This is not a test.

Utility Arizona Public Service has contracted for a new grid-scale battery -- not to demonstrate the technology, but because it’s a lot cheaper than the conventional alternative.

The company will purchase two 1-megawatt/4-megawatt-hour storage systems from AES for the small town of Punkin Center. This 600-person hamlet, 90 miles northeast of downtown Phoenix (and known for a bar with a prominent jack-o'-lantern sign) is bumping up against the limits of its distribution grid.

The traditional approach, which APS considered, would be to upgrade the 20 miles of 21-kilovolt cables that service the town. That requires construction through hilly and mountainous terrain, with considerable expense and local disruption.

The utility decided that batteries would be cheaper.

By tucking the AES storage systems on APS-owned land in Punkin Center, the company can deliver locally stored power on the 20 to 30 days a year when local and system peaks are expected to strain the wires.

The primary application is to make local load disappear, according to Erik Ellis, transmission and distribution manager for technology assessment and integration. He wouldn’t disclose the cost of the system, but said it was less than half of the upfront expense of the traditional wires approach.

“It means we’re evolving toward a more sustainable and effective grid where we’re no longer forced to make investments in these large, significant steps,” Ellis said. “We can take much smaller incremental steps to manage the need as it arises and not have to over-invest in some cases, as utilities have traditionally had to do in the past.”

The storage provides a targeted solution to the distribution challenge, but it also does much more.

The system will also serve as a new source of capacity. It also can use its inverters to perform voltage regulation and power factor regulation. And it can be used for energy arbitrage to soak up negatively priced energy and dispatch it when costs are higher.

The system is oversized compared to the projected T&D deferral need, so delivering power in a peak event shouldn’t stop it from playing some of those other roles simultaneously.

APS’ last storage project installed was a smaller demonstration, also with AES, to measure the value of storage for grid services on a solar-heavy feeder.

This new project reveals that storage has officially been added to the utility’s toolbox. Subsidies or policy incentives did not make the project pencil out; it beat the incumbent on cost while offering additional value.

“Utilities don't wade into new territory lightly,” Ellis said. “It was a pretty thorough vetting process to make sure this was a prudent course of action.”

The technology also provides flexibility of use.

If, in five years, load growth falls short of expectations and the wires aren’t strained, APS can pick up the units and move them somewhere more useful. Wires upgrades only do one thing in one place, and they lock the utility into population and load projections that could well change over time.

A combination of exotic circumstances made this project work: the remote location, small population, rugged terrain.

This does not mean that storage will displace every future wires upgrade.

“This particular case is a bit of an outlier,” Ellis said. “It’s an indication of the kinds of projects that are likely coming as [storage] costs continue to come down, but there aren’t a ton of these right now.”

Plenty of T&D upgrades are cheap enough that battery storage doesn’t make economic sense, he noted.

Punkin Center is an extreme case, in the same way that a very remote communications tower prompted Duke Energy to install a solar and storage microgrid rather than pay to maintain the power line through miles of wilderness.

As storage displaces the incumbent in these niche cases, it logs real-world runtime that can build confidence for the technology in other applications.

Meanwhile, it reduces the cost to all ratepayers to serve small, remote population pockets. That soothes a headache for the people of Punkin Center and the wallets of everybody else.