A recent report predicts that the energy storage market, which currently attracts annual investment of about $2.6 billion worldwide, is set to grow to $25 billion by 2021.
Energy storage technologies have achieved various levels of technical and economic maturity in the marketplace and continue to evolve. From research and development activities in the United States to the world’s largest battery storage station in China, policymakers have become increasingly interested, but technical and non-technical barriers remain.
One of the key drivers is the rapid growth of intermittent renewable energy and the need for storage to help smooth what could otherwise be a destabilizing source of electricity to the grid.
At least 118 countries now have targets for renewable energy. The Fukushima Daiichi nuclear disaster in 2011 has had impacts far beyond Japan and triggered the reorientation of energy policy in many countries. In Germany, for example, Fukushima has led to a commitment to exit rapidly from nuclear energy use by 2022, and an increase in its minimum renewable share requirements to 35% of electricity by 2020, 50% by 2030, 65% by 2040 and 80% by 2050.
The UN secretary general has set a goal of doubling the share of renewables in the energy mix by 2030. China has increased targets to be met by the end of 2015 for grid-connected wind from 90 gigawatts to 100 gigawatts (and to 200 gigawatts by 2020). Denmark aims to increase the share of wind in total generation to 50% by 2020. The US state of California has set new targets under its existing renewable portfolio standard (33% by 2020).
In island and remote communities, where grid extension is difficult and fuel transportation and logistics are challenging, renewable energy is emerging as the solution. From Bonaire in Venezuela to Apolima Island in Samoa and Metlakalta in Alaska, renewable resources coupled with energy storage systems are being deployed to address lack of 24-hour power and high emissions and noise of diesel generators.
Efficiency and renewables are beginning to emerge as the “twin pillars” of a sustainable energy future.
The shift to renewable energy presents broader policy and technical challenges than just grid stability. Policymakers face the herculean task of tackling the variability of renewable sources of electricity generation to ensure continuous availability and efficient use of the energy generated, and addressing several operational impacts on the grid including the shortterm variability in electric power frequency, increased cycling and associated maintenance of conventional generators, uncertainty in net load and, in some cases, new transmission to supply to the grid. These challenges arise at a time when there was already a need to optimize and extend the grid.
A wide range of energy storage technologies exists today. The technologies fall into four broad categories.
- Electrical: Capacitors, supercapacitors and superconducting magnetic energy storage systems.
- Electrochemical: Battery systems, flow batteries and hydrogen with fuel cells.
- Mechanical: Pumped hydroelectric storage, compressed air storage, flywheel energy storage and hydroelectric accumulators.
- Thermal: Ice storage, molten salt, solar pond and hot bricks.
Different energy storage technologies are at different levels of maturity and have different applications. No technology fits all applications, and each has its own limitations.
The fundamental metrics that distinguish one technology from another include energy storage capacity, charge and discharge rates, economic useful life, roundtrip efficiency, initial capital costs and operating costs. For example, lead-acid batteries, which have been used for more than a century in grid applications due to their low cost and ability to serve as uninterruptable power supplies in substations, have relatively short lifetimes and low energy per unit mass, and not all leadacid batteries are appropriate for use in electricity supply systems. Similarly, compressed air storage, which is a fairly mature technology and can provide many services including operating reserves and load following, is limited by the perceived lack of suitable geology. Likewise, pumped storage, which is the only storage technology deployed on a gigawatt scale worldwide, has not seen any large-scale development in the United States due to a number of factors including increasing regulatory, environmental and siting challenges.
The Journey So Far
The journey so far across the globe seems to be progressive, both on the industry side and the policy side. It is a story of successes and failures, with lessons learnt continuously feeding into the progression.
On the industry side, emerging technologies continue to evolve and efforts continue to enhance performance and application of commercially-proven technologies.
Illustratively, compressed air energy storage or CAES, which is a commercially-available, utility-scale, bulk electricity storage technology and is considered to have low capital cost, high efficiency, fast ramping capability, adaptability and low fuel consumption, has deployment challenges. The only deployment to date has been in salt domes. There have only been only two successful large-scale CAES projects (McIntosh, Alabama, USA in 1991 with a rating of 110 megawatts for 26 hours and Huntorf, Germany in 1998 with a rating of 290 megawatts for two hours), both with conventional diabatic CAES, meaning that when the air is compressed, the heat generated is lost as waste heat. Research and development activities are underway to develop adiabatic CAES technologies that would capture waste heat to improve efficiency, and, in the United States, several demonstration projects supported by the American Recovery and Reinvestment Act are in various stages of development. Venture capitalists continue to fund research, and the recent investment of $37.5 million in the thermodynamics technology of LightSail Energy Inc., a California based developer, for compressed air grid-scale storage is just one example. Using caves, aquifers, pore storage and mines is under discussion.
Lessons learnt from the Iowa Stored Energy Park project, a 270-megawatt, $400 million CAES project in Iowa in the United States, which was terminated in July 2011 because of site geology limitations and after about $8.6 million had been invested in the project, are being disseminated to assist other storage projects as most of these lessons are independent of geology and point to cost, economics, institutional, policy, legislative and other issues that traverse almost all energy storage technologies.
Demonstration projects are being initiated across the globe to test emerging technologies including shuttling empty trains between mountaintops, and shoveling gravel up and down a slope on ski lifts.
The lithium-ion battery, an emerging technology, has been deployed in various demonstration projects throughout the world, including the Johnson City project that employs a bank of 800,000 A123 lithium-ion batteries to perform frequency regulation for the New York ISO or grid operator, the Guodian Supply-Side Energy Storage project in Jinzhou, China comprising of 49.5-megawatt installed wind capacity and a 5-megawatt lithium-ion battery system to improve the quality of wind power electricity, reduce wind curtailment and allow the grid to accept a greater amount of wind power, and the Anagamos Project in Chile that uses 20 megawatts of A123 lithium-ion batteries that provide contingency services to maintain the stability of the electric grid in northern Chile, an important mining area.
Earlier this year, China launched its first commercial utility-scale storage station for renewable energies — the world’s largest to date. The first phase of the project combines 100 megawatts of wind, 40 megawatts of solar, 14 megawatts of lithium-ion batteries and a vanadium redox low battery and a smart power transmission system. The project will eventually grow to 500 megawatts of wind capacity, 100 megawatts of solar PV capacity and 110 megawatts of energy storage with an overall investment of 12 billion RMB ($1.89 billion).
The most recent approaches include the use of smart grids and smart metering for domestic appliances.
For example, Australia has set up the Smart Grid Smart City Project to demonstrate the benefits and costs of different smart grid technologies. The project has been operating since early 2012 and comprises 40 energy storage systems with each containing a 5 kW/10 kWh zinc-bromide battery, resulting in a total of 200 kilowatts and 400 kWhs of storage. The project is testing smart grid technology in an urban setting, and at least 30,000 households will participate in the project over three years.
In the United States, the Department of Defense, which uses about 80% of the federal government’s energy and is the single largest consumer of energy in the world, has initiated several projects, including a microgrid installation at the Joint Base Pearl Harbor Hickam US military base in Honolulu, Hawaii, which is a part of the first phase of a three-phase, $30 million multi-government agency project known as Smart Power Infrastructure Demonstration for Energy Reliability and Security or SPIDERS among the Department of Energy, Department of Defense and Department of Homeland Security. The mission of SPIDERS is to reduce the risks associated with unreliable power.
On the policy side, the momentum is building and new policies are shaping the energy storage market, which is predicted to attract $25 billion in annual investment by 2021 according to a report by Pike Research.
There have been several notable policy initiatives in the United States at both the federal and state levels.
Bills have been proposed in Congress to create tax incentives for energy storage investments. The bills include a 20% to 30% investment tax credit for new storage investments.
The Federal Energy Regulatory Commission issued several orders that are affecting the US market for energy storage.
FERC Order No. 755 requires independent system operators or ISOs and regional transmission organizations or RTOs to compensate frequency regulation resources, including energy storage, based on actual performance. The order directs the ISOs and RTOs to create market rules that would implement a “pay for performance” approach. Expectations are that this rule could have the effect of increasing the revenue that storage devices obtain for providing ancillary services compared to the other conventional sources.
FERC Order No. 719 amends FERC regulations under the Federal Power Act to improve the operation of organized wholesale electric markets, including demand response and market pricing during periods of operating reserve shortage.
FERC Order No. 890 requires that non-generation resources — like storage — be evaluated on a comparable basis to services provided by generation resources in meeting mandatory reliability standards, providing ancillary services and planning the expansion of the transmission grid. Since issuance of the order, the ISOs and RTOs increased market access, and currently the ancillary services market in the PJM Interconnection, New York ISO, ISO-New England, Midwest ISO and CAISO is accessible to energy storage. ERCOT is also considering opening the ancillary services market to energy storage.
A California law (AB 2514) requires the California Public Utilities Commission to set separate targets for utilities to procure energy storage systems by December 31, 2016 and December 31, 2021. The CPUC was supposed to have set the targets by March 2012, but is behind schedule. The statute has already prompted the Pacific Gas & Electric Company to issue a request for information seeking knowledge about various energy storage technologies so as to ensure compliance with procurement deadlines in case the CPUC sets energy storage targets.
A bill in the last session of the California state assembly would have extended the funding from the CPUC’s self-generation incentive program by three years (through December 2014) at $83 million per year, and specifically provides that energy storage is eligible in this program.
Outside the United States, the story is similar. The Treaty of Lisbon, which entered into force on December 1, 2009, gives energy policy a new legal basis. The European Commission recently agreed to provide a seven-party consortium with €13.8 million ($16.7 million) in funding for a €23.9 million ($29.0 million) research and development demonstration project in Italy that will ultimately lead to deployment of a 39-mWh grid-connected energy storage facility in Puglia, a region in southern Italy.
Germany views energy storage as integral to its national plan for deployment of intelligent smart grids and demand-side load management. The short-term focus is on maximizing domestically available and cost-effective pumped storage capacity and, in the long term, Germany will focus on expanding to use foreign pumped storage plants and capitalize on investments in research and development of advanced CAES, hydrogen, and battery storage. Germany has committed to a target of 80% of its electricity to come from renewable energy by 2050, and effective, high-capacity energy storage will be critical in achieving this target. The German federal Ministries of Economics and Technology, of the Environment, Nature Conservation and Nuclear Safety, and of Education and Research recently launched 60 innovative research projects in energy storage. The government is also mobilizing the state-owned bank, KfW Group, to provide low-interest loans to storage projects.
In China, multiple municipalities have implemented policies to encourage local development of storage technologies, and the national government has allocated resources to numerous demonstration projects as part of its plan for strong smart grid development in 2011 to 2015.
Despite huge efforts by various stakeholders, significant technical and non-technical barriers to energy storage deployment remain.
Technical barriers emanate from technical complexity, efficiency and lifecycle concerns that render many energy storage technologies commercially unviable for large-scale production and grid-scale integration.
For example, the pumped hydro storage technology, which accounts for more than 99% of bulk storage capacity worldwide, has limited capacity for expansion because the kind of sites needed for such systems are few and far between. Another example is the recent fire and meltdown of a large battery at the Kahuku wind farm that seems to indicate that lead acid batteries, which have been around for more than a century, require further research and development efforts before they can be successfully deployed to provide grid integration services.
Non-technical barriers cut across various energy storage technologies.
Wholesale energy markets do not provide a framework to evaluate costs and benefits of energy storage. The markets are increasingly recognizing the value of these benefits, but valuation mechanisms are almost non-existent, and a critical challenge is how to allocate the costs and benefits of storage across the range of services that are affected, including generation, transmission, distribution and regulation.
Utilities and financiers, both of whom are risk averse, rely on mature generation technologies. Market uncertainty and lack of incentives for risk taking discourage the deployment of technologies that are new or have long lead times. Long development times are a particular challenge to the two leading options for bulk storage: compressed air and pumped hydro. On the regulatory side, despite numerous proposals, the future of subsidies that may be necessary to encourage deployment of energy storage facilities remains uncertain.
There are not enough incentives for storage to be put at customer sites. Customer-sited storage can provide reduced distribution losses and increased grid capacity, but as with deployment by utilities, customer-sited storage faces challenges of valuing ancillary services and capturing that value.
Cost is a high barrier to scale. The costs of emerging energy storage technologies remain high in relation to the additional capacity they provide.
There are competing policy priorities. The drive to implement energy storage technologies may detract from or directly interfere with other competing policy priorities, such as flexible demand and demand response and low electricity prices for ratepayers. Most of these concerns center on energy storage technology’s cost, specifically whether an energy storage procurement mandate would force adoption of more expensive technologies over other technologies or grid solutions that would cost ratepayers less. As an example, GE announced in May 2011 the commercial availability of a 510-megawatt, combined-cycle, gas turbine with base-load efficiency of 61% to ramp up and down at a rate of 51 megawatts per minute to adjust to wind and solar resources. Although the load balancing is done with a fossil fuel, this innovation is significant in terms of capabilities of modulating large solar and wind ramp rates. GE is introducing its first units in Europe, China, India and Brazil while the company waits to see what US policy will be on renewables and climate change.
The level of deployment of energy storage technologies is to a large extent dependent upon level of penetration of renewable energy resources. Most grids can withstand intermittent renewable energy penetration above 20% if it is well managed. At 30% penetration, intermittent renewable energy penetration can pose significant reliability risks to the grid and may require curtailment to avoid outages if no storage is deployed. However, determining who bears the responsibility of dealing with the variability of intermittent resources will become an important policy decision in the coming decades.
Storage projects are hard to finance. The current energy storage market has gained momentum because of government funding. The market is replete with subsidized projects but will ultimately require projects to take hold that are profitable on their own and can attract private investment. Lack of turnkey construction solutions with fixed price and performance and schedule guarantees coupled with un-monetized value streams hinders sustainable financing.
The Road Ahead
The road ahead will be shaped by three intertwined factors: policies, comparative costs and technical advancement. Convergence of these factors would lead to successful business models. The recent bankruptcy of battery maker A123 is a pointer that success boils down to the basic principle of demand and supply. Grid storage is competing for market share against a power sector with over a century of proven track record. The US natural gas price has widened the gap between competitors. While some market forces may be beyond the reach of energy storage supporters, policies and incentives will go a long way to pave the road.