ESNA 2015: Why energy storage is key to a future with 'no more gas turbines'
An optimistic energy storage industry takes on ownership and valuation issues
“I see a future where there will be no more gas turbines.”
That quote from San Diego Gas & Electric (SDG&E) chief development officer James Avery encapsulated the excitement at the Energy Storage North America conference in San Diego.
Avery, the utility’s pointman on energy storage told over 2000 upbeat conference attendees that we are living through the inflection point in storage — the period when it moves from a niche technology, deployed mostly in demonstration projects and the imaginations of power engineers, to a possible replacement for peaker plants and even traditional generation.
“When is the crossover point?” Avery asked. “I think it’s already happened” in many places, while in others “it’s occurring at this very moment.”
Here are the highlights from the first two days of the conference. We will be back tomorrow with highlights from the last day.
Why SDG&E sees energy storage as 'an incredible opportunity'
For SDG&E, the main impetus for storage comes from the need to shift variable renewable generation to peak demand periods. The utility has about 40% of its generation coming from such resources when distributed solar is included, and over half of that is solar that peaks around midday. The problem is, SDG&E’s peak demand period is between 2:00 pm and 9:00 pm in the summer, and around 8:00 pm in the winter — meaning solar “isn’t the best of our options to meet peak demand.”
In the past, Avery said, a mix of resources including fossil fuel plants would pick up the slack in the peak demand period, but these days the utility is thinking differently about how to meet that demand.
“Two years ago, we were only looking at a gas turbine,” he said, but now SDG&E is considering storage as well. The promise of storage goes beyond replacing generation to providing grid services like voltage optimization that traditionally would have been done with other devices.
Amid the excitement in his speech, Avery remained grounded about his vision of a future without gas turbines. That won’t happen right away, he said.
First, power engineers should investigate how storage can make peaker plants — many of which run only a small fraction of each year — more effective and economical. Deploying batteries at peaker plants to assist with black start procedures, for instance, can save peaker operators money and assist the utility in assuring reliability.
Storage’s deployment will go far beyond big utility battery arrays, Avery said, and the best thing power companies can do to encourage the growth of distributed storage, especially in combination with residential solar, is to “make sure that rates actually become unbundled.” SDG&E is in that process right now, he said, as it works through distribution system planning to help it identify the true value of distributed resources.
The combination of solar and storage for home energy functions will be “like the cell phone for the energy utility,” Avery said, changing the way the central company operates. But it doesn’t have to be a threat to electric companies.
In a world where most customers may have solar and storage in their houses, Avery said that new opportunities will open up in residential demand even with storage deployed. In particular, he pointed to the fact that California will likely need to electrify nearly its entire transportation fleet by 2050, and that could add more than 120,000 MW of new demand to the market.
“I don’t see this as any form of a death spiral,” he said. “I see this as an incredible opportunity.”
GE's Current believes storage is at 'the scaling stage'
Dr. Pratima Rangarajan, general manager for energy storage at GE’s new billion-dollar venture Current, expanded on Avery’s comments regarding storage and peakers.
Noting that storage has come down in cost by three times and deployment has increased six-fold in the past five years, Rangarajan echoed the SDG&E exec by declaring that “the emergence is over.”
“We are ready to go onto the next stage, which is the scaling stage,” she said.
That scaling will happen even faster than the breakneck speed it took in the wind and solar industries, because storage has multiple functions on the grid. GE operates at the terawatt scale in its global generation business, she said, and they think they can integrate storage at a massive scale. By the end of 2016 alone, she said, Current will have 65 MWh of grid-connected storage, with more to come.
But that won’t immediately spell the end for the fossil fuel generator, Rangarajan said.
“Peakers are here, they’re all over our ecosystem, and they’re going to be here for a while,” she said. “I don’t see anyone pulling peakers out of the ground.”
Before that happens, storage will be used to enhance the peaker plants, she said, beginning with those that operate the least. But the threat of flexible energy storage is coming for the fossil turbine.
Rangarajan estimated that storage can currently compete on price with about 20% of the U.S. peaker fleet with the lowest utilization factors — those that run the least — and that number will only continue to rise over time.
Just at what price storage becomes competitive with conventional generation is difficult to pinpoint, Rangarajan warned, because the price varies by function and size of the storage facility. A 2 MWh battery will likely have a different price than one designed for 4 MWh, she said.
“The answer is not a number,” she said. “It’s not like a gas turbine where you can see the lowest cost of energy.”
Persisting valuation questions
Stuart Hemphill, senior vice president for power supply at Southern California Edison, continued the talk about how to value storage.
SCE is perhaps the most aggressive utility in the country when it comes to pursuing storage, famously contracting for 264 MW of it last winter when it was only required to purchase 50 MW.
Hemphill said that his utility’s strategy for valuing storage is a lot of learning by doing.
The valuation approach, he said, is “taking everything you know,” about the benefits of storage in a certain location, subtracting it from the bid price, and “that’s the number that you put next to the MWh.”
All of SCE’s storage up to this point has been demonstration projects, Hemphill said, and they help them expand what the utility knows about the value of storage. But there are other factors at play as well.
Similar to what happened with solar about five years ago, storage providers are “bidding the forward curve,” Hemphill said, in anticipation of lower costs in the near future. That will bring down costs for everyone, but only if developers can keep their word.
“We need to show the rest of the world that we can make these commitments [to deliver projects] early, and keep them,” he said. “If you have storage contracts with SCE, congratulations — please deliver on them!”
Questions about IDSOs
Amid all the excitement about the future of storage, it was easy to forget that there are still a number of market structure and utility business model issues that need to be worked through.
Talk of independent distribution system operators (IDSO) — basically an RTO for the distribution system — was sprinkled throughout the conference panels as attendees debated the best model for expanding storage.
Hemphill, for one, said that the New York REV initiative’s aim to set up utilities as independent distribution system operators — wires companies that seldom own DERs — was laudable thinking, but not necessary in states like California.
The real question behind all that talk, he said, is, “how will retail resources find a way to participate in wholesale markets?” That’s still a work in progress at in California, but “we do see utilities as distribution system operators as the best option."
Ownership issues in the ERCOT market
A panel on energy storage in the Texas market highlighted utility business model issues of a different kind.
Last year, Texas wires company Oncor commissioned a study with the Brattle Group that showed that up to 5.2 GW of energy storage could be made cost effective on the grid if utilities were able to realize the full stack of values that storage offers.
That white paper made waves throughout the utility sector, but it also presented a problem in ERCOT. According to market rules in the deregulated electricity market, T&D utilities cannot own any generation or resources that act like it in electricity markets, and that includes storage. That means utilities like Oncor can deploy storage, but can only use it for reliability and grid support functions, decreasing its value.
Oncor, as Utility Dive reported, devised a plan to get around that stipulation. Instead of it using the storage resources like a generation resource, it could simply build the systems and then auction off capacity to third party providers who wanted to use it in merchant markets. That way, the utility can get the benefit of rate basing the resource, use a portion of it for grid support, and then make some revenue from auctioning off the spare capacity.
That idea sounded great to many in the market — except for the generators. Oncor pushed for a bill in the Texas legislature to allow it to own storage facilities, but the session ended in April without a bill filed.
At ESNA, a representative from one of those Texas generators opposed to Oncor’s methodology offered a different way to develop storage. Stephen Muscato, Chief Corporate Officer at Luminant Energy, a generator owned by the same parent company as Oncor (at least, at the moment), said that T&D companies aren’t the ones who should build out storage.
While he commended Oncor and Brattle for their study, which “put the conversation on steroids,” Muscato said that it should be shareholder dollars from generators and other third party providers, and not ratepayer dollars from utilities, that scale up storage in the ERCOT market.
He proposed an ownership scheme that’s nearly the opposite of his sister company’s. Instead of the T&D utility owning the storage facility and auctioning off excess capacity, Muscato said it should be companies like Luminant — third parties already able to own generation assets — that build the facilities. Then, he said, T&D utilities like Oncor can contract with the storage owner to buy capacity for grid support and reliability functions.
Michael Quinn, chief technology officer at Oncor, gave “a caveated yes,” when asked if he could support such a scheme. “It’s something we have to look at,” he said, but he worried that big generators like Luminant might eschew the resource in favor of traditional power plants.
“There can be an economic disincentive to that model,” he said.
Muscato said there was little need for concern — that storage has become so mainstream that even generators like his company are looking at it. The big question, he said, was “whether you want to build it out with private capital or ratepayer money?”
Most of the Texas generation infrastructure has been built by private capital, including its recent wind boom, he pointed out.
Conversations about who should own and operate storage in ERCOT will continue and likely run up against a conflict not addressed in the panel. Back in September, when Utility Dive checked in with Oncor’s storage plans, multiple sources said that third party providers would have a difficult time building out storage because they don’t know where it will be most effective on the grid. At present, the T&D utility is the one that knows best, and they will likely be reluctant to give up all that information.
“You could have ‘Storage Inc.’ knock on Oncor’s door and ask, ‘Where are your heavily loaded feeders?” Karl Rabago, a former Texas utility regulator, said at the time. “And Oncor’s going to say, ‘Who the hell are you?’”
That points to the need for better data sharing between utilities and storage providers in regions where utilities don’t own all the storage, a common theme throughout multiple conference panels.
Even as Texas works through those ownership issues, Oncor continues to push storage. In particular, it announced that AES would build a 20 MW storage facility on Oncor land in the Dallas area. AES will own and operate the facility, Quinn said, but it’s another sign that storage is economically viable in Texas.
And while the legislature and regulators debate ownership, there are other things they can do to boost storage, Muscato said. In particular, the absence of a capacity market in ERCOT is an impediment on storage’s growth.
Luminant would like a capacity market, but working groups in the state think it goes against “free market principles.” Storage would be an ideal resource for such a market, he said, because it has few moving parts, making it extremely reliable.
Until that change happens — and none appears to be on the horizon — Muscato said that generators are in the state are “basically competing against each other for when that $9000 price spike happens,” he said.
“You just have to hope you’re up and running when it does.”
Correction: The original version of this post quoted Stuart Hemphill calling on storage providers to deliver on commitments for storage pricing. That was incorrect. He was calling on providers to deliver on their projects. He also said that finding a way to incorporate DERs into wholesale markets is a work in progress in California, not just at SCE, as was originally quoted.
Follow Gavin Bade on Twitter