jp spring ulhaq final

8/7/2019 JP Spring UlHaq Final

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Quti

Stationary Grid-level Energy Storage in the U.S.Major Issues and Policy Options

Faaez Ul Haq

Professor Harold Feiveson

WWS 402: Renewable Energy and the Electric Grid in the U.S.


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Executive Summary

To adequately meet the reliability needs introduced by integration of renewable

resources and smart grid technologies into the U.S. grid, a careful planning of bulk and

distributed energy storage systems into the electric grid is necessary. These storage systems

will provide better, more economically efficient ancillary services that ensure quality of

electricity supply, mitigate the stress on the national grid by time and load shifting energy

capacity and allow greater penetration of renewable energy resources into the national grid.

Energy storage systems can be broadly categorized into bulk and distributed systems.

While large-scale bulk storage systems like pumped hydro and Compressed Air Energy

Storage (CAES) are better suited to providing long-term load shifting services, which do not

require a fast response time, distributed sources with a short response time, such as batteries

and flywheels are best suited for short-term services such as Frequency regulation. Each of

these resource categories has several issues of interest, discussed in detail in this paper, that

finally inform the following set of policy recommendations:

1) FERC should identify and eliminate systemic opportunities for discriminationagainst storage systems by transmission providers: FERC should ensure that there is noopportunity for undue discrimination against storage systems by transmission providers, by reviewing tariff structures and mechanisms used by transmission providers and BAs tocompensate independent providers of electricity. FERC has already proposed rules thatallow storage devices to compete fairly with generating sources in frequency and voltageregulation markets and standardized the way Available Transfer Capability (ATC) metric,

which directly affects prices, is calculated1, but the same rules should be extended to non-regulation, wholesale electricity markets as well.

2) FERC should mandate that quality of electricity supply be factored intopricing: Quality of electric supply should be incorporated into compensation for regulationservice, instead of compensating the operator purely on the basis of energy output and theopportunity cost of foregone sales from the generation capacity reserved for regulation.

1 Docket Nos. RM05-17-000 and RM05-25-000, http://www.ferc.gov/whats-new/comm-meet/2007/021507/E-1.pdf , accessed on Apr 28th 2011


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Currently, only the NYISO adjusts its compensation according to the accuracy of a systemsresponse by maintaining an index that tracks the accuracy of a regulating resource infollowing AGC dispatch signals.2

3) FERC should mandate that the cost of additional regulation service be borne

by the party introducing supply variability: The cost of additional regulation servicesrequired due to the variability in a systems output should be shifted to the system operator,to accurately reflect the real cost of the energy produced. Operators of wind farms, e.g.,could be required to install regulation capacity to offset the variability of their systemsoutput, or the compensation provided to the operator be adjusted according to thevariability of their output.

4) Tax and/or Energy Credits should be provided for Storage Systems: Theimportance of storage technologies to the successful integration of ERG and smart gridtechnologies into the grid should be recognized and tax and/or energy credits, similar to theones extended to renewable resources should be introduced. This will encourage investment

in the high-risk area of cutting edge grid-level storage technologies, especially considering theinherently risk-averse nature of these technologies primary customer, i.e., the utilities.

5) DOEs Loan Guarantee Program should be continued: Department of EnergysLoan Guarantee Program for renewable resources has been instrumental in starting upseveral high-risk, high-return projects. NYISOs 20 MW flywheel plant is one example of the same. As of November 2010, the Obama administration was considering abandoning theDOE loan guarantee program and shifting the remaining funds to a pool for Section 1603investment credits3. While this may benefit some players in the renewable resource market,such as wind generator operators, it may prejudice the position of others, who depend onloan guarantees to undertake high-risk projects that are crucial to the evolution of the grid

in the U.S.

2 FERC, Frequency Regulation in the Organized Wholesale Power Markets, Docket Nos.RM11-7-000, AD10-11-000, http://www.ferc.gov/whats-new/comm-meet/2011/021711/E-4.pdf , accessed on Mar 20th 2011, pp.73 Lane, Jim, Obama May Kill Key DOE Loan Guarantee Program,http://www.renewableenergyworld.com/rea/news/article/2010/11/obama-may-kill-key-doe-loan-guarantee-program, accessed on Mar 26th 2011


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Introduction

It is hard to imagine the future of the electrical industry in the U.S. without viable

grid-level4

energy storage options. While the sophistication of these storage systems can vary

from a simple (yet expensive) pumped hydro system, to high-capacity batteries based on

breakthroughs in advanced materials science, the degree to which these will be critical to the

future of the electrical grid is undisputed. Some of the most critical issues that face the

electrical industry today are inextricably tied to the ability (or inability) to store electricity at

the grid level.

In this paper, the need for grid-level energy storage is established, followed by an

assessment of the different kinds of energy storage available, an analysis of how the storage

could be used, and finally a presentation of the main findings and policy options.

Why Storage?

The following graph shows that electricity demand in the country is projected to

increase at 1% every year through 20355, when the country is expected to consume over 5

trillion kWh of electricity per year6.

4 Grid-level, in this context means 1 MW and above5 U.S. Department of Energy, Energy Information Administration, Annual Energy Outlook2010 with Projections to 2035 (May 2010),http://www.eia.doe.gov/oiaf/aeo/electricity.html , accessed on Mar 1st 2011


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Fig. 1) U.S. Net Electricity Consumption7

To meet this need, an additional 250 gigawatts of generating capacity will have to be

put in place.8 At the same time, the expansion of and shifts in national cultural imperatives,

especially as they relate to distributed grid capacity and electrical vehicles, growth of

embedded renewable energy sources in the grid and the evolution of the smart grid, which

will further stress the electrical grids generation, distribution and transmission capacity.

Reliable and cost-effective grid-level energy storage can help address these concerns

in the following four broad categories:

1) Ancillary Services at Scale:To maintain reliability and quality of service in

electricity transmission, several Regional Transmission Organizations (RTOs)/Independent

System Operators (ISOs) maintain wholesale electricity markets where about 130 Balancing

Authorities (BAs) provide ancillary services such as Frequency and Voltage regulation, Load

Following or Ramping and redundant capacity for reliability control (See Appendix A for a

list of ancillary services provided by energy storage systems).

7 U.S. Department of Energy, Electric Power Industry Needs for Grid-Scale StorageApplications, http://www.oe.energy.gov/DocumentsandMedia/Utility_12-30-10_FINAL_lowres.pdf , accessed on Mar 15th 20118 Ibid., the generation capacity was 813 gigawatts (GW) as of 2001


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The most important of these services is Frequency regulation, whereby real power is

injected or withdrawn from a system depending on its frequency deviations or power

interchange imbalance over a scale of 10 seconds to several minutes. This is done with a view

to providing steady power without significant frequency deviations. Both of these factors are

measured by a single metric, the Area Connection Error (ACE), which is a measure of i) the

offset between a BAs scheduled and actual interchange9 and ii) the BAs share in correcting

the frequency of the interconnection. ACE is then used as the basis of Automatic Generation

Control (AGC) signals that are sent to service providers (SPs) who can then bid on portions

of the advertised load requirement10

. Upon a successful bid, the SPs must inject or withdraw

energy from the grid at the specified time. It must be noted that Frequency regulation is

different from Frequency response, which is the automatic and autonomous action of both

generating sources and technically capable demand response consumers to respond to

frequency shifts in the transmission. Frequency response does not require the BA to send out

AGC signals, as is the case in Frequency regulation.

While historically, generators have been used to provide most ancillary services, grid-

level energy storage systems are increasingly being deployed in RTOs and ISOs across the

country to do the same. Not only are many of these systems more responsive to AGC signals

from BAs than conventional generators, but under the right regulatory framework, they are

more economically efficient too. In situations where generators are used to provide these

ancillary services, they must be able to ramp up and ramp down by changing the output

9 Energy transfers that cross Interchange boundaries10 At least in the case of ISOs and RTOs that maintain a wholesale market for electricity


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of real power from a generating unit per time (usually measured as megawatt/minute)11 .

Energy storage systems do the same by discharging and recharging, to ramp up and down,

respectively. Flywheels and large-scale batteries, in particular, provide ACE correction

rapidly 12 . Fig.1 shows the dramatic difference in the responsiveness of conventional

generators as compared to advanced energy storage systems. The green line is the required

level of output, while the red line shows the resources actual response. It is important to

note that further value is lost due to a mismatch between the AGC signal dispatched by the

BA and the subsequent response by the operator, because the BA may have to solicit

additional resources to balance the offset introduced by slow/inaccurate ramping energy

resources.

Fig. 2) A comparison of a slow-ramping generators response with that of advanced energy

storage

11 FERC, Frequency Regulation in the Organized Wholesale Power Markets, Docket Nos.RM11-7-000, AD10-11-000, http://www.ferc.gov/whats-new/comm-meet/2011/021711/E-4.pdf , accessed on Mar 20th 2011, pp.212 Ibid.


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Electrical plants use spinning reserves13 to provide redundant capacity, in case

another generator fails, to prevent unscheduled fluctuations in output. However, this

requires the backup generators to be running at all times, without contributing to

production. Using energy storage systems instead of conventional generators to provide

ancillary grid services can potentially free up 1-3% generation capacity 14 , which would be

significant given the linear increase in electricity consumption in the U.S. through 2035.

Some Balancing Authorities (BAs) in RTO and ISO markets provide unit-specific

opportunity cost payments to independent sellers of electricity, who maintain generation

capacity to specifically keep the ACE under acceptable limits15

. Compensation structures for

ancillary services at the ISO/RTO level are biased against storage systems providing the

same services (as compared to conventional generation sources). While new Federal Energy

Regulatory Commission (FERC) initiatives, such as FERC Order 890, have opened

regulation markets to non-generation energy technologies by categorizing them as (Limited)

Energy Storage Resource (LESR or ESR), tariff structures in most ISO/RTOs disadvantage

fast-ramping energy storage devices against conventional spinning reserves by including the

opportunity cost of foregone sales from generation capacity set aside for frequency regulation

in the compensation paid to the operators, while ignoring the speed of ramp up/down. This

is problematic because a slow ramping, high-capacity regulating resource may put in a high

amount of energy into the system, but still not provide useful regulation because of slow

13 Unloaded generation that is synchronized and ready to serve additional demand.14 Beacon Power, Application of Fast-Response Energy Storage in NYISO for FrequencyRegulation Services. Retrieved March 25th, 2011, fromhttp://www.beaconpower.com/files/UWIG-presentation-April2010.pdf 15 FERC, Frequency Regulation in the Organized Wholesale Power Markets, Docket Nos.RM11-7-000, AD10-11-000, http://www.ferc.gov/whats-new/comm-meet/2011/021711/E-4.pdf , accessed on Mar 20th 2011, pp.2


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ramp up, thereby needlessly increasing the cost of frequency and voltage regulation. Because

advanced storage systems are more accurate in their response, service providers could have

incentive to install them even with their higher installation cost per megawatt (MW) output

capacity, if compensation structures at the ISO/RTO level are changed to accurately reflect

the useful frequency regulation provided by the operator. In fact, tariff and compensation

structures revisions proposed by FERC in 2009 and 2010 incorporated the accuracy of

performance16 for balancing services into the compensation structure, instead of purely

relying on the net energy input into the system, and NYISO has already adopted these

revisions.

2) Embedded Renewable Generation (ERG) and Climate Change Initiatives

(CCI): Recent climate change regulations and commitments, such as the Clean Air Act,

Energy Independence and Security Act of 2007 and the Copenhagen Accords, which require

or recommend carbon emission reductions, imply that there will be a significant shift in the

resource mix of U.S. electricity generation.17 As the proportion of fossil fuels in the resource

mix makeup decreases, renewable sources of energy will account for an increasing amount of

the U.S. electricity generation capacity. Although under current policies, renewable sources

are anticipated to contribute only about 14% of U.S.s totalelectricity output in 2035, up

from 10% in 200918 , this still implies that the electricity generated from renewable sources

16 Accuracy in this context means the speed of ramp up/down. Cf. Fig 217 NERC, Reliability Impacts of Climate Change Initiatives: Technology Assessment andScenario Development. Retrieved March 20th, 2011, fromhttp://www.nerc.com/files/RICCI_2010.pdf .18 U.S. Department of Energy, Energy Information Administration, Annual Energy Outlook2010 with Projections to 2035 (May 2010),http://www.eia.doe.gov/oiaf/aeo/electricity.html , accessed on Mar 1st 2011


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will increase by 73% over the next 25 years.19 Nearly 50% of this added renewable capacity

would be met by variable energy sources like wind and photovoltaic solar. (See Appendix D

for the complete makeup of U.S. renewable energy portfolio in 2035). Because these energy

sources rely on weather-based fuel (wind and sunlight, respectively), there is great

fluctuation in their electricity output across time, and they are categorized into a separate

class of resource called Variable Generation (VG). VG resources further accentuate the

endemic frequency and load fluctuations in transmission systems and require buffer storage

capacity to be feasible.20 In fact, in a seminal study sanctioned by the National Renewable

Energy Laboratory (NREL) on the embedding of wind and solar resources into the electric

grid found that with better utilization of existing pumped hydro storage systems, wind could

provide 35% and solar 5% of the energy in the WestConnect group of utilities in the U.S.21

Weather-based fluctuation in output over time is especially problematic for wind

generation: firstly because peak production for wind turbines usually occurs during off-peak

hours of the day and secondly because large-scale integration of geographically diverse

resources does not guarantee a sufficient decrease in output variability over time: while

aggregate frequency variation over such resources may go down, operating experience in

areas with large amount of wind resources such as the Columbia basin and western part of

the ERCOT system has shown that variability and fluctuation of individual plants can

correlate with that of others over distances of a few hundred miles for large weather

19 Ibid.20 North American Electric Reliability Corporation (NERC), Potential Reliability Impacts ofEmerging Flexible Resources, November 2010,http://www.nerc.com/docs/pc/ivgtf/IVGTF_Task_1_5_Final.pdf , accessed on March 16th2011, pp.121 NREL, Western Wind and Solar Integration Study, May 2010,http://www.nrel.gov/wind/systemsintegration/pdfs/2010/wwsis_final_report.pdf ,accessed on March 25 th 2011, pp. 277-280


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systems.22 Given that wind energy constitutes the fastest growing energy source in the U.S.,

with capacity growing 30% per year over the last five years alone23 and another 200 GW

projected in the next ten years24 , large scale, inexpensive storage systems, such as pumped

hydro or CAES will be necessary to accommodate the high volume of VG capacity

embedded in the grid.

3) Smart Grid and Demand-Response (DR): Commenting on the importance of

energy storage to smart grid technologies, a particularly imaginative blogger likened the

smart grid to a computer: neither is particularly useful without storage.25 In any market with

variability in supply and demand, an economically efficient outcome requires some level of

elasticity in the supply and demand curves: in the face of higher prices, consumers scale back

their consumption and suppliers ramp up their supply, and vice versa, until an economically

efficient outcome is reached. In the wholesale electricity market, however, elasticity of

electricity supply is severely limited by the fact that electricity produced needs to be

consumed almost immediately and output of energy sources is relatively fixed either because

they rely on time-dependent fuels, such as in the case of VGs, or because it is not

economically feasible to completely shut down operating resources at times of low demand.

An essential component of the smart grid and proposed DR programs is a variable pricing

feature that would make the demand curve more elastic by letting consumers vary their

22 North American Electric Reliability Corporation (NERC), Potential Reliability Impacts ofEmerging Flexible Resources, November 2010,

http://www.nerc.com/docs/pc/ivgtf/IVGTF_Task_1_5_Final.pdf , accessed on March 16th2011, pp.223 Ibid. pp. 3424 Estimates of proposed and conceptual sources, according to a NERC report. Much of thiscapacity is likely not to actually materialize, but the figure gives an idea of the scale ofinterest in VG resources25 Katie Fehrenbacher, Energy Storage for the Smart Grid,http://gigaom.com/cleantech/faq-energy-storage-for-the-smart-grid/ , accessed on Mar 21st 2011


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electricity consumption according to the price. However, for the smart grid and proposed

DR programs to be truly successful, the supply curve needs to be made more elastic as well.

This can be achieved through existing tools that BAs use for load management, specifically

called Load Following and Electric Energy Time Shift.26

Load Following is the practice of changing power output in response to the changing

balance between electricity supply and demand in the system. As in the case of Frequency

regulation, spinning reserve generators are typically used to provide these services, but

advanced storage systems, especially short-term distributed storage with a faster response-

time such as large-scale batteries and flywheels are better suited to provide Load Following

services. Electric Energy Time Shift is the practice of storing energy when the demand, and

therefore price is low, and selling the stored electricity back to the grid when consumption

peaks in the day and prices are higher. For this purpose, long-term, more centralized storage,

such as pumped hydro and compressed air energy systems (CAES) are more useful, because

response time is not an issue and input/output can be scheduled along observed patterns

over time.

4) Alleviating Pressure on the Current Grid: As electricity demand and

sophistication of regulatory mechanisms increases, additional transmission and distribution

infrastructure is required to deliver electricity to consumers and make wholesale electricity

markets work. However, building transmission lines is a costly and time-consuming

undertaking and even existing transmission lines experience very low capacity utilization

26 U.S. Department of Energy, Electric Power Industry Needs for Grid-Scale StorageApplications, http://www.oe.energy.gov/DocumentsandMedia/Utility_12-30-10_FINAL_lowres.pdf , accessed on Mar 15th 2011, pp. 18-20


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because they are built for high reliability during peak conditions.27 Building a mile of high

voltage transmission lines can now cost several million dollars and obtaining rights-of-way

and the necessary permits can take 5-7 years.28 In this context, a more time- and cost-

efficient solution would be to use grid-level storage to mitigate the effect of higher

consumption on the grid.

Relatively small amounts of grid-level energy storage can help alleviate pressure on

the current grid by storing power during times of low demand and dispensing it during peak

conditions. E.g., according to an Electric Power Research Institute (EPRI) report, a 15-

minute energy storage device can provide continuous Frequency regulation, given that it can

dynamically charge up and down in response to AGC signals.29 By building storage systems

closer to the point of use, grid congestion is reduced during peak periods as well. Therefore,

instead of building long transmission lines across interchanges to fulfill Load Shifting and

Frequency regulation needs, distributed storage can be used to provide the same services and

thereby defer or substitute the upgrade of transmission and distribution systems.

Principal Findings: Various Storage Systems and Related Issues of Interest

All electricity storage systems are not equal: to meet the spectrum of energy storage

needs in the grid, storage systems vary by power ratings (from kW to MW) and energy

discharge ratings (millisecond to hour scale) and each of them is better suited to a particular

grid storage application than another. These storage systems can be broadly categorized into

27 U.S. Department of Energy, Electric Power Industry Needs for Grid-Scale StorageApplications, http://www.oe.energy.gov/DocumentsandMedia/Utility_12-30-10_FINAL_lowres.pdf , accessed on Mar 15th 2011, p. 1828 Schainker, Robert B., Energy Storage Options For A Sustainable Energy Future, IEEE, p.529 Application of Fast-Response Energy Storage in NYISO for Frequency Regulation Services.Retrieved March 25th, 2011, from http://www.beaconpower.com/files/UWIG-presentation-April2010.pdf , p.8


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Bulk and Distributed systems, and in this section, two of the more important ones in each

category are assessed for their suitability to different applications.30 (See Appendix B for an

overview of more storage technologies and Appendix C for the criteria used). Bulk storage

systems are better suited to energy applications, which include long-term services like

Load Shifting because they have higher capacity but slower response time, whereas

distributed systems are better suited for power applications, which include short-term

services that require fast-responding storage systems, such as Frequency regulation.

Fig. 4) Categorization of different storage systems

Compressed Air Energy Storage (CAES): With the lowest capital cost of storage, on

a per kW-basis, and an AC-AC roundtrip efficiency of 85%, CAES is well-suited for large-

scale storage needs for providing services in the energy applications category. CAES plants

30 U.S. Department of Energy, Electric Power Industry Needs for Grid-Scale StorageApplications, http://www.oe.energy.gov/DocumentsandMedia/Utility_12-30-10_FINAL_lowres.pdf , accessed on Mar 15th 2011

StorageSystems

Mobile Storage

Electric/HybridVehicles

StationaryStorage

Bulk Storage

CAES

Pumped Hydro

DistributedStorage

Flywheels

Batteries


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use off-peak electricity to pump air into underground reservoirs or surface vessel/piping

systems and then use the compressed air to drive expansion turbines after heating the air

with conventional fossil fuels. This process is three times more efficient than a plant that

would use the fossil fuel directly in combustion turbines.31

To date, only one large-scale CAES plant has been built in the U.S., which is

operated by Alabama Electric Cooperative. However, recent EPRI studies have shown that

three-fourths of the U.S. has geology suitable for reliable underground storage of compressed

air32 and therefore more companies are venturing into this space. One such company is

SustainX, a GE-investee, which focuses exclusively on CAES systems.

SustainXs technology is novel in that unlike conventional CAES systems, it does not

use fuel to heat the air up before compression, relying instead on its isothermal

compression technology, which is more energy-efficient and uses thermodynamic and

hydraulic control mechanisms to achieve the same results.33 In an interview, Adam

Rauwerdink, a Business Development Executive at SustainX commented that despite

limited rollout of CAES systems in the U.S., significant growth in the sector is expected

because of improvements in technology and regulatory frameworks under which CAES falls.

Specifically, he believed that In addition to the existing CAES system in Alabama, another

one is being installed at the Iowa Compressed Air Storage Park and more are in the planning

phase, to be implemented in NY and CA.

Pumped Hydro: Pumped hydro is the oldest form of energy storage system

considered in this paper: its usage dates back almost a hundred years and the technology

31 Interview with Adam Rauwerdink, Business Development Executive, SustainX32 Schainker, Robert B., Energy Storage Options For A Sustainable Energy Future, IEEE, p.233 Interview with Adam Rauwerdink, Business Development Executive, SustainX


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relies on the simple idea that water can be pumped to a higher reservoir and the stored

potential energy used to generate electricity at a later time by driving turbines. With about

38 plants in operation in the U.S., it is also the most widespread form of large-scale energy

storage in the country.34

Despite its widespread use, however, pumped hydro has recently fallen into relative

disfavor due to various reasons. Thanks to high total costs of building (even though it is

relatively cheap on a per kW basis), long project completion times (10 years on average,

with 5 years waiting-time for permits35) and unavailability of suitable sites, environmental

concerns and the fact that the Department of Energy discontinued its own Hydropower

program in 2006 (although it was re-started three years later with a focus on storage)36 ,

private companies are turning to other forms of large-scale storage instead.

Nevertheless, pumped hydro remains the second-cheapest form of energy-storage

after CAES, on a cost per kW-basis and is ideally suited to provide grid-level Electric Energy

Time Shift services, where the scale, and not the responsiveness of the system is the more

important factor. Further innovations in siting capabilities, such as using closed-loop

pumped hydro, where two off-stream reservoirs are used so that natural ecosystem of rivers

and natural water bodies is not disturbed, and underground pumped hydro, where the lower

reservoir is excavated from subterranean rock have also made it possible to consider situating

pumped hydro at sites which would have been deemed unsuitable in the past. While the

34 Ibid.35 DOE Promotes Pumped Hydro as Option for Renewable Power Storage - NYTimes.com..Retrieved March 26 th , 2011, fromhttp://www.nytimes.com/gwire/2010/10/15/15greenwire-doe-promotes-pumped-hydro-as-option-for-renewa-51805.html.36 Ibid.


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latter siting approach would provide more flexibility in siting, currently the cost is too

prohibitive and the approach remains a project of EPRI and DOE R&D.37

Battery Storage: While the specific characteristics of a battery depend on its

electrochemical makeup, which can vary significantly among different battery technologies,

all batteries have the advantage of being modular, quiet, non-polluting and quick to respond

to changes in demand. For this reason, they make excellent storage systems for services in the

power application category. However, unlike flywheel storage, CAES and pumped hydro,

batteries span the energy and power application category: while they have traditionally

provided services in the power application category, breakthroughs in battery design have

meant that they can be feasibly used for energy applications as well.

Batteries can be broadly categorized into Solid and Liquid Electrode batteries.

While the former are appropriate for power applications, where fast charge-up/discharge is

required but discharge duration is not an issue, the latter use liquid electrolytes as the active

materials in place of solid electrodes and are better suited to long-term services in the energy

applications category.38

Another battery that does not fit into either of these categories is the metal-air

battery. Instead of using two solid electrodes, the battery uses only one solid electrode and

oxygen in the air as the other active material in its electrochemical reactions. These have

traditionally not been serious contenders for grid-level deployment since they are not

rechargeable and are prohibitively expensive, a PA firm, Grid Storage Technologies (GST), is

37 Ibid.38 North American Electric Reliability Corporation (NERC), Potential Reliability Impacts ofEmerging Flexible Resources, November 2010,http://www.nerc.com/docs/pc/ivgtf/IVGTF_Task_1_5_Final.pdf , accessed on March 16th2011, pp.13


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currently working on a rechargeable utility-scale metal-air battery that is scheduled for

production next year39 . In an interview, the CEO, Michael Oster explained that having one

electrode significantly reduced the physical footprint of the battery and enabled distributed

storage to be deployed close, in proximity to the major points of consumption, thereby

reducing congestion on the transmission lines at peak capacity. GSTs technology would also

have 1/5 the cost/MW of traditional battery storage and be safer due to being water-based

and therefore, not prone to chemical runaways.40

The stimulus bill of 2009 set aside $2 billion in grants for manufacturing advanced

batteries41

. Understandably, this has led to much R&D being carried out at universities,

national labs, such as DOEs Sandia Laboratories and well-capitalized private labs42 .

However, there are several issues that still need to be addressed by government regulatory

agencies, especially FERC, for battery storage to become a viable large-scale storage option.

According to Mr. Oster, storage systems need to be treated on an equal footing to

energy production resources, because they essentially perform the same basic function:

provide electricity at a price that a consumer is willing to pay. Despite having the technical

capacity to do so, battery storage is prevented from providing much of the same services that

energy resources provide because of prohibitive policy that favors energy production sources

over storage systems. Mr. Oster expressed concern that while ERG sources imposed

additional cost on the grid by introducing variability in supply, they did not have to bear the

39 Interview with Grid Storage Technologies CEO, Michael Oster, March 28th 201140 In Chemistry, refers to a situation where an increase in temperature changes theconditions in a way that causes a further increase in temperature, often leading to adestructive result. It is a kind of uncontrolled positive feedback.41 Bullis, Kevin, Stimulus Big Winner: Battery Manufacturing, Technology Review,http://www.technologyreview.com/energy/22188/?a=f , accessed on March 27th 201142 Interview with Michael Oster, CEO, Grid Storage Technologies, March 28th 2011


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cost of ancillary services that corrected for this variability. This unduly disadvantages storage

systems like batteries, which provide high-quality regulated supply to the grid and do not

impose additional cost on the grid by requiring corrective ancillary services but nevertheless

had to compete with ERG sources on a similar pricing structure. His contention was that

quality of electricity supply be factored into the compensation structure, so that batteries

can compete more effectively against other grid technologies.

Similarly, ERG resources get tax and energy credits, which offsets the high

installation costs of the systems, whereas battery storage does not- even though it arguably

adds societal environmental value to the system by reducing the load on generating resources

that utilize fossil fuels and emit greenhouse gases.

Lastly, he believes that the biggest challenge facing emerging battery technologies

was the risk-aversion of utility companies. Since cutting edge technology has usually not had

sufficient testing deployed at the grid-level, utility companies are wary of installing it in their

systems.

Flywheels

Flywheel storage relies on the angular momentum of a rotating mass in vacuum. To

charge up, the flywheel is spun up to the right speed by a generator run by electricity and

the same generator is then used in a discharging cycle to translate the momentum of the

flywheel into electricity. Due to the short discharge capacity (most are between 1MW-

5MW) and high efficiency (around 90% AC-AC translation)43 flywheels are usually only

used to provide short-term power applications.

43 North American Electric Reliability Corporation (NERC), Potential Reliability Impacts ofEmerging Flexible Resources, November 2010,


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The 2009 FERC approval of market rules that allowed energy storage systems to

provide regulation services sparked an interest in flywheels as fast, efficient sources of short-

term regulation capacity. The first 20 MW flywheel regulation plant was installed in

Stephentown, NY to provide regulation services in the NYISO.44 The facility, operated by

Beacon Power, stores excess electricity at times of low electricity demand, and sells it back

at times of high demand.

Policy Recommendations

Increase in energy consumption, integration of ERG and smart grid technologies into

the grid and the subsequent impact that each will have on the reliability of the grid, will

require more bulk and distributed storage capacity. To this end, the following policy options

are proposed:

1) FERC should identify and eliminate systemic opportunities for discrimination

against storage systems by transmission providers: FERC should ensure that there is no

opportunity for undue discrimination against storage systems by transmission providers, by

reviewing tariff structures and mechanisms used by transmission providers and BAs to

compensate independent providers of electricity. FERC has already proposed rules that

allow storage devices to compete fairly with generating sources in frequency and voltage

regulation markets and standardized the way Available Transfer Capability (ATC) metric,

which directly affects prices, is calculated45 , but the same rules should be extended to non-

http://www.nerc.com/docs/pc/ivgtf/IVGTF_Task_1_5_Final.pdf , accessed on March 16th2011, pp.1444 Beacon Power, Application of Fast-Response Energy Storage in NYISO for FrequencyRegulation Services. Retrieved March 25th, 2011, fromhttp://www.beaconpower.com/files/UWIG-presentation-April2010.pdf , pp. 1145 Docket Nos. RM05-17-000 and RM05-25-000, http://www.ferc.gov/whats-new/comm-meet/2007/021507/E-1.pdf , accessed on Apr 28th 2011


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regulation, wholesale electricity markets as well. When interviewed, representatives from

both SustainX and Grid Energy Storage expressed similar concerns, claiming that the

disparity between regulation of storage and production systems puts the former at a

disadvantage and inhibits investment and R&D in the area.

2) FERC should mandate that quality of electricity supply be factored into

pricing: Quality of electric supply should be incorporated into compensation for regulation

service, instead of compensating the operator purely on the basis of energy output and the

opportunity cost of foregone sales from the generation capacity reserved for regulation.

Currently, only the NYISO adjusts its compensation according to the accuracy of a systems

response by maintaining an index that tracks the accuracy of a regulating resource in

following AGC dispatch signals.46

3) FERC should mandate that the cost of additional regulation service be borne

by the party introducing supply variability: The cost of additional regulation services

required due to the variability in a systems output should be shifted to the system operator,

to accurately reflect the real cost of the energy produced. Operators of wind farms, e.g.,

could be required to install regulation capacity to offset the variability of their systems

output, or the compensation provided to the operator be adjusted according to the

variability of their output.

4) Tax and/or Energy Credits should be provided for Storage Systems: The

importance of storage technologies to the successful integration of ERG and smart grid

technologies into the grid should be recognized and tax and/or energy credits, similar to the

46 FERC, Frequency Regulation in the Organized Wholesale Power Markets, Docket Nos.RM11-7-000, AD10-11-000, http://www.ferc.gov/whats-new/comm-meet/2011/021711/E-4.pdf , accessed on Mar 20th 2011, pp.7


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ones extended to renewable resources should be introduced. This will encourage investment

in the high-risk area of cutting edge grid-level storage technologies, especially considering the

inherently risk-averse nature of these technologies primary customer, i.e., the utilities.

5) DOEs Loan Guarantee Program should be continued: Department of Energys

Loan Guarantee Program for renewable resources has been instrumental in starting up

several high-risk, high-return projects. NYISOs 20 MW flywheel plant is one example of

the same. As of November 2010, the Obama administration was considering abandoning the

DOE loan guarantee program and shifting the remaining funds to a pool for Section 1603

investment credits47

. While this may benefit some players in the renewable resource market,

such as wind generator operators, it may prejudice the position of others, who depend on

loan guarantees to undertake high-risk projects that are crucial to the evolution of the grid

in the U.S.

47 Lane, Jim, Obama May Kill Key DOE Loan Guarantee Program,http://www.renewableenergyworld.com/rea/news/article/2010/11/obama-may-kill-key-doe-loan-guarantee-program, accessed on Mar 26th 2011


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Appendix A: List of Ancillary Services provided by Energy Storage Systems

Source:U.S. Department of Energy, Electric Power Industry Needs for Grid-Scale StorageApplications, http://www.oe.energy.gov/DocumentsandMedia/Utility_12-30-10_FINAL_lowres.pdf , accessed on Mar 25thth 2011


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Appendix B: Overview of Various Storage Technologies

Source:U.S. Department of Energy, Electric Power Industry Needs for Grid-Scale StorageApplications, http://www.oe.energy.gov/DocumentsandMedia/Utility_12-30-10_FINAL_lowres.pdf , accessed on Mar 25thth 2011


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Appendix D: Composition of non-hydropower renewable generation per year

Source: U.S. Department of Energy, Energy Information Administration, Annual Energy Outlook 2010 with Projections to 2035 (May 2010),http://www.eia.doe.gov/oiaf/aeo/electricity.html, accessed on Mar 1st 2011