King Arthur and his loyal knights embark on an arduous, difficult quest to find the Holy Grail. Many perish along the way. After a multitude of trials and tribulations, they find the Grail is hidden in the Castle of “Aaargh!” That is at least how the story goes in the popular 1970’s British satire Monty Python and the Holy Grail (see here for the “Aaargh!” scene).
Many in the energy industry are on a similarly difficult journey trying to find the Holy Grail for renewable energy: a cost-effective way to store electricity. Stiff competition from low gas prices and a regulatory framework that fails to recognize the full value of storage leave many in the industry grumbling “Aaargh!” regardless of if they are fans of Monty Python. Nevertheless, new developments across the country point to a promising path forward for energy storage.
Wide-Ranging Benefits of Storage to the Grid
Storage offers a wide range of benefits to the grid. This includes improving reliability on the transmission and distribution networks, offsetting future infrastructure investments, shifting power use from costly peak hours, and balancing fluctuations in energy use exacerbated by variable renewable energy. Current regulatory and market structures make it difficult for a storage resource to monetize all these benefits. For example, a storage resource can make money in wholesale power markets by arbitraging the difference between peak and off-peak prices, or from frequency regulation payments by reserving a portion of capacity to provide second-to-second balancing services. However, opportunities in wholesale markets do not compensate storage for other benefits it provides to transmission and distribution systems. This disconnect has made it difficult to achieve an acceptable return on investment.
Positive Developments Around the Country
Nevertheless, projected cost declines are causing utilities and developers to give serious consideration to storage, particularly batteries. Oncor, an electric transmission and distribution company in Texas, has recently proposed a massive $5.2 billion, 3-5 GW battery storage plan, at a projected cost of $350/kWh by 2020. This is half of the cost we have seen for pilot storage projects deployed in recent years. A complementary economic analysis by Brattle shows at that price point, 3-5 GW of storage would provide net benefits to Texas consumers, and lower overall electricity costs. Capturing all these benefits will require a creative business plan where the utility would capture the benefits from improved reliability on their transmission and distribution system, and auction off the remaining capacity to third-party marketers to maximize revenues in the ERCOT market.
Looking to other parts of the country, California recently gave the industry a jolt when it passed a 1.3 GW storage mandate by 2020. The market certainty provided by this mandate has spurred activity between storage developers and California utilities. For example, just a few weeks ago South California Edison announced the results of a competitive bidding process that included contracts for about 250 MW of storage to count towards the state mandate and to help meet reliability needs posed by the retirement of the San Onofre Nuclear Station. In the Northeastern U.S., recent market reforms for fast-responding resources required by FERC Order 755 have attracted over 100 MW of storage resources in the PJM market. Storage in PJM is able to generate enough money by providing frequency regulation (second-to-second injections of power to help balance the grid in real time) so that developers can justify an investment without subsidies, mandates, or other support.
Differing Markets for Storage
Prices for frequency regulation in the MISO market are currently not as attractive as in PJM (see chart). This is because MISO relies largely on conventional generation to provide these second-to-second grid balancing services, which are slower-ramping and don’t perform as well as storage (or demand response). Given this market reality, a storage resource in MISO would likely need to be able to monetize benefits provided to the utility’s transmission and distribution systems as well as capture revenue from the wholesale market, similar to Oncor’s proposal in Texas. One difference is that many electric utilities in the Midwest are still vertically-integrated, unlike in Texas. A vertically-integrated utility that owns generation and wires is more likely to be able to internalize all of the benefits of storage, compared to an unbundled market. This is consistent with stakeholder findings back in 2011 when the Great Plains Institute contracted with Xcel Energy to conduct a regulatory and market analysis for a battery project deployed on their system in southwestern Minnesota. Recently, MISO proposed a reform that would prioritize the dispatch of fast-ramping resources over conventional resources in their frequency regulation market, giving a boost to the prospects of storage in MISO. We are working to help get this market enhancement implemented. Given the level of renewables coming online in the region, and the recent establishment of a national research hub for storage at Argonne National Lab in Chicago, developers are looking at the Midwest as an emerging market opportunity for storage.
In summary, new developments across the country have brought a jolt of excitement to the storage industry. Additional market enhancements and regulatory reforms are needed to capture the range of benefits storage provides the grid. Getting the correct market and regulatory rules in place will give developers the certainty they need to invest in storage, allow us to capture the reliability, economic, and clean energy benefits it provides, and bring us closer to the “holy grail” of renewable energy.
