in the keynote session that the company “is waiting on the ‘flood’ of storage opportunities.” Later, the company’s Michael Quinn, VP and chief technology officer, acknowledged that Oncor’s ambitious storage program requires a “legislative push” to monetize the reliability benefits of storage on the “regulated” side and the ancillary services benefits on the “market” side. The Texas Legislature meets every other year.

In a pre-conference workshop, Michael Berlinski of Customized Energy Solutions noted that ERCOT is redesigning its ancillary services market, with implementation expected in the 2018-2019 timeframe; the total megawatt need is expected to be modest. That suggests that Oncor is betting far heavier on the regulated side than the market side of ERCOT.

ERCOT is not subject to FERC Order 755, which essentially broke open the frequency regulation market as a singular “ancillary service.” Berlinski went on to quantify the size of the frequency regulation market by ISO around the country. The numbers add up to around 2000 MW. Frequency regulation, with PJM in the lead, is currently driving the grid-scale storage market, he added.

How, you might ask, does the storage industry square a 2000-MW present opportunity (plus isolated other opportunities around the country) with giga-size manufacturing facilities? To even attempt it, you have to understand three fundamental tenets of the electricity industry. The first is historical—the industry has always driven by policy and regulation. The second is modern: The industry is being driven more by the value of “clean air” and less by the cost of megawatts. This means growing intermittent renewables and declining base-load fossil and nuclear generation Somehow, nuclear can’t seem to get credit for being a carbon-free source of megawatts.

The third is less apparent, but think of it this way: The traders have won. Electricity markets continue to evolve towards real-time or competitive market pricing for a variety of services (capacity, energy, frequency regulation, and other ancillaries). From a trader’s perspective, storage provides inventory and, finally, a halt to the grid as the largest and most complex “just in time” inventory system in the world. Electricity markets will function more like the market for financial instruments, where intermediaries buy, hold, and sell, as well as “warehouse” inventory to manipulate the market.

Already, where wind penetration is highest, electricity markets have become like “casinos.” Grid functions like frequency regulation require “a trader’s mentality, a different skill set,” said a representative from American Electric Power, an early leader in energy storage technology demonstration.

Coincidentally, perhaps as a reflection of the growing political influence of storage advocates in Washington, two US Senators introduced the Energy Storage and Deployment Act of 2015 to the Senate Energy Committee May 27. They seek to create by 2021 a national storage mandate of up to 1% of the peak demand of retail utilities. This would amount to about 10,000 MW. The bill mirrors California’s AB2514, the storage “mandate,” which requires (with important caveats) the state’s three investor-owned utilities to install 1300+ MW of storage by 2024.

The Senate bill has no chance of passage as standalone legislation, but that’s not the point. Once this provision gets tucked into a broader energy bill, the storage business is off to the races, much like renewable energy when the production tax credit (PTC) was instituted.

Other states are seeking to incentivize storage, among them New York and Massachusetts. Judith Judson, when with Beacon Power (a commercial flywheel storage company), was arguably the private sector representative most responsible for crafting and moving Order 755 through FERC. She’s now the incoming commissioner of the Massachusetts Dept of Energy Resources. Judson said at the meeting that the state “is taking steps to incent storage,” such as through grid modernization studies required of utilities and $10-million from the Alternative Compliance Payment program to do storage projects.

Although one representative from Con Edison stated that “storage is “mostly past the technology barriers,” there are other high hurdles. Much of the ESA meeting was devoted to codes and standards for safety (for example, fire protection and storage energy management in commercial buildings in areas like NYC), grid protection, and avoidance of catastrophic events—something which must be confronted with all leading storage technologies.

Codes and standards are an area of current DOE-led industry activity. EPRI is heading up a relatively new Storage Integration Council to ensure that the principal subsystems—storage medium, power conditioning system (PCS), grid interconnection, and the multiple control, automation, communication, and protection systems—are properly engineered as a complete utility-grade system.

Skepticism of investors was reflected in a keynote speech delivered by Jigar Shah, now with Generate Capital, well known at his former employer, SunEdison, for his work in solar PV. Shah provoked the audience with questions, such as: What does it mean to be in the storage business anyway? Who gives the system warranty? Who is in charge of figuring out servicing over the long haul? Does storage carry the PV project or does storage sink the PV project?

He then offered needling observations. Example: The frequency market in PJM is already saturated, and no one (storage company) is going to be good at all the grid functions. He complained that there is still not a monetization path for the solar PV/storage option.

Although this writer/analyst did not hear every presentation, it seemed clear from the agenda that operating experience with existing projects is a key gap, and that there is a dearth of new project announcements.

In sum, it appears there’s a disturbing supply and demand gap with grid-scale storage based on the currently prevailing technology, Li-ion, but all it would take to change that is a few strokes of policy pens.

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