Next week, GTM is getting a bunch of storage experts and a bunch of gas experts into a room to figure out what's going on.
We've been tracking early signs that energy storage could start chipping away at natural gas' dominance in peaking capacity. This is hugely important to grid reliability and affordability, as utilities report that meeting peak demands is their major cost driver over the coming decades.
These trends provoke a lot of questions, so I decided to write down the key ones I hope to answer Monday at the Energy Storage vs. Gas Forum in Manhattan. All you Squares who can't join us in person, look for the livestream, which you can watch during or after the event, to find out about the answers we uncover.
What is really colliding here?
We often abbreviate this topic to "storage versus gas" or "storage versus peakers," but there's quite a spectrum of tools delivering capacity for peak grid demand. That nature of the resource matters a lot for how the storage industry can hope to compete.
Sixty-year-old steamers with slow ramp rates and long minimum run times present less formidable competition than state-of-the-art aeroderivative turbines with all the latest environmental controls and efficiency gains. A fast-response reciprocating engine like Wartsila's gets closer to a battery's response time, but can run for longer durations.
Typically, when we talk about peakers, we're referring to combustion turbines, like Ravi Manghani did in his analysis of how storage compares to the operational realities of peakers today. That's a 109-gigawatt fleet across the U.S., with 20 gigawatts more expected in the next 10 years.
If storage can compete against that, it stands to grow substantially compared to today's market.
In evaluating this trend, it's important to recognize that storage and traditional peaking resources are not one-to-one replacements. They do different things, and can even work together in useful ways, with storage handling black-start or fast-ramping duties for a larger generator.
Gas and storage are not destined to be enemies, by any means. That said, we can point to specific cases where a gas plant would have been built if not for the rise of energy storage.
The question isn't whether one or the other is better. Rather, it's determining where they play well together, and where one will beat the other.
Where can storage best compete?
Progress for storage has been wildly uneven so far, and it will likely remain so.
While some states push ahead with double- and even triple-digit-megawatt projects, others haven't taken a serious look at battery storage technology.
Even within those markets, storage competes more effectively against some assets than others.
In New York City, much of the installed peaker capacity dates back 50 or 60 years. These are stinky old steamers and combustion turbines that, when called upon, dump pollutants into disproportionately poor and minority neighborhoods. There's really not much going for them besides the fact that they got built before modern environmental controls fell into place.
In fact, 30 percent of New York's peakers will hit retirement age by 2022, according to a Strategen analysis (we'll have the analyst behind that report, Lon Huber, joining us for a fireside chat on Monday). That will create an opening: Gotham needs local capacity because transmission into the metropolis is highly constrained, but it can't stick 2,860 megawatts of new gas-burning generation into the city.
That's a sweet spot for storage in the peak capacity market: time-hooked capacity shortfall in densely populated areas, especially in states with climate goals to consider.
Developers also argue that storage has an advantage in its multiple applications, whereas gas peakers can only do one thing, and typically run only 5 or 6 percent of the time.
This is true, but we haven't seen many cases where storage beats out a gas plant because it can play in multiple revenue streams. Value-stacking is still largely the stuff of pilot projects.
When First Solar beat out conventional peakers for the Arizona Public Service contract, it was because of its ability to deliver power between 3 p.m. and 8 p.m. in the summertime.
That suggests another competitive advantage: pairing with solar in favorably sunny environments to make cheap generation dispatchable.
Are early market entrants outliers or trendsetters?
The sample size of storage as peaker is still miniscule compared to the ubiquity of gas peakers.
In the absence of more data, we have to be cautious about hailing particular projects as harbingers of the future, especially if they could still become one-off loss leaders that come back to bite their investors.
That's a big reason I'm excited for the forum, because we're going to have storage evangelists and gas developers in the same room, plus plenty of people who work with both technologies. The best way to puncture the hype is to bring in sharp outside perspectives shaped by a lot of real-world experience.
It's hard to extrapolate from California's storage adoption, for instance, because the state has opted to spend a lot of taxpayer dollars on storage in the name of decarbonization. That has proven invaluable in propelling the infant industry to greater scale, but it also means projects that pencil out in the Golden State often won't in other markets.
An instructive case study will be what happens when PG&E follows through on regulators' command to procure storage in place of existing gas peakers.
GTM Research analysts believe energy storage will increasingly compete with new-build combustion turbines on the levelized cost of energy through the 2020s, and that by the end of that decade storage will almost always win out. The California Public Utilities Commission went a step further, concluding storage today amounts to a better deal for ratepayers than keeping existing gas plants open.
That's quite bold, because it asserts the upfront capital cost of storage will be less than the maintenance costs for the depreciated gas assets. If the storage industry delivers on that potential, it will mark a crucial milestone in its maturation.
What does this mean for reliability?
For storage to succeed as a mainstream peak capacity resource, it has to actually keep the lights on.
That's not a trivial matter when shutting down plants that can run indefinitely in favor of plants that eventually run out of charge. So far, battery plants can't keep discharging at full capacity for the duration of a daylong heat wave, or even a half-day heat wave.
That said, 6- and 8-hour storage can already handle most of the peak starts happening across the U.S., as I described here.
The challenge for those who wish to see storage take on gas peakers is what to do with the rare events when the peakers need to fire for 10 hours or more.
It's easy to imagine a world where storage routinely displaces gas to serve the peak starts lasting three, four or five hours. Then there needs to be some other resource as a backstop for the long peaks that require extended power.
In the nearer term, we can expect more hybridization. There's a strong case for using storage to complement gas peakers, handling the fast ramps so the generator can run at optimal settings and avoid some wear and tear. That benefits reliability, while extending the operating life of the gas asset.
How will incumbents respond?
Gas plants are no longer surefire winners for peaking contracts, and that makes things more difficult for some big names in the industry.
GE is a fascinating example to watch. As one of the biggest gas generator manufacturers in the world, it has a vested interest in keeping that business afloat. But the company has also seen the industry trends and recently stood up a new storage unit within its Power division.
Not surprisingly, GE sees value in both gas and storage. It pioneered the hybrid electric gas plant and expects to build more of those in the future. But now it's also offering a containerized storage solution that could do the job on its own, or alongside renewables. We'll have GE's newly minted storage CEO, Rob Morgan, on hand at the forum to walk us through his vision.
Siemens faces a similar predicament. Like GE, it recently laid off thousands of workers from its legacy gas turbine business, but it's also doubled down on storage with its joint ownership of Fluence.
As incumbents in this industry, these companies can leverage strong utility relationships and global sales teams to push their new storage products. Meanwhile, they can keep selling gas, and offer it with the value-adder of some batteries on top.