Addressing the Ever Elusive Issue of Energy Storage

electric meter
electric meter
I woke up last night to the sound of various electronic devices in my house resetting themselves — after yet another brief power outage. I don’t live on the fringes of civilization — downtown San Francisco is only a short drive away — but I’ve heard from a long-time resident that our local substation is especially finicky and we’ve been having a spat of nasty storms lately, which doesn’t help the situation. Sounds like the perfect opportunity for energy storage.

And so I found myself that next morning at the Silicon Valley Energy Storage Symposium, where the folks at the Joint Venture Silicon Valley Network had put together a half-day program focused on energy storage on the electricity grid.

Brad Roberts, the Executive Director and past Chairman of the Electricity Storage Association, kicked off the event with an overview of different ways to use storage on the grid and the value it creates. It’s a complex topic and he did a nice job of laying it all out — ranging from large-scale systems installed close to nuclear power plants and renewable power sources, to medium-sized systems used to regulate electricity distribution, to smaller systems that might be installed in or near homes and businesses.

His main message: we will need to have energy storage installed in order to accomplish everything we say we want to. We need energy storage to meet our targets for wind and solar generation. We need energy storage to make our grid more reliable. And we need energy storage to make the Smart Grid work.

A couple of great panel sessions followed with various speakers, including Hal La Flash from PG&E, Dan Rastler from EPRI, Aloke Gupta of the California Public Utility Commission, and Janice Lin from the California Energy Storage Alliance among others. They more or less supported Roberts’ view that energy storage is on the critical path. According to one estimate, in California alone we will need about 4GW of storage to support our renewable generation targets.

So what’s holding us back? On the face of it, the current cost of energy storage is the most obvious culprit. According to Dan Rastler, $400 per kWh installed is the magic number we need to hit in order to see storage employed widely on the grid. Except for pumped hydro and compressed air energy storage (CAES), which are severely limited in where they can be sited, current commercial energy storage systems are still a fair amount above that number. There are a number of start-ups touting more competitive numbers, including Primus Power, whose COO (and Applied Materials alum), Tom Stepien, was on the panel. It will be interesting to watch Primus and others to see what they can deliver.

But it seems that there’s a more fundamental reason than just cost itself. While everyone agrees that adding energy storage creates benefits and value at the system level, the fragmented and de-regulated structure of our electricity supply chain can make it difficult for any one entity to capture enough of that value to offset the cost. This is analogous to the problem faced when trying to implement energy efficiency technology. For example, the benefits of installing newer, more energy efficient appliances for individual homeowners often fail to justify the upfront cost. But utilities derive benefits from having a large population of more efficient units in their service territory, especially when it results in lower peak power requirements. In such cases, utilities have offered incentives to their customers to adopt such systems. They have adopted a mechanism to distribute the cost of new appliances between homeowner and utility and capture the system-wide value.

The situation for energy storage is similar, but even more complicated. So the first markets for electricity storage will be where the benefits of storage accrue substantially to the owner of the storage assets and outweigh their costs. Today, that would appear to be in the ancillary services market, where storage companies A123 Systems, AltairNano and Beacon Power are already active.

Longer term, the U.S. will need to figure out mechanisms and re-write regulations to make sure we see energy storage deliver on its full promise. Japan, Germany, and other markets around the world are way ahead in implementing storage. Higher electricity prices in those markets are more forgiving of high storage costs, government policies are more coordinated (and favorable) and the market structures may be easier to navigate.

Bottom line: new and cheaper grid storage is an important goal, but we will need innovations in our market structure and how we transfer benefits to really implement the robust energy storage infrastructure we need.

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