Battery Energy Storage on Verge of Competing with Natural Gas, but Questions Remain

The degree to which energy storage can compete economically with natural gas peaking plants is still being determined, but better price signals are needed to incentivize the most cost-effective reliability solutions regardless of technology, experts and analysts said..

As lithium-ion battery prices come down and battery energy storage systems become more prevalent, some are beginning to question whether energy storage could be a cheaper, more efficient option for managing power grids than building natural gas-fired peaking power plants.

Gas-fired peaking plants can be started up quickly when power demand spikes, but they usually do not run very often.

The US has 120 GW of operating gas peaker capacity and 20 GW of peaker capacity planned by 2017, Ravi Manghani, director of energy storage at GTM Research, said in a presentation at the GTM Forum: Energy Storage vs. Gas in New York City.

The median capacity factor of the US' 120 GW of gas peaking capacity was 3% and the median hours of run time per start was 5.3 in 2017, he said.

For example, the 199-MW Elk Station GT2 gas-peaking plant in Texas operated for 309 hours in 2017 and was started 47 times. The plant ran for an average of 6.6 hours when started and was only started one time during which it ran for more than 10 hours, Manghani said.

Manghani's research indicates that on a $/MWh levalized cost of energy basis, eight-hour lithium-ion battery storage becomes competitive with peaking gas combustion turbines around 2022 and energy storage economics continuously improve to 2027, while gas peaker economics worsen. As a result, 32% of new US gas peaker capacity is at risk from four-hour storage by 2027.

Manghani's team has only looked at costs so far and the next step would be to consider the revenues each asset could earn in different US power markets, he said.

Indeed, "the revenue side of the equation is unfolding now," Rob Morgan, CEO of energy storage at GE, said. "Right now trying to parse out the value of storage is the challenge."

It is still unclear whether energy storage can provide more value replacing gas peaker plants or being used for power transmission and distribution infrastructure deferral, Morgan said. The reality will probably vary based on policy and market rules in specific locations, according to conversations with multiple meeting participants.


"We could replace every gas peaker in the US with batteries right now if we wanted to, but it probably wouldn't make economic sense everywhere," said Abe Silverman, vice president for the regulatory affairs group and deputy general counsel at power producer NRG Energy.

It is best to look at the need you are trying to fill and then choose the best technology, he said.

"In a lot of the competitive power markets in this country the way reliability is compensated is through capacity prices and capacity markets," Andrew Gilbert, principal at private equity group Energy Capital Partners, said. Largely today storage does not yet meet the standards required to participate in those markets, he said.

Shawn Bennett, senior advisor to the US Air Force Office of Energy Assurance, said he is not aware of any storage resources clearing PJM Interconnection or ISO New England capacity market auctions. PJM's latest capacity market auction results will be released Wednesday.

Gilbert suggested starting with reliability requirements such as how much peak capacity is needed on an hourly basis and then designing competitive price signals that can attract the most effective resource instead of simply mandating the procurement of a given volume of storage.

For example, NRG's Silverman pointed to a May 1 ISO New England decision to keep a gas-fired plant in Boston, Massachusetts, online for reliability reasons after owner Exelon Generation announced in March plans to close it in the early 2020s. The decision also extends to an adjacent LNG terminal whose main offtaker is the gas plant.

Silverman said it "baffles" him that a battery storage system or other technology is not being considered part of the solution. "What about other technologies? Why aren't we putting a price on this constraint in the market and letting the market solve that," he asked.


There was some disagreement among meeting participants regarding the amount of time and effort it takes to move proposed market rule changes through the ISO stakeholder process and have federal regulators approve them.

"We have to send better price signals, but the time it takes is significant," said Lon Huber, vice president of Strategen Consulting, a firm that represents consumer advocates. "Those involved with ISO committees know it is a grueling affair," he said. But others contended the process is less arduous than Huber suggested.

Nevertheless, the ISOs are working on wholesale market energy storage participation filings due in December to comply with US Federal Energy Regulatory Commission Order 841 issued February 15.

Platts |