Tesla/Battery Day
Tesla's Battery Day
Tesla's Battery Day
Tesla's Battery Day
Tesla's Battery Day
Tesla's Battery Day

Battery Energy Storage Fever … or Fizzle?

Nov. 10, 2020
Despite this rosy forecast for storage, creating projects with competitive economics has been an elusive endeavor.

Talk to most experts in the energy storage sector, and they will tell you it’s not a question of if battery storage will play a significant role in the electric power sector, but when. At the right price-point, battery storage can dramatically improve electric supply options, transmission and even distribution. Firming renewables, providing peaking capacity, congestion relief, voltage regulation, loss reduction, infrastructure deferral and resiliency are just a few of the many utility-scale applications of stored energy. However, the storage genie is not completely free to serve all our desires due in part to cost.  

There may be some other issues clouding energy storage prospects as well.  For example, it was reported that some battery geeks left disappointed from Tesla’s Battery Day held Sept. 22. This event is an exposition of sorts held in conjunction with the company’s annual meeting. The disappointment is a mystery because the message from Tesla included a plan to improve battery cell design, chemistry and manufacturing, which will lead to a 56% reduction in the cost per kwh of batteries and a nearly equivalent increase in range. Tesla also announced manufacturing improvements, lower production costs, more available raw materials and more internal (U.S. located) production, all in stages of implementation. Some Tesla watchers may have been disappointed because the company did not reveal a long anticipated 1,000,000-mile, life-time car battery; or possibly the issue was the rate of improvements and price reductions.

What is the relevance of Tesla’s lithium ion (LI) battery journey for its EVs to utility energy storage? LI batteries are the most widely used type of energy storage battery and have been a leading contributor to the energy storage price declines experienced in the last 10 to 15 years. While price declines have been starting to flatten out, new advances like those predicted by Tesla should help reaccelerate cost reductions and facilitate further utility scale battery usage. Chris Page, director of Development and Strategy with Fluence predicts that 1 to 2 GW of batteries will be deployed for bulk energy storage in 2020 and that figure may rise to 3 to 6 GW per year in coming years.

Despite this rosy forecast for storage, creating projects with competitive economics has been an elusive endeavor. Even in regions with ancillary services markets, making storage projects profitable has not been a slam-dunk and this is after the FERC passed Order 841, requiring ISOs to create rules that allow storage to compete in wholesale markets. Admittedly, that process is taking some time. So, states are taking additional steps such as requiring utilities to incorporate storage into their integrated resource plans. That move is also positive long-term, but it is unlikely to jump-start a broad-based, competitive storage market.  

Regulators in Maryland have taken a different tack to both explore the role for utilities in the storage market and, potentially, create viable business models for industry-utility storage ventures. The Maryland Public Service Commission’s (PSC) “Proof of Regulatory Concept” storage pilot program approved last year was designed with the goal of quantifying the benefits of storage providing multiple services to the electric system. Under the program, each MD IOU is required to submit two storage project proposals to the commission for approval. The projects must include different business models such as utility ownership and operation, utility ownership and third-party operation, third party ownership, etc. The battery energy storage system functions are expected to include grid reliability, distribution infrastructure avoidance, and PJM wholesale services. Project selection is expected to be completed by April 2021 with commercial operation in 2022. Programs like Maryland’s should help develop the battery storage market but will take several years.

Siemens believes the key to documenting affordability and increasing battery energy storage usage on the grid lies in the tools, methods of analysis and valuation approaches employed by utility planners, developers, and investors. In a whitepaper titled “Battery Energy Storage - Assessment and Valuation of the New Green Multi-Tool,” the company outlines how probabilistic analysis and value stacking should be employed to design storage projects and quantify their value over time. The paper emphasizes the symbiotic relationship between intermittent renewables and battery storage, but the valuation concepts are much broader. 

Requiring consideration of battery storage in the Integrated resource planning (IRP) process, conducting utility demonstration projects and applying more sophisticated revenue and optionality valuation tools in the storage resource decision process should improve, and potentially accelerate, the mid/long term prospects for battery storage.  Further, the issue that deflated the Tesla groupies, the rate of price decline for newer and better technology, will not keep the gene in the bottle much longer. Progress on that front is underway as well; it is just a smidge slower than some may prefer.

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