Governments and private companies are increasingly turning to battery storage, in order to add more renewable energy to the grid. But where and how to develop that storage remains an open question.
The U.S. Energy Information Administration predicts the country will have 59 GW of battery storage by 2050, and most of that development has focused on hybrid projects that combine solar or wind with on-site batteries. However, that trend may not represent the most efficient scenario for the grid or for developers, since batteries have the flexibility to be located anywhere.
A May 2021 study from the Lawrence Berkeley National Laboratory (LBNL) compared the market value of co-located battery and renewable projects against those that are independently sited. Using wholesale power market prices from 2012-2019 across the seven U.S. independent system operators (ISOs), the researchers found that independently siting a battery could lead to a higher value in nearly all markets and years. Although the benefit varied by region, the value boost on average was $12.50/MWh because of advantages in not sharing infrastructure capacity and reduced restrictions on grid charging.
In fact, the researchers found that of the most volatile nodes across ISOs, only 1.5% of utility-scale wind and solar locations would net a higher value from coupling rather than independently installing storage.
"A storage resource is dense, it can be sited anywhere and we found there's value to putting it near a high-demand location," said Will Gorman, study author and a graduate student researcher at LBNL. "In some of those high volatility spots, the additional value was quite substantial."
Why build hybrids?
Of course, hybridization brings with it plenty of benefits, especially in the up-front cost savings. Pairing resources means dealing with only one piece of land and sharing equipment and construction costs. Sharing an interconnection point on the grid can also cut down on costs and permitting. A 2017 National Renewable Energy Laboratory (NREL) study found that developers could save up to 8% of the total project cost by pairing solar with storage at the utility scale.
Hybrid systems also facilitate energy arbitrage, storing energy when wholesale market prices are low and selling it when prices are high. High production from variable generation can lead to congestion or even overruns of line capacity, while hybrid systems can allow batteries to charge during those busy periods and store it until prices go up again.
"Co-locating should not increase costs and there's a lot of potential to decrease costs" as opposed to independent siting, said Sean Ericson, a PhD candidate in the Joint Institute of Strategic Energy Analysis at NREL. "On the other hand, optimally siting these components should not decrease revenue and could potentially increase revenue."
Even the 2021 LBNL study found that the up-front savings could be as high as $15/MWh, making coupled project development more attractive than independent locations in some cases, although that could change depending on market rules and policy. A major factor is the federal investment tax credit (ITC), the 26% credit for residential, commercial and large-scale utility solar installations that extends to storage only when paired with eligible solar projects. Standalone storage, on the other hand, doesn't qualify.
"I don't think it's necessarily news to regulators that there's this incentive that is contributing to development based on a strategy that may be less valuable," said Gorman. "It's probably the case that people could have developed an independent battery unit, but the ITC led them to co-locate it."
In both the American Jobs Act infrastructure plan and his fiscal year 2022 budget, the Biden administration proposed extending the ITC for a decade (it is currently set to phase down in two years) and expanding it for standalone storage. The expanded ITC was also passed by the Senate Finance Committee in a clean energy tax package in May and has been introduced as a bicameral bill.
Advocates say the tax incentive could be a massive boost for the storage industry and help bring down costs in the way it had for solar panels. A June 2021 Wood Mackenzie analysis found that an ITC passed this year would boost its five-year market outlook by 20-25%, with the front-of-the-meter segment seeing an extra 6 GW of capacity over five years.
"If we are able to enact a standalone storage ITC, I'm sure you'll see more standalone storage at key locations on the grid. To what extent you'd see less combined solar and storage, that's an open question," said Sean Gallagher, vice president of state and regulatory affairs of the Solar Energy Industries Association (SEIA). "Our industry can adapt and our members can build storage however it's most valuable to the market."
Location, Location, Location
The LBNL study found that the value of separating batteries from generation varied across the country, depending in large part on geography. New York's Long Island, for example, had the highest value difference for coupling batteries ($30-$50/MWh less than independent siting between 2012 and 2015), owing to its dense population and congested transmission system. The best markets for hybrids, meanwhile, were in Texas and western states.
That's borne out in the installations. The California ISO and the Southwest Power Pool have the highest share of proposed batteries in hybrid systems, according to the study, while New York ISO (NYISO) had just 2% of projects in the interconnection queue as hybrids.
David Sandbank, vice president for distributed energy research technology at the New York State Energy Research and Development Authority (NYSERDA), said NYISO does not currently have a way to evaluate hybrid projects. But even as the grid operator goes through a policy change around storage, the unique geography of the state doesn't lend itself to hybrids.
Most of the wind and solar opportunities are located upstate, while the highest demand is concentrated downstate around New York City. A clogged distribution network makes it even tougher to meet the high urban demand. With offshore wind generation coming online, Sandbank said the area lends itself to a "self-sustaining" market for bulk storage near the demand centers.
"I'm a big fan of putting the storage where it's needed the most, not just where the ITC encourages it," Sandbank said. "If we get any type of standalone ITC, [New York] probably has a market that doesn't need any other sort of incentives."
"I can't see a world where companies would want to pay full price for batteries without a change to the ITC."
President, Colorado State and Storage Association
Amid the ITC debate, states are crafting their own rules that encourage more storage of all kinds. Connecticut is poised to become the eighth state to set an energy storage goal after passage of a bill that also instructs the state Public Utilities Regulatory Authority to work on incentives and other policies to encourage storage in any form. In May, the Colorado Public Utilities Commission revised interconnection rules that will streamline permitting and allow for more flexibility in solar-plus-storage projects and creates a pilot program to offer incentives for more storage development.
State legislators also approved a bill establishing an independent Colorado electric transmission authority that could operate transmission and storage facilities to help state utilities physically participate in regional markets. Mike Kruger, president of the Colorado Solar and Storage Association, told Utility Dive the state was going from "zero to hero" on storage. But, he added, he expects to see most of the development focus on hybrid projects since the state also needs to expand its solar generation at the same time.
"I can't see a world where companies would want to pay full price for batteries without a change to the ITC," Kruger said. "Maybe with the wildfires and drought you could see some standalone projects for resiliency, but that would be relatively small."
Ultimately, SEIA's Gallagher said, policymakers will have to respond to the changing needs of the storage industry. "We'll see applications of all types of storage if and when the costs align," he said. "And the more storage there is, the more penetration of renewables we'll see."
CORRECTION: A previous version of this article misidentified the SEIA representative. Those comments were from Sean Gallagher, vice president of state and regulatory affairs.