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How the Energy Storage Market Could Pay Itself Off

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We’ve already covered many points on the Electric Power Research Institute’s 2011 update on grid-scale energy storage, including the fact that the U.S. could support up to 14 gigawatts (GW) of energy storage technology at costs as high as $700 per kilowatt-hour (kWh) — a price point that few technologies beyond old-fashioned pumped hydro and compressed air storage can meet. Batteries are nonetheless being deployed for grid storage today, so how can these projects justify their costs?

Of the EPRI report’s conclusions, one large point stands out: the most lucrative opportunities, like super-fast frequency regulation, are also the smallest, and the biggest, like night-to-day wind power storage, are the hardest to crack. That’s important to take into account when looking at the hundreds of millions of federal grant dollars going to energy storage projects right now, and how these experiments might pay off:

The best-paying energy storage market is also the smallest. EPRI’s report says 15-minute frequency regulation — quick-response storage to help keep the grid in balance — is the most lucrative market, offering return for technologies costing as much as $4,000 to $6,500 per kWh. Those prices can support expensive systems like A123 lithium-ion batteries used by utility AES. Unfortunately, it’s also a tiny market: less than 1 percent of the country’s overall grid energy production. Any storage project planning to capitalize on these outsize revenues ought to take this limited room for growth into account.

Storage can cost less than building new power lines. The report also finds high-paying storage opportunities in transmission and distribution (T&D) deferral — using storage to back up transmission and distribution lines that would otherwise need to be upgraded or replaced. EPRI sees about 6 to 8 GW for T&D deferral, at prices from $450 to $1,200 per kWh. That reflects the wide differences in deferrable costs, as well as potential local benefits the same storage unit could serve, such as frequency regulation and meeting local capacity requirements. Transportable T&D deferral — storage systems that can be moved from place to place to defer new power lines — could be an even bigger market, about 12GW at prices from $600 to $2,200 per kWh. That’s because they can be used to defer more than one capital project over their useful lifespan of 10 to 20 years or so, rather than just one.

Further market opportunities need cheaper storage systems. Fast frequency regulation and T&D deferral makes up the entirety of the 14 GW mentioned earlier. Any other markets today — such as storage systems that residential, industrial and commercial customers could tap during times of peak pricing, or utilities could install to buffer the intermittent production of solar and wind power — will need cheaper batteries to make them cost effective, unless they can be added together to make the cost of the batteries pencil out. For example, making the same battery do frequency regulation when it’s needed, while also storing long-term energy from wind and solar plants to cover periods of low wind or cloudy skies, might be able to pay for themselves, if they can access multiple markets at once.

Wind power backup must be really cheap. One of the biggest future needs for long-term energy storage will be backing up wind power, which produces all of its power intermittently and most of it at off-peak nighttime hours. The U.S. “remote wind” storage market could grow as large as 17.7 GW — but at one of the hardest price points, about $350 per kWh. Wind storage pilot project by utilities including Duke Energy, Xcel Energy, and Pacific Gas & Electric will need to tap other markets, like grid balancing and peak demand shaving, to show they’re worth investment.

Residential energy storage doesn’t pay at almost any price. EPRI found no storage technology cheap enough for mass deployment as household backup power during blackouts. That’s bad news for AEP Ohio’s community energy storage project and the 80 or so fridge-sized batteries it’s putting in backyards in Gahenna, Ohio with federal grant money. If those batteries can supply grid regulation, rooftop solar power balancing, peak shaving and other add-0ns, they just maybe could prove to justify their investment over time. If they can’t, experiments like AEPs might not be worth repeating for other utilities.

Question of the week

Which combination of technologies and markets can make storage pay itself off today?