Latest DOE Loan Guarantee: A123 Battery Project for Grid Storage

And the Department of Energy loan guarantee train keeps on chugging. This afternoon the DOE says it has offered its 14th loan guarantee — a $17.1 million conditional commitment to AES Energy Storage, a subsidiary of power giant AES (s AES), to build a 20 MW energy storage system using A123System’s (s AONE) lithium ion batteries.

A loan guarantee serves essentially as a promise by the government to make good on a loan if the company can’t, and typically enables better interest rates and lower costs than would otherwise be available to a company for project financing.

AES says the project will use A123System’s lithium ion batteries and new management software for grid frequency regulation. The power grid works by constantly balancing supply and demand (generation and load) and must be kept at a 60 Hz frequency. If the frequency goes too high or low a utility must respond by shifting generation and load and utilities commonly burn additional fossil fuels at power plants to maintain the balance. For example, PJM, a regional transmission organization serving a population of 51 million, commonly taps diesel-burning generators to control regulation as often as hundreds of times per day.

The 20 MW energy storage battery project will be built in Johnson City, New York, and will enable AES to both balance its load using less fossil fuels, and have more flexibility to mix in clean power (which can be variable) to the grid. Because the wind doesn’t blow and the sun doesn’t shine at all hours of the day, energy storage technology like this battery project will be crucial to getting renewables into utility power portfolios.

This is the 14th loan guarantee offered, but one of the few that will invest in energy storage (see our Q&A with DOE loan chief Jonathan Silver here). More often DOE loan guarantee recipients have been clean power developers, including Solyndra, Abengoa, Abound Solar and BrightSource.

Last year A123Systems snagged a $249 million grant from the Department of Energy to help carry out a plan for setting up commercial manufacturing for batteries for electric vehicles in the United States. Electric grid services have made up a growing portion of A123?s revenue during the last few years, and over the long term they could hold increasing importance for a battery maker that has generated much of its revenue to date from deals with consumer product makers — chiefly power tools — but never turned a profit.

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