The State of US Energy Storage in 7 Slides

GTM Senior Vice President of Research Shayle Kann kicked off an extremely well-attended Energy Storage Summit 2016 in San Francisco and testified on the state of energy storage.

Energy storage has huge potential, but it's still a small market -- the U.S. is currently home to a modest 413 megawatts of the stuff.

Kann cited an NREL study which suggests that in an optimistic scenario, getting to 50 percent solar penetration in California with minimal negative societal impacts would still require 15 gigawatts of incremental energy storage in order to avoid excess curtailment of solar. That's 30 times the current national capacity of energy storage, noted Kann.

He said, "You could easily imagine how the total addressable market for energy storage in the U.S. is in the hundreds of gigawatts, not just tens of gigawatts."

"So many different potential value streams"

Kann cited another report, The Massachusetts Energy Storage Initiative Study State of Charge, which looked at the overall value of storage for the state. The study found that in an optimal scenario, the state could end up with 1.8 gigawatts of energy storage -- "That's four times the total cumulative capacity in the entire country today."

The report also claims that that amount of storage would provide $2.3 billion in benefits to the overall system -- with the most value in reduced peak capacity requirements. Applying these numbers to the country as a whole (admittedly "fuzzy math," according to Kann and his analysts) would translate to 124 gigawatts of energy storage and $161 billion in system benefits.

But "the reality is that the market is not yet reflecting [this] value," Kann says.

A nascent market with stark geographic concentration

Although there has been obvious growth in the U.S. (475 megawatt-hours in 2016, up from 167 megawatt-hours in 2015), the volumes are small. Residential deployments in the U.S. are measured in the hundreds, not thousands -- because there is "just not an economic case for residential energy storage yet." The commercial "market does have an economic case in some places, particularly in California, when you incorporate the Self-Generation Incentive Program (SGIP) and demand charges."

"Front-of-the-meter deployments are measured in the ones and twos," with two 80-megawatt-hour projects to be completed in California in the next few weeks.

There is an absolute seasonality and geographic concentration to the market -- driven by the timing of California's SGIP. California and Hawaii will continue to dominate.

All of these are signs of a very early-stage market that "looks like the solar market in 2005" when it comes to geographical concentration.

Aliso Canyon shows what storage can do

GTM has reported on the fast-tracking of energy storage projects to compensate for the Aliso Canyon gas leak in California and its impact on peak power capacity. Kann showed a timeline of the event and noted that the whole process took just 15 months.

Kann said that there is a necessity for energy storage to prove out its capabilities in each of its use cases. With 84 megawatts/338 megawatt-hours of deployments spurred by this incident, the familiarity with energy storage provided by the Aliso Canyon event could accelerate a number of storage applications.

The dawn of energy storage policy support

"What energy storage really needs...is for the market to create the conditions that allow energy storage to compete. Which isn't true in a lot of cases in the U.S. electricity sector -- the sector just wasn't designed with energy storage in mind," said Kann.

"What we're looking for are places either at the state or in some cases the ISO level where you have actions being taken that create supportive market condition for energy storage. We are starting to see that happen.

"There are a bunch of different ways that states are starting to provide mechanisms for behind-the-meter energy storage to have a real value proposition. The first are net energy metering and rate reform."

State mandates in California, Oregon and Massachusetts will spur front-of-meter energy storage as will grid modernization programs, "which usually include some degree of energy storage."

FERC yeah

Kann said that all of these policy efforts could "ultimately be dwarfed by the recent FERC proposal -- the most important thing to happen to energy storage from a policy or regulatory standpoint in years."

"Today, energy storage mostly doesn't play in wholesale markets" with the exception of the PJM ancillary market, to a large extent. "But there are lots of wholesale markets where energy storage doesn't play a big role not just because of economics" but because of the lack of clarity of rules and regulations. The system wasn't designed with energy storage in mind and therefore it's tough to get these projects built and financed.

The FERC proposal "might solve that," said the GTM SVP.

The proposal would allow energy storage to provide value across wholesale capacity, energy and ancillary markets. It also addresses bidding mechanisms and minimum size requirements that would enable small storage to compete. The ruling would also set guidelines that would allow DER aggregation.

This ruling would unlock immense new markets for storage. Capacity markets alone in the Northeast in 2016 to 2017 saw over 300 gigawatts, with $14 billion in payments.

"It's a huge opportunity to play in these wholesale markets," stated Kann.

All the makings of a bubble?

Kann summed it up: "Growth is a foregone conclusion. This market is going to continue to expand -- no question about that. Every day, energy storage gets cheaper to deploy, we start to figure out more of the use cases, we start to figure out more of the deployment models, and more financing enters the market."

Kann added, "I think energy storage is in an interesting place," but "it's got all the makings of a bubble," noting the "attention, excitement and investment being paid to a market where not that much is getting deployed yet -- and that should give everyone pause."

He asked, "Can we get this market built" before the bubble has a chance to pop?