Battery Storage Aims to Carve out Space on the Power Grid

By Eric Wolff

Politico Pro Energy

03/29/2018 05:03 AM EDT

A few federal policy victories and surprise electricity auction wins in the West for energy storage are poised to catapult battery technology into the mainstream, experts say, opening new ways for renewable power compete with fossil fuels.

Though battery deployment across the power grid remains minuscule, steep declines in the price of the equipment, demand from solar and wind developers and the favorable regulatory decisions are enticing states to carve out space for electricity storage in their energy markets, a trend that could see it adopted far faster than expected just a few years ago.

Large-scale batteries on the grid offer utility-scale renewable project developers the ability to sell their electricity during the hours when it can fetch the highest prices, not just during windy or sunny periods. That can change the economics for many projects, since grid operators gain flexibility for dispatching renewable energy, putting it more on par with natural gas, coal, nuclear and hydro power sources.

And FERC's order in February requiring regional transmission operators to treat battery storage the same way they allow other power sources to bid into markets for ancillary or other grid services will create new avenues for batteries to make money and broaden the role they place in the power markets.

"The reason storage is such a unique technology is it can tap into multiple value streams all at once," said Ravi Manghani, director of energy storage for GTM Research. "The same storage capacity provide ancillary and capacity at the same instant."

FERC's rule, Order 841, seemed radical when it was first proposed in 2016 and barriers to batteries were higher. By the time it was officially approved last month, some grid operators had already brought them into the markets, especially in California. But the rule will now force even slow-moving RTOs and ISOs to allow batteries to exploit the different aspects of their markets.

"Storage is able to play technically, but it [has not been] allowed to play because of the rules that were designed well before storage was contemplated," said Kelly Speakes-Backman, CEO of the Energy Storage Association. "And that's what 841 goes to, the opportunity to open the market to multiple uses of storage where it's already allowed in those non-market areas."

About 1,080 megawatt-hours of storage was deployed in the U.S. from 2013 through 2017, according to a recent report from GTM, and another 1,000 MWh is likely to come online in 2018 alone. That market could expand 15-fold by 2023.

Electric storage developers have been trying to break into power markets for years as the technology became more competitive. PJM Interconnection let energy storage into its previously expensive ancillary power services market and watched prices tumble, but most markets have been slow to change rules. The cost of installing batteries for energy storage has fallen sharply since 2014: Battery prices themselves dropped by half and the other installation costs fell by 60 percent over that time, according to GTM Research.

One reason the price in batteries has been dropping was because many manufacturers had built up capacity to serve the market for electric vehicles, which has been slow to materialize.

"In 2015 we saw an inflection point," said Haresh Kamath, senior program manager for distributed energy resources for the Electric Power Research Institute. "Many companies that had the capacity were not operating at capacity. But the demand for EVs wasn't what was expected, so a lot of guys had a lot of spare capacity and could produce batteries for other markets."

In addition to the FERC move, renewable advocates have also hailed a small but significant decision by the IRS that enables homeowners and businesses with solar rooftop systems to add battery capacity and qualify for the 30 percent Investment Tax Credit. That will help lower the high cost of the small storage systems and could help expand the technology outside California and Hawaii, the two states that currently offer incentives for those behind-the-meter systems.

While FERC's decision was limited to the places that operate power markets, other states, notably in the West, already allow battery systems to take advantage of different services that offer viable revenue streams. That could signal hard times ahead for natural gas in some markets, as batteries get cheaper and power markets remove regulatory hurdles.

The biggest shockwave has come in Arizona and Colorado, which both saw solar-plus-storage projects beat out natural gas power plants in auctions to supply new power to the grid.

Colorado's January auction reverberated around the country after several developers offered projects the consisting of renewables plus storage at prices below the cost of new natural gas projects in the state.

Then the same thing happened in Arizona, when a solar-plus-storage plant beat out a gas turbine project to supply power during peak periods. The results of the tender were such a success that the state regulator, the Arizona Corporation Commission, instituted a nine-month moratorium on new large natural gas plants.

The projects in those states have some advantages over the markets that FERC has moved to open up to batteries. Because of the states' rules, project developers get certainty in their revenues because those auctions are for long power purchase agreements, rather than requiring the projects compete in the market every day.

They also allow batteries to supply multiple services to the grid, including smoothing out variable power production from the renewable power, storing power for when it's needed at peak times, providing black-start power when fossil plants shut down, and ensuring adequate capacity.

The two state auctions could foreshadow how power markets might accommodate storage in the future. And PJM CEO Andy Ott said the RTO has gotten a look at how the storage dynamic may play out based on its experience operating the demand response mechanisms — which is dampening plans for new power plants that are devoted to meeting the peak hour demand. And declining prices for storage could make it cost competitive with peakers in New England and California within five years, according to GTM Research.

California has a massive 1,350-megawatt target for energy storage target by 2021, and a request to explore an additional 500 MW that provides plenty of incentive for developers in the state. The state could replace 7,000 MW of retiring peaking natural gas power plants by 2029 with solar plus storage, according a report released this week by the National Renewable Energy Laboratory.

New York's Gov. Andrew Cuomo announced in January a 1,500 MW storage target by 2025. And Massachusetts, which suffers from a bottleneck in natural gas supplies, has a 200-megawatt incentive that could be tempting for renewables-plus-storage projects. Massachusetts Gov. Charlie Baker is also pushing a bill to require use of renewable energy for the highest peak demand periods of the year, a task well-suited for energy storage.

"New England is interesting. Batteries do make a lot of sense up there, energy storage in general," said Karl Dahlstrom, a partner at Halyard Energy Ventures, a power developer. "I wouldn't invest in gas peakers in New England due to potential gas constraints."

But while storage may make a big play in the near term in New England, California and other markets, it will take longer to penetrate other parts of the country. Places with access to cheap natural gas, like PJM and Texas, will still be good places to run natural gas plants, analysts say. Texas' unique energy-only power market, which is not subject to FERC regulation, exposes some of the weaknesses of some energy storage technologies, like the ability to provide sustained baseload power like a gas plant.

"With gas prices as low as they are, it will be challenging for storage to compete," Dahlstrom, who is developing gas peakers in Texas, said.

Still, gas power plant developers are looking at ways they can integrate battery storage with their generation. GE, which does a brisk business in gas turbines, wind turbines and energy storage, recently unveiled a gas peaker and storage combination. The battery operates when the gas turbine is off, and also supplies power while the turbine is cycling up to provide power to the grid.

"The battery is the first line of defense," said Kevin Walsh, managing director of U.S. Renewable Energy at GE Energy Financial Services. But the fossil fuel that has become the biggest power source isn't going away anytime soon, he added.

"Gas still has a big future," Walsh said.

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