The government of Massachusetts released a study last Friday that lays out the costs and benefits of energy storage, setting the stage for a storage mandate that is yet to be determined.
The report concludes that 600 megawatts of storage capacity installed by 2025 would save the state’s ratepayers $800 million in system costs. Not only that, but if storage is properly located and market and policy barriers are removed, a deployment of 1,766 megawatts would optimize system benefits for ratepayers.
Plenty of researchers have modeled the value that storage and other distributed energy resources can provide for the grid. The State of Charge report, though, comes after Governor Charlie Baker signed an energy bill in August authorizing the Department of Energy Resources to set a storage target. That same department co-authored this report, marking one of the very few times when the authors of such research have the legal authority to enact their recommendations.
“These findings will be a driving force for establishing procurement goals in the state, and clearly demonstrate that the value of energy storage extends far ‘beyond the fence’ of any one system,” wrote Energy Storage Association Executive Director Matt Roberts in an email Friday.
Assuming the department follows through on its prerogative, Massachusetts will be only the third state to issue a mandate for energy storage, following California and Oregon. Since storage can provide readily available power during peak demand events, it’s useful to measure a target as a percentage of a state’s peak load. The 600-megawatt figure in the report would equate to about 5 percent of Massachusetts’ peak load, whereas Oregon’s target is 1 percent and California’s is 2 percent.
“In peak load percentage metrics, this is already a more aggressive target than the other two states,” said Ravi Manghani, energy storage director at GTM Research.
The case for storage
The argument for energy storage starts with a simple-but-convincing illustration of the imprudence of a grid without storage. Other commodities markets that provide vital services to the nation -- food, water, gasoline, oil, natural gas -- maintain storage capacities of 10 percent of daily consumption on average, whereas electricity only musters 1 percent. We keep extra water stored away in case the need for it suddenly spikes, so why not do the same with electricity now that it's becoming economically possible with a broader range of technologies?
That lack of storage as a buffer means the state has to spend a disproportionate amount of money on generating capacity for just a few moments of super-high demand each year. Between 2013 and 2015, for instance, the top 10 percent of hours of electricity by cost made up 40 percent of ratepayers’ annual electricity bills, to the tune of more than $3 billion. The New England grid operator, ISO-NE, predicts peak demand will grow 1.5 percent annually, so the cost of meeting peak demand will increase without some sort of intervention.
According to the study, a build-out of 1,766 megawatts of storage would save ratepayers more than $1 billion in reduced peak capacity costs.
There are more system-wide cost savings: transmission and distribution deferral, lower overall energy prices, better integration of intermittent renewables and ancillary grid services that smooth out the momentary differences between supply and demand.
Factoring those all in produces system savings of $2.2 billion, at a cost of between $907 million and $1.3 billion. That’s a clear win for electricity customers, with a cost-benefit payout between 1.7 and 2.4, depending on how much it ends up costing.Source: DOER et al.
Eyes on the target
Though the fullest range of benefits would come from 1,766 megawatts of storage capacity, the report suggests short-term policies that should produce 600 megawatts of capacity. The action items to achieve this include grant programs, incorporating all types of advanced storage in the alternative portfolio standard, changing market design and creating an Advanced Storage Working Group at ISO-NE.
“The initial proposal recommendation of 600 megawatts of procurement by 2025 can be considered a bit conservative, when the system analysis indicates that 1,766 megawatts is the optimal amount of storage that will maximize ratepayers’ benefits,” Manghani said. “But it's not unreasonable to allow for policymaking to walk before it can run, especially when the industry has only recently started to overcome challenges related to safety, performance, etc.”
Deployment of 600 megawatts would equate to a massive increase over the resources available now, but it would not require an outlandish mobilization to achieve.Source: DOER et al.
The study says the state currently wields 2 megawatts of advanced energy storage (not including the old-school pumped hydro), ranking 23rd among states. GTM Research predicts an annual deployment of 5 megawatts in 2016, growing to 79 megawatts in 2021, with a cumulative 235 megawatts in place that year. Those numbers factor in the impact that a statewide storage target would have on the market, and will shift accordingly when the actual target is chosen.
GTM Research’s current projections stop at 2021, leaving four more years to reach the goal. If the rate of deployment freezes for those four years, that scenario would result in 551 megawatts by 2025. In all likelihood, the rate of deployment will keep growing each year as the vendors scale up and costs come down.
It’s hard to predict what the market will look like that far out. It appears, though, that 600 megawatts is well within the realm of possibility.
The State of Charge report will likely influence other states as they decide their own storage policy. Coming from the state body responsible for overseeing the energy system, the findings carry more weight than a typical research paper.
The detailed systems modeling used to generate the findings will provide a useful example for other states to follow, noted ESA's Roberts.
“Assessing the value of energy storage by developing comprehensive models that can properly value fast-responding, dynamic resources is a valuable first step for states to take,” he said. “Given the limited role that energy storage has played on the grid historically, most of the traditional planning models were not designed to assess energy storage alternatives and instead rely on inefficient and outmoded solutions.”
The report's authority also results from its inclusive methodology, said Betty Watson, director of policy and electricity markets at SolarCity, which has started installing solar-plus-storage projects in the Northeast U.S. The research team included two state offices, five consulting firms and industry input.
“This report is the most comprehensive we have seen on the value of energy storage,” she wrote in an email Friday. “It represents a variety of viewpoints and technical expertise, and should be weighed heavily when considering the state procurement target, and [in] other states considering battery storage targets.”
Other states will need to conduct their own studies on how storage would interact with their particular markets, but the Massachusetts study can advance the starting point of subsequent analyses.
The question is no longer, “Can storage provide benefits?” so much as, “How can we maximize the benefits storage provides?”
“The number-one barrier to storage adoption in markets across the U.S. is the mistaken perception that energy storage technology is not ready, that it’s still too expensive,” Ted Ko, policy director at storage and software company Stem, wrote in an email Friday. “This rigorous, compelling study should show other markets that storage is ready to provide major ratepayer benefits when they can identify and resolve their policy barriers.”
He added that Stem has been working with one of the largest retail energy providers in Massachusetts to design a commercial and industrial storage offering for some of the largest employers headquartered there. If the state follows through with an ambitious storage target, he thinks “Massachusetts will jump to near the front of the line for U.S. energy storage markets.”
The benefits in that case would not be limited to ratepayers. It would create a business opportunity for storage developers unrivaled by all but a handful of other states.