Battery storage promising, but unproven and expensive

As demand for electricity continues to grow, the U.S. electric grid will increasingly use batteries to store and provide power.

More than 1,200 megawatts of utility-scale batteries – most of them installed in the last 10 years – will be on the nation’s electric grid by the end of 2018, according to the U.S. Energy Information Administration. Though storage additions to the grid have consistently doubled and even tripled each year in the last decade, batteries currently represent just 0.06% of the country’s overall utility-scale generating capacity. That share of capacity will likely not grow significantly until technology, costs and logistics reach a tipping point that makes battery storage viable for most grid operators.

Battery storage generally is not yet cost-effective on a utility- scale basis. Lithium-ion batteries account for more than 80% of those currently on the grid, but cost around $300 per kilowatt hour of capacity (installed) and have limited lifespans and problematic degradation rates, which limit their viability. Older battery technology found on the grid – nickel, sodium and lead-acid – is less efficient and certainly will not push storage to the tipping point.

Also problematic is that the same clean-energy policies that have prompted utilities to embrace renewable generation don’t favor storage. State and local initiatives often provide economic benefits for solar, wind and other renewables, but few incentivize the installation of storage to supplement them. This, combined with the unproven technology and high costs, makes major investment in storage risky, especially for utilities, which must carefully weigh the benefits against the tremendous upfront expenses and possible financial burdens that ultimately will be placed on ratepayers.

Nor do wholesale and retail rate structures typically allow optimal economic use of batteries, which can be used to reduce peak demand if they are charged during times of low demand or oversupply of energy. Rates that charge for demand and give battery owners credit for discharging during peak demand periods will create cost-based incentives for battery adoption.

There is reason to believe batteries will soon enter the mainstream of utility operations. It is widely expected that lithium ion battery costs will fall during the next 10 years, as manufacturing ramps up and battery chemistry improves. Also, potentially disruptive technologies such as flow batteries, which currently account for 1% of large-scale storage, offer longer lifespans and cycles thanks to efficient chemical reactions. Flow batteries and other emerging technologies, once proven and affordable, will help utilities and other providers implement many new approaches in how they deliver service, including:

Grid balancing. The supply of electricity provided by the grid must, at any given moment, match the demand. Grid operators typically generate power based on detailed forecasts of demand. Actual demand fluctuates, however, requiring operators to ramp up or down the amount of power being generated. Batteries can “smooth out” this volatility by either providing energy to meet the unforeseen demand or storing excess energy produced when demand unexpectedly drops. This is especially important in areas with significant solar generation, as solar production peaks mid-day, while demand peaks around sunset. Without high-performing storage, utilities must rapidly ramp up production from conventional generators to accommodate the double impact of rising demand and falling solar production. Batteries can allow grid operators to absorb excess solar production mid-day and use the stored energy to meet rising late-day demand.

Storing renewable energy. Because renewable sources such as solar and wind do not necessarily produce when needed, some of the power they generate may go unused. In some areas wind producers actually pay grid operators to take their output during low-demand times because they receive a production tax credit that more than offsets the payment. Large-scale batteries could mitigate this economic waste.

Back-up power. Energy reserves stored in batteries can be used during outages to prevent service interruptions to at least some customers who put a premium on reliability. They also can improve normal grid operation by helping control voltage levels, for example.

Peak shaving. Also known as arbitrage pricing, this practice allows utilities and other providers to buy lower-cost power during low-demand periods, then distribute it during higher-demand periods. Increased battery storage on the grid will allow providers to buy and store additional low-cost power.

Infrastructure alternatives. Increased demand for electricity requires grid operators and distributors to routinely build costly infrastructure. Utility-scale batteries may eventually offer a cheaper alternative to new power lines, substations and other structures.

These benefits are difficult to fully evaluate through traditional utility models and plans, which typically forecast 10 to 20 years out, particularly given uncertainties regarding battery technology development. Nevertheless, many utilities, including IREA, anticipate viable battery uses soon and are contemplating pilot battery projects in the near future.