Everyone is talking about energy storage. Tesla’s launch event on April 30th announcing the release of the Tesla Powerwall, for home use, as well as larger batteries for grid-scale use, may have made the biggest splash, but Tesla is hardly the only company making a move into the energy storage market in a big way. While Tesla’s Powerwall won’t begin delivery until later in the summer, BYD, a Chinese company, has already begun selling their lithium-ion batteries to project developers, and many are already connected to the grid. Greentech Research reports that the storage market in the United States will grow by 250% in 2015, due to both falling battery prices and increased recognition of the value of energy storage. Currently, the bulk of the energy storage installations are in either PJM Interconnection’s territory (stretching across 14 states, plus D.C.), and in California.
But what are the economic drivers for installing storage? Unlike alternative forms of electricity generation, which are replacing existing forms of generation, the value derived from installing energy storage is not always clear-cut. Instead, the value of storage is often split across multiple types of services that the storage can provide, and the benefits may accrue to multiple stakeholders, including end users, utilities, and system operators. Once you consider that different types of energy storage systems are optimized to serve certain functions, but not others, and that markets for each of the functions of storage are in various stages of maturity, the economic case for installing energy storage becomes quite convoluted. This ongoing blog series will highlight the various ways that energy storage can provide value, as well as discuss which markets are available to help users capture that value stream.
Traditional Frequency Response
In order for the electrical grid to function properly, the frequency must be kept as close to 60 Hertz (in the United States) as possible. The frequency is affected by instantaneous discrepancies in the generation and use of electricity; if the electricity generation is slightly lower than the needed demand then the frequency will tend to decrease, and vice versa. Since even a small deviation from normal frequency can cause serious issues with the grid, the grid operators must have the ability to either increase or decrease either the load or the electricity generation on a second-by-second basis. Traditionally, this has been accomplished by paying traditional generation assets, typically coal, gas, or hydro power plants, to leave a buffer between their operating output and both their maximum and minimum outputs. This allows them to quickly scale their generation either up or down as needed. The price that these generators are paid typically depends on the opportunity cost incurred to operate at a non-optimal output. For example, a plant operating at 95% capacity instead of 100% would need to be paid at least enough to compensate for the lost revenue due to selling fewer kilowatt-hours, for the increased fuel costs due to lower thermal efficiencies at the lower output, and for the additional operation and maintenance expenses associated with quickly ramping the equipment’s output.
The increase in renewable energy resources is putting a strain on the existing frequency response system for two reasons. First, the non-dispatchable nature of intermittent energy resources, such as wind and solar, create the need for more frequency response resources. Second, as cheaper renewable sources of energy push older, less-efficient generation assets off of the grid, the price of frequency regulation tends to increase (less efficient generators charge less for frequency regulation services, because their opportunity cost of not running is less than for more efficient generators). Fortunately, certain types of energy storage devices are ideal for providing frequency response services.
Frequency Response through Energy Storage
Energy storage resources, such as batteries, have the capability of both increasing the grid’s total load (through charging) and decreasing the grid’s total load (through discharging). Therefore, they are well-suited to provide frequency response services to the grid. Typically, energy storage can provide a faster reaction time than generation resources, but are unable to sustain their output or input indefinitely. Fortunately, frequency regulation markets are quickly maturing and are increasingly able to recognize and properly compensate providers of assets with especially fast response rates, as a faster response rate results in less overall frequency response needed. For example, the PJM Interconnection currently separates batteries and other fast-responding components from traditional frequency regulation assets. The end result is the potential for significant revenue from the frequency response markets for the owners of energy storage assets.
The Bottom Line
While frequency response payments are usually not adequate to single-handedly justify the cost of energy storage technology, a single, properly designed energy storage system can provide multiple functions at once. Frequency response markets can provide a valuable additional revenue stream to your facility that can greatly reduce the payback period on new distributed energy resources. Contact GI Energy today to learn how energy storage can be incorporated into your facility’s energy master plan. And watch our blog for the next installment of The Value of Energy Storage, where we explore the benefits of peak shaving.
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