A123 Systems may be struggling with the automotive battery business, but it’s making some strides on grid energy storage, announcing projects this week that illustrate different ways that large-scale lithium-ion batteries can help the power grid.

UPDATE: On Thursday, A123 announced an even bigger project to supply an 11-megawatt energy storage unit to back up a wind farm that Sempra Energy (the parent company of San Diego Gas & Electric) plans to build on the Hawaiian island of Maui. That's a lot of battery-based energy storage, though not as much as the 32 megawatts A123 is supplying to AES Energy Storage to provide frequency regulation and wind power smoothing in West Virginia.

A123 gets nearly 40 percent of its revenues from grid energy storage projects. The remaining share is made up of 50 percent transportation and 10 percent consumer business. As of July, the Waltham, Mass.-based company had grid battery installations and orders that added up to 100 megawatts by the end of 2011, much of it in partnership with AES Energy Storage.  

The new projects, on the other hand, are direct relationships between A123 and utilities, using A123’s Grid Storage Battery system, which includes the control and interface technology needed to get batteries and the grid to work together.

The first, with Massachusetts utility NSTAR, is a 2-megawatt pilot project that A123 will own and operate to serve ISO New England’s frequency regulation market under the grid operators Alternative Technology Regulation (ATR) pilot program.

Frequency regulation -- injecting and absorbing power to keep grid power stable -- is a small but lucrative niche market that’s served by generators today, though energy storage systems are being applied in limited ways. The largest-scale project of this kind, Beacon Power’s 20-megawatt flywheel installation in New York, is facing an uncertain future amidst the company’s bankruptcy.

A123’s second project with Hawaii’s Maui Electric Co. is aimed at supplying a different set of energy storage functions. The battery array will be installed at a substation serving the high-end resort community of Wailea, and will be able to supply 1 megawatt-hour of energy storage, both to reduce peak load by as much as 15 percent and to smooth voltage and improve power quality, said Chris Reynolds, Maui Electric’s operations superintendent.

In a Tuesday interview at Maui Electric headquarters, Reynolds told me that the utility is buying the battery from A123 for approximately $2 million. Much of that cost is wrapped up in the control and management system, he noted -- if the battery shows its worth, it could be expanded in size.

Maui is literally an “islanded” power grid, and can’t rely on outside resources to balance generation shortfalls or disruptions. The island also has 21 megawatts of wind power online, and is expecting a total of 72 megawatts of wind power in the coming years. On a grid with peak power demand of just under 200 megawatts, that’s a lot of intermittent power to balance out, Reynolds noted.

Maui also doesn’t have natural gas -- the majority of its power is generated by diesel fuel. That means that expensive battery energy storage doesn’t have to compete with cheap natural gas-fired electricity to prove its value. Reynolds said it’s hard to attach a dollar value to how A123’s 1 megawatt-hour battery may pay itself back over time, since the system will be utility-owned and applied toward meeting a host of utility operational goals.

Grid energy storage is still cost-prohibitive in all but a handful of specialty applications, but it’s also expected to be increasingly important as intermittent wind and solar power take a larger role in power generation. The industry will be testing a host of battery technologies at different price points, built to apply energy and power storage capacity to different business models, in order to see which ones can meet the market’s needs.

The NSTAR pilot is particularly interesting in that A123 plans to own and operate the battery itself, while also providing a service to the local grid it’s supporting. Energy storage and fuel cell companies are increasingly trying their hands at serving markets as independent power producers, not just as the makers of products.