In a recent Breaking Energy commentary, Bill Radvak, CEO of America Vanadium, stated “The electricity grid is set for a major transformation … and energy storage is going to play a center stage role.” Radvak predicted that “2015 will be the year will be the year that major purchasing of energy storage begins.” In isolation, it would be easy to discount Radvak’s forecast as the wishful desires of a energy storage executive; however, evidence supporting Radvak’s optimism is growing.
According to Shayle Kann, senior vice president at GTM Research, “Energy storage is vital for the future of the grid, and we believe the market is on the cusp of a dramatic acceleration.” Additionally, at its recent Texas Energy Storage Summit, the Energy Storage Association cited a forecast by market research firm IHS that predicted energy storage would “explode” to 6 GW by 2017 and to more than 40 GW by 2022.
Utility activity seems to support these outlooks. California utilities have embraced and are busily pursuing a California Public Utilities Commission-mandated 1.3-GW energy storage goal for 2020. Perhaps more surprising was Oncor’s November announcement that it plans to seek regulatory approval to invest US$5.2 billion in 5 GW of energy storage.
Whether next year or later, energy storage appears ready for a breakout. The question is whether utilities will be ready.
So, what is driving energy storage interest? Clearly growing renewable energy resources are the main reason. Energy storage has been an obvious answer for wind and solar. This has been true for some time. Before electric cooperatives brought power to rural America, my wife’s grandparents employed a small wind turbine in combination with a lead-acid battery to operate a radio and limited lighting in their west Texas farmhouse. Using the current energy vernacular, my wife’s ancestors were operating a completely 100% renewable microgrid. I am certain they did not realize how advanced they were.
Today, the European grid employs significant amounts of hydro-electric pumped storage to balance increasing quantities of renewable energy. The need for storage will only increase as more renewables are added.
Balancing renewable energy is not the only energy storage application. Energy storage has long been sought after to balance the variable nature of electrical demand. Historically, cost has always been the chief adversary of energy storage. As such, the electric grid remains void of any meaningful amount of storage. The implication of this is that electrical production must always equal demand. Maintaining this often precarious balance is perhaps one of the most underappreciated minor miracles of modern civilization. Cost-effective energy storage would make this and other electric system applications easier.
The key term is cost-effective. How does storage become cost-effective? One way is to lower the cost of storage. This is already underway. Battery prices have dropped approximately 70% over the last six years and are expected to decline more. Another way is to make sure energy storage serves multiple purposes. As Johan Enslin, director for the Energy Production and Infrastructure Center at the University of North Carolina, recently noted in his energy storage commentary on T&D World’s IdeaXchange (www.tdworld.com/ideaxchange), “Typically, we have to include three or more of the following: frequency, spin and voltage regulation; T&D deferral options; capacity and peak pricing markets; and curtailment of renewable energy resources to build a solid business case.”
Multiple applications are also the foundation for Oncor’s storage plan. In his presentation before the aforementioned storage summit, Bill Munson, Oncor’s manager of research and development, listed 21 ways that Oncor’s plan will provide value to the T&D system, the customer and the wholesale market. Providing wholesale market value from storage attached to its distribution system is where Oncor’s plan has drawn fire. As a wires company in Texas, Oncor is currently prohibited from participation in the wholesale energy market. To counter objections, a study conducted for Oncor by the Brattle Group found that “approximately 30% to 40% of the total systemwide benefits of storage investments are associated with reliability, transmission and distribution functions that are not reflected in wholesale market prices.” With wholesale market participant lining up to squash the proposal, Oncor’s plan undoubtedly faces a tough regulatory approval process.
For every utility exploring energy storage today, there are multiple new energy storage companies popping up. A combination of energy storage and solar for commercial customers might be in trouble. Solar would erode utility energy charges while storage would undermine utility demand charges, which is not a scenario most utility CFOs would like to contemplate.
Given current trends, energy storage utilization will grow. Utilities should not wait for energy storage to become “cheap enough” before determining storage’s role in their future business model. If utilities don’t take the storage lead and create value across the electric system, then competitors will use it to serve customers at the expense of utility revenues. In the worst scenario, future competitors could use storage and solar to remove customers from the grid all together.