20 May 2015
By Chris Thompson
Distributing reliable, high-quality power with a range of resources
There is substantial buzz surrounding grid-tied energy storage. But what are the drivers for grid-tied storage today? There are key industry trends propelling the adoption of energy storage technology, including: increased renewables penetration, Federal Energy Regulatory Commission (FERC) orders, battery prices, and state mandates. The overall benefits of storage have evolved over the past few years, and grid-tied energy storage will continue to be an important consideration for the future of the grid.
Evolving Renewable Power Contributions on the Grid
Over the last several years, renewables have become a major contributor to new power generation, with several factors at work that are substantially changing the generation mix on the grid.
Nuclear, though it has been an important contributor for several decades, has begun to decline. Facing headwinds from massive cost overruns and increased risk concerns after the Fukushima meltdown in 2011, industry experts anticipate that nuclear power contributions to the grid will continue to drop. Coal is facing a more rapid decline, considering expensive Environmental Protection Agency (EPA) regulations.
With traditional grid contributors declining, new additions to the generation mix have shifted to natural gas and renewables. The United States Energy Information Administration anticipates that over the next few years, renewables will become the majority of new additions..
The industry has also seen the emergence of the now famous “duck curves” as intermittent sources continue to dominate the generation mix. Named after the duck-like profile of the curve, the cumulative impact of ongoing solar additions in the California grid is shown in Fig. 2. With even more intermittent sources added to the mix, more storage will be required.
Impact of Federal Energy Regulatory Commission Orders on Energy Storage
Perhaps, equally as important to developing a viable storage market, are the regulatory mechanisms that provide for compensation for storage developers. Two important orders have been implemented over the past several years by the Federal Energy Regulatory Commission, namely FERC order 755 and FERC order 784.
Enacted in 2011, FERC order 755 created a fast regulation service in wholesale power markets; a mechanism to compensate fast regulation for speed and accuracy based on response to automatic generation control signals. These “pay-for-performance” rules allow battery plants to earn a premium over conventional generation methods, as battery storage systems are approximately 1,000 times faster than conventional combustion generation forms.
Two years later, FERC order 784 expanded the pay-for-performance requirements of FERC order 755. Together, these FERC orders enable battery systems to receive additional compensation for this unique feature. Before these important orders existed, there was negligible monetary benefit from the incredible speed advantage provided by batteries.
In addition to speed, battery-based regulation systems provide substantial benefits from reduced emissions, highly modular sizing, negligible noise, and zero water requirements. These benefits contribute to faster site selection and project development, with lower costs.
Combining battery-based benefits with the compensation systems enabled by the FERC orders, a framework has emerged for low cost and profitable fast-regulation services provided by battery-based energy storage.
Additionally, FERC order 792 raises the Fast Track threshold from 2MW to 5MW and includes energy storage in the definitions of an eligible small generating facility. Given that batteries can regulate both up and down, this enables 10MW of total fast regulation to be eligible for Fast Track.
The Decreasing Cost of Battery Technology
Battery prices have dropped over the past few years due to several driving factors. First, wider global adoption of electric vehicles, including cars, buses, and bicycles, has increased the global volume of lithium-ion batteries. The massive adoption of mobile devices, which also utilize lithium-ion batteries, has also contributed to driving prices down. Electric vehicle company Tesla is another factor in the battery price trend, with the company’s “gigafactory,” a massive battery production facility, which is being touted as another tool in reducing battery costs.
Given the global supply chain with notable volume coming out of China, Japan, and Korea, the industry anticipates both supply chain costs and global competition to drive pricing down. Navigant Research data estimates price drops of 50 percent over the next few years. Additionally, lithium-ion batteries are facing increasing competition from new chemistries as well as from flow batteries. For those who have witnessed the emergence of the solar market, these price drop curves look very familiar.
State Mandates and Incentives Influencing the Power Mix on the Grid
Last, but certainly not least, many states and provinces have established their own local mandates. Although there are too many to cover comprehensively in this article, several are highlighted below:
California: Expected to be the largest market over the next few years, California is continuing to expand its solar roots by leading the country in battery projects. A 1,325MW mandate for the investor-owned utilities is the largest in the nation. In addition, the Self-Generation Incentive Program (SGIP) enables developers to use distributed, behind-the-meter storage.
Hawaii: With high electricity prices and increasing renewables penetration, storage has high potential value in Hawaii. Hawaii also has more than three years of experience with multiple utility scale battery storage systems that have been softening the impact of wind farms.
Puerto Rico: Similar to Hawaii, Puerto Rico has a lot of sun and high electricity prices, making storage a valuable asset on the island. Local interconnection requirements, known as Minimum Technical Requirements (MTRs), mandate storage to both regulate frequency, and manage ramp rates.
New York: With a major policy initiative called Reforming the Energy Vision (REV), which includes $5 billion in investments, New York is at the forefront of a number of activities redefining the grid. Additional motivation has been driven by the shutdown of substantial nuclear capacity at the state’s Indian Point nuclear power plant, making New York an exciting market to watch over the next several years.
With multiple, powerful forces unfolding, the overall value and benefits of storage have dramatically improved. Correspondingly, new investments from existing companies and many start-up companies are mobilizing to create and capitalize on this value. Working hand-in-hand with renewable generation forms, grid-tied storage will be an important part of defining the grid of the future.
Chris Thompson is the business unit manager of Grid Power for Eaton Corporation.