Grid-scale energy storage – it's a tricky market to tackle, but one that offers billions of dollars to those that can get it right.

The grid storage market is set to grow from roughly $365 million today to nearly $2.5 billion by 2015, according to a new research report from GTM Research.

That growth will include a larger role for lithium-ion, flow battery and  advanced lead-acid battery technologies than they now hold in grid storage, as well as growing pressure to expand energy storage to meet the anticipated needs of adding unprecedented amounts of intermittent solar and wind power generation to the grid.

But companies making the first moves into grid storage will have to navigate a complex regulatory and economic environment to put together commercially viable projects, report author John Kluza warned.

That means finding ways to combine a myriad of storage applications, from power-oriented functions like frequency and voltage regulation to load-shifting applications aimed at saving electricity generated at night to power the grid's peak loads on hot afternoons.

And with new battery technologies still quite expensive for more massive energy-oriented storage projects, it's likely that power-oriented storage will grow faster over the short term, Kluza said.

"The markets for power-oriented storage are a lot better developed at this point," he said. Power storage represents a 49 megawatt, or $65 million, market this year, but that should grow to about 479 megawatts, or $500 million, by 2015, he said.

Those include tasks like frequency regulation, or providing short bursts of power to stabilize the grid – a market that some regional grid system operators in the United States have already opened to third parties, Kluza noted.

Flywheels can serve this purpose – that's the goal of flywheel maker Beacon Power, which has landed Department of Energy loan guarantees to assist its plans to build up to 40 megawatts of frequency regulation storage for grid operators New York Independent System Operator and PJM (see Green Light post).

But Kluza said that lithium-ion batteries are likely to become the technology of choice for such power-oriented storage applications in the coming years.

"The market is ready for it from a government regulation perspective, and it's already in place," he said. "Existing manufacturers can make it at a price that allows an economic return."

Kluza named lithium-ion battery makers A123 Systems and Altair Nanotechnologies as two contenders in that emerging grid storage market. Both companies have delivered battery systems to utility AES Corp., he noted (see A123 Systems Inks Battery Deal With Chrysler).

But A123 could jump ahead of AltairNano if utility Southern California Edison succeeds in securing a DOE stimulus grant that would, among other things, allow it to hire A123 to build a 32-megawatt grid storage battery to help manage wind power (see SoCal Edison Wants A123's Biggest Grid Battery Ever).

A123 also has an agreement with AES to deliver up to 16 megawatts of batteries, according to documents A123 has filed with the Securities and Exchange Commission.

But while these short-term, power-oriented storage needs are the most promising in the short term, energy-oriented storage – keeping energy for longer periods of time to meet peak demand times or store solar and wind power – is expected to become an even bigger market, Kluza said.

The year 2009 saw about 147 megawatts of such storage produced at a value of about $300 million, but that's expected to grow to 1,321 megawatts with a value of $1.98 billion by 2015, he said.

However, Kluza warned, "The energy markets are still in flux and being developed, or identified even – especially in the United States, where there are a lot of regulatory uncertainties."

That's not as true elsewhere in the world, where large-scale energy storage projects using sodium sulfur batteries are underway. NGK Insulators of Japan is the sole mass producer of that technology, which is best suited for massive, stationary installations since it runs at very high temperatures (see Top Ten Smart Grid: Energy Storage).

Among the largest customers, Japanese utility Tokyo Electric has installed about 300 megawatts of NGK batteries, France's EDF has bought about 150 megawatts worth, while the Abu Dhabi Water and Electric Authority has bought 50 megawatts, he said.

In the United States, NGK's biggest customer has been American Electric Power, which has 7 megawatts of batteries installed and 4 megawatts more under development, and Xcel Energy with a 1-megawatt battery. AEP is using the batteries to mitigate overloaded power lines, and Xcel is seeking to better manage wind power (see GridPoint to Manage Wind Power Battery Storage).

General Electric is also developing sodium sulfur batteries to power train locomotives as well as for future grid applications, and could become a major contender in that market, Kluza said (see GE Aims At Energy Storage For Trains, Grid).

But sodium sulfur will likely start to see some competition from flow batteries and advanced versions of old-fashioned lead acid batteries in coming years, he said.

Flow batteries, which share some characteristics with fuel cells, are becoming more cost-competitive with sodium sulfur batteries, he noted. Companies such as Deeya Energy, ZBB Energy Corp and Premium Power are making large-scale flow batteries (see ZBB Seeks DOE Dollars to Expand Flow Battery Production).

And advanced lead-acid batteries could do away with the key maintenance concerns that have limited the traditional battery chemistry's attractiveness for bulk energy storage, he noted. C&D Technologies, Axion Power International Inc. and Exide Technologies are among the companies working on grid-scale advanced lead-acid batteries.

None of the battery-based technologies can compete on a dollar-for-dollar basis with such old-fashioned energy storage methods as pumped hydro.

Furthermore, utilities can be challenged to fit storage into the regulatory framework that constrains how they spend and make money, Kluza said.

That's a point that Ed Cazelet, a former board member of the California Independent System Operator and founder of would-be grid storage startup Megawatt Storage Farms, has made in describing the challenges companies like his will face (see Green Light post).

Still, he and others predict a huge future demand for energy storage to help solar, wind and other renewable (and unpredictable) energy generation sources fit into a grid made to deliver predictable amounts of power.

Interact with smart grid industry visionaries from North American utilities, innovative hardware and software vendors and leading industry consortiums at The Networked Grid on November 4 in San Francisco.