Strategen!Consulting!! 2150!Allston!Way,!Suite!210,!Berkeley,!CA!94704 ! 510.665.7811!!

www.strategen.com

Energy'Storage—a'Cheaper'and'Cleaner'

Alternative'to'Natural'Gas9Fired'Peaker'

Plants

Prepared'for'the'California'Energy'Storage'Alliance

Authors:

" Janice!Lin,!Managing!Partner,!Strategen

" Giovanni!Damato,!Manager,!Strategen

Company'Acknowledgments:

" A123!Systems

" Applied!Intellectual!Capital

" EnerSys

Release'Date:

" February!8,!2011
Energy' Storage—a' Cheaper' and' Cleaner' Alternative' to'

Natural'Gas9Fired'Peaker'Plants

CESA ! 2150!Allston!Way,!Suite!210,!Berkeley,!CA!94704 ! 510.665.7811!! www.storagealliance.org

Page!1 of!9

Introduction

Energy! storage!is!vital!in!all!efficiently! functioning!commodity!markets; storage! smoothes! the! fluctuations!in!

supply! and! demand! and! ensures! availability! during! critical! periods! of! high! demand.! Energy! storage! systems!

store!energy! for!use!at!a!later! time,!when!electric!power!is!most!needed!and!most!valuable,! such!as!on!hot!

summer! afternoons.! Energy! storage! can! help! integrate! intermittent! renewable! sources,!supplant! the! most

polluting! power! plants,! and! enhance! grid! reliability.! There! are! many! forms! of! energy! storage,! including

chemical!(e.g.,!batteries),!mechanical!(e.g.,!flywheels), and!thermal!(e.g.,!ice) technologies.

1

Due! to! insufficient! energy! storage! for! the! electric! power! grid,! utilities! must! size! their! generation! and!

transmission!systems!to!deliver!the!full!amount!of!electricity!that!consumers!demand!(or!might!demand)!at!any!

given!moment!of!the!year.!!Owning!and!operating!sufficient!assets!to!serve!peak!demand!X only!5%!or!less!of!

the!hours!per!year!X results!in!increased!emissions!and!costs!to!electricity!customers.

Energy! storage! has! the!unique!potential! to! transform! the!electric! utility!industry! by!improving!existing!asset!

utilization,! avoiding! the! building! of! new! power! plants,! and! avoiding! or! deferring! upgrades! to existing!

transmission!and!distribution!networks.!Utility!CEOs and!policy!makers! frequently! refer! to!energy! storage!as!

the!“ultimate!game!changer”!for!the!electric power industry.

More!recently, energy!storage!has!achieved!recognition!as!a!foundational!element!of!the!Smart!Grid2, and!the!

technical!community!speaks!of!energy!storage!as!a!key!enabling!resource to!facilitate!the!transition!away!from!

a!fossil!fuel!dominated!generation!fleet!to!one!that!is!cleaner,!more!reliant!on!renewables,!“smarter,”!and!able!

to!accelerate!the!electrification!of!the!transportation!sector.

Cost'Comparison'Analysis

To!help!illustrate!the!cost!effectiveness!of!energy!storage!as!an!alternative!to!natural!gasXfired!peaker!plants,!

we!compared!the!cost!of!a!kilowattXhour!(kWh) of!electricity generated!onXpeak!by!a!gasXfired!peaker!with!the!

cost! of! a! kWh! of! electricity! provided! onXpeak! by! an! energy! storage! system.! For! simplicity,! this! comparison!

selected! a! commercially! available! energy! storage! technology! – leadXacid batteries – and! used! the! cost! and!

specifications! similar! to! the! large! leadXacid! energy! storage! peaking! facility! shown! below. Located! in! Chino,!

California,!this!10!megawatt!(MW),!4XhourXduration!system!successfully!demonstrated!energy!storage’s!ability!

to!manage!peak!load!from!1988!through!1996.3, 4

Assumptions! for! the! gasXfired! peaker! were! taken! directly! from! the!California! Energy! Commission’s! (“CEC’s”)

Comparative+Cost+of+California+Central+Station+Electricity+Generation Technologies model.!To!calculate!the!cost!

per!kWh!of!electricity!discharged!by!an!energy!storage!system,!the!same!20Xyear!project!time!horizon!and!5%!

capacity!factor!were used.! This!analysis!found!that!the!levelized!cost!of!generation!for!energy!storage!is!less

than that!of a!simple!cycle!gasXfired!peaker.!Below!is!a!detailed!overview!of!the!analysis!methodology:

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 1 Pumped!hydro!energy storage,!which!has!been!in!wide!use!for!many!years,!is!another!form!of!mechanical,!or!kinetic,!energy!storage 2 Title! XIII! of! the! Energy! Independence! and! Security! Act! of! 2007! described! the! Smart! Grid! as! including “deployment! and! integration! of! advanced!

electricity!storage!and!peakXshaving!technologies,!including!plugXin!electric!and!hybrid!electric!vehicles,!and!thermalXstorage!air!conditioning” 3 Energy!storage!performance!specifications based!on!commercially!deployed!leadXacid!grid!storage!projects,!including!the!EPRI–funded!grid!level!energy!

storage!demonstration!project!in!Chino,!California 4 EPRI!Chino!Study!TRX101787,!Chino+Battery+Energy+Storage+Power+Plant:+Engineer<of<Record+Report (December!1992)
Energy' Storage—a' Cheaper' and' Cleaner' Alternative' to'

Natural'Gas9Fired'Peaker'Plants

CESA ! 2150!Allston!Way,!Suite!210,!Berkeley,!CA!94704 ! 510.665.7811!! www.storagealliance.org

Page!2 of!9

Energy'Storage'Technologies'Today'Can'Deliver'On9Peak'Electricity'at'a'Lower'Cost'than'Gas9Fired'Peakers

Gas9Fired'Turbine'Peaker'Plant Energy'Storage'Peaker'Substitution

Gas9Fired'Peaker'Plant5 Energy'Storage'Peaker'Substitution6

General'Assumptions

Technology: Simple!Cycle!Combustion!Turbine

Plant'Size 49.9MW

Efficiency 37%!(9,266!Btu/kWh!Heat!Rate)

Ownership POU!Owned/Financed

Project'Life 20!years

Capacity'Factor 5%

Plant,'T&D'Losses 6%!(Centralized!Plant)

General'Assumptions

Technology: LeadXAcid!Battery

Plant'Size 49.9MW!(4h!duration)

Efficiency 84%!(AC!to!AC!Roundtrip)

Ownership POU!Owned/Financed

Project'Life 20 years

Capacity'Factor 5%

Plant,'T&D'Losses 6%!(Centralized!Plant)

Costs Assumptions LCOG

($/MWh)

LCOG

($/kW9yr)

Fixed'O&M $24/kW/yr $69 $29

Corp.'Taxes 0% $0 $0

Insurance 0.6%!of!CAPEX $23 $10

Property'Tax 1.1%!of!CAPEX $29 $12

Natural'Gas

Fuel

$61/MWh $100 $41

Variable'O&M $0.04/kWh $5 $2

Subtotal $227 $93

Costs Assumptions LCOG

($/MWh)

LCOG

($/kW9yr)

Fixed'O&M $6/kW/yr $17 $7

Corp.'Taxes 0% $0 $0

Insurance 0.6%!of!CAPEX $22 $9

Property'Tax 1.1%!of!CAPEX $28 $12

Off9Peak' Grid'

Charging

$24/MWh7 $48 $20

Variable'O&M $0.04/kWh $5 $2

Subtotal $121 $50

Costs Assumptions LCOG

($/MWh)

LCOG

($/kW9yr)

Installed'Cost $1,394/kW $265 $109

Grand'Total $492 $203

Costs Assumptions LCOG

($/MWh)

LCOG

($/kW9yr)

Installed'Cost $1,351/kW8

($338/kWh)

$256 $105

Grand'Total $377 $155

Levelized'Cost'of'Generation'for'Energy'Storage'is'Less'Than'a'Simple'Cycle GasCFired Peaker

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 5 Source:!CEC+2009+Comparative+Cost+of+California+Central+Station+Electricity+Generation+Technologies (CEC_COG_Model_Version_2.02X4X5X10) 6 Source:!StrateGen Consulting,!Levelized!Cost!of!Generation!Model 7 Assumes!most!recent!sample!of!average!summer!offXpeak!wholesale!price!from!CAISO!OASIS!database 8 EPRI!Chino!Study!TRX101787,!Chino+Battery+Energy+Storage+Power+Plant:+Engineer<of<Record+Report (December!1992)
Energy' Storage—a' Cheaper' and' Cleaner' Alternative' to'

Natural'Gas9Fired'Peaker'Plants

CESA ! 2150!Allston!Way,!Suite!210,!Berkeley,!CA!94704 ! 510.665.7811!! www.storagealliance.org

Page!3 of!9

Energy'Storage'Has'the'Ability'to'Deliver'More'than'Peaker'Substitution Value

In!addition!to!cost!savings!for!electricity!consumers,!energy!storage!provides!multiple!value!streams!above!and!

beyond! peaker! substitution, making! the! economic! case! for! energy! storage! stronger.! For! example,! by! their!

nature,! gasXfired! peaker! plants! cannot! be! economically! sized! below! 50 MW! and! therefore! are! not! easily!

installed!in!a!distributed!footprint.!Energy!storage!systems!do!not!have!this!limitation,!opening!up!the!potential!

for! many! technical! and! economic benefits! available to! distributed! energy! resources, such! as! reduction! of!

transmission! and! distribution! losses.! Additional! benefits! include! electric! energy! timeXshift,! voltage! support,!

electric!supply! reserve!capacity,! transmission!congestion! relief,!and!frequency! regulation.!Ranges! for!each!of!

these!value!streams!have!recently!been!quantified!by!Sandia!National!Laboratories,!and are!presented in!the!

chart!below!in!terms!of!additional!benefits!per!MWh!delivered!onXpeak.

Additional'System'Benefits'of'Energy'Storage9

Energy'Storage'is'the'Most'Cost9Effective'Resource

When! these! benefits! are! factored! in! and! compared! to! the! total! installed! cost! for! a! range! of!energy! storage!

technologies,!energy!storage emerges!as!a comprehensive,!costXeffective!system!resource.

The! bars! in! the! chart! below represent! the! total! installed! cost! per! kWh! of! energy!storage! capacity! by!major!

storage! technology, assuming! four! hours! of! capacity! for! each.! The! red! dashed! line! indicates! where! energy!

storage!costs!are!at!cost parity with!a!natural!gasXfired!peaker.!The!green!dashed!line!indicates!the!grid!system!

level!costs!avoided!with!energy!storage!– in!other!words,!this!line!is!representative!of!other!real!system!costs!

that!are! borne! by!electricity! customers.!Finally,! the! blue!arrow represents! the! total! societal! cost!avoided! by!

energy! storage,! including! its! ability! to! help! achieve! a! smart! grid,! accelerate! and! facilitate! renewables!

integration,!and avoid GHG!emissions.

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 9

!!!Source:!SANDIA!Report!SAND2010X0815,!Energy+Storage+ for+ the+Electricity+Grid:+Benefits+and+Market+Potential+Assessment+Guide,! Jim!Eyer!&!Garth!

Corey!(February!2010)

0!

400!

800!

1200!

1600!

Levelized'$/MWh'Benefit'

Frequency!Regulalon!

Transmission!Congeslon!Relief!

Electric!Supply!Reserve!Capacity!

Voltage!Support!

Electric!Energy!TimeXShim!

Peaker!Subsltulon!
Energy' Storage—a' Cheaper' and' Cleaner' Alternative' to'

Natural'Gas9Fired'Peaker'Plants

CESA ! 2150!Allston!Way,!Suite!210,!Berkeley,!CA!94704 ! 510.665.7811!! www.storagealliance.org

Page!4 of!9

Fossil'Fuel'Societal,'Grid,'and'Peaking'Costs'vs.'Energy'Storage'Costs10,11 Avoided'Costs'Realized

Societal'Level:

X GHG!&!Air!Quality

X Renewables!Integration

X Smart!Grid!Implementation

X Streamlined!Permitting

Grid'System'Level:

X Electric!Energy!TimeXShift!

X Voltage!Support!

X Electric!Supply!Reserve!Capacity!

X Transmission!Congestion!Relief

X Frequency!Regulation

Peaker'Level:

X Peaker!Plant!Substitution

Energy'Storage'is'a'Cleaner'Alternative'to'Natural'Gas9Fired'Peaker Plants

Grid!storage!displaces!less!efficient,!dirtier!peaker!generation!by!timeXshifting!more!efficient,!cleaner!baseXload!

generation!to! peak! periods.!This! results!in substantial!systemXwide!air!quality!benefits. The!first! chart!below!

compares!actual!carbon!dioxide!(CO2)!emissions!of!peak!vs.!off!peak!generation!in!Southern!California!Edison’s!

service! territory.! Peaker! plant! generation! produces! far! more! CO2! emissions! per! MWh! than! base! load!

generation,!especially!during!the!summer!months.!This!is!true!of!California’s!other!utilities!as!well.

Energy! storage! usage! results! in! significant! air! quality! benefits.! Assuming! Pacific! Gas! and! Electric’s! base! load!

electric! mix! as! the! offXpeak! source! of! electricity,! energy! storage! would! provide! 55%! CO2!savings,! 85%! NOx!

savings,! and! up! to! 96% savings! of! CO! per!MWh! of! onXpeak!electricity! delivered!(shown! in! the second chart!

below).! These! emissions! benefits! increase! as! more! offXpeak! renewable! generation! comes! onXline.! Energy!

storage! will! also! help! optimize the! use! of existing! transmission! and! distribution! capacity,! enabling! the!

deployment!of!more!renewable!energy.!Finally,!because!of!its!ability!to!store!locally!generated!power!and!be!

remotely!dispatched,!energy!storage!is!an!indispensable!component!of!a!more!affordable,!secure!and!reliable!

smart!grid.

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 10 Assumptions:! All! energy! storage! technology! costs! shown! are! normalized! for! a! fourXhour! duration;! Technology! comparison! is! for! modern! energy!

storage!systems!only,!but does!not!include!pumped!hydro or!highXspeed!flywheels!which!are!not!designed!for!longXduration!peaking!applications 11 Source:! Average! estimated! total! installed! cost! estimate! from:! Sandia! Report! SAND2008X0978,! Susan! M.! Schoenung! and! Jim! Eyer, Benefit/Cost+

Framework+for+Evaluating (February!2008)

0!

500!

1000!

1500!

2000!

2500!

Installed'Cost'($/kWh)'

High!Eslmated!Total!Installed!Cost!by!Technology!

Average!Eslmated!Total!Installed!Cost!by!Technology!

Societal'Costs

Grid'System'Level'Costs

Peaker'Subs]tu]on'Costs
Energy' Storage—a' Cheaper' and' Cleaner' Alternative' to'

Natural'Gas9Fired'Peaker'Plants

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Page!5 of!9

Peak'vs.'Off9Peak'CO2 Emission'Rate'(Tons/MWh)12

Energy'Storage'is'a'Cleaner'Alternative'to'Gas'Peakers13

Smart,'Clean,'Cost9Effective'Energy'Storage:'Ready'for'Deployment'

Modern!energy!storage!technologies,!some!of!which!have!been!in!existence!for!decades,!cover!a!wide!range!of!

sizes,!power! (measured!in!MW),!and!discharge!durations (measured!in!hours).!An!energy!storage!system!can!

be!either! centralized! or! distributed!and! can! be! utilityXowned,! customerXowned! or! thirdXparty! owned.!Today,!

there!are more! than!2,000!MW!of!installed!grid!connected!energy!storage!technologies!deployed!worldwide!

with!a!comparable!amount!under!development.14

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 12 Source:!2006!CPUC!Update!for!Energy!Efficiency!Proceeding (Brian!Horii,!E3) 13 Assumptions!from!CEC!Cost!of!Generation Model!for!simple!cycle!peaker!and!standard!combined!cycle!for!offXpeak!base!load;!generation!mix!based!on!

annual!report!of!actual!electricity!purchases!for!Pacific!Gas!and!Electric!in!2008 14 Source:!!StrateGen!and!CESA!research.!Excludes!pumped!hydro capacity,!estimated!at!~123!GW!

55%!

85%!

96%!

77%!

84%!

0.00!

0.25!

0.50!

0.75!

1.00!

1.25!

CO2! NOx! CO! SOx! PM10!

lbs/MWh'(lbs/GWH'for'CO2)'

Peaker!Plant! Storage!System! Percent!Reduclon!
Energy' Storage—a' Cheaper' and' Cleaner' Alternative' to'

Natural'Gas9Fired'Peaker'Plants

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Page!6 of!9

Current'Estimated'Worldwide'Installed'Advanced'Energy'Storage'Capacity'(2128'MW'as'of'2010)

Why'Isn’t'Energy'Storage Being'Widely'Used'in'California?

Current! California! policy! has! not! kept! pace! with! advances! in! energy! storage,! yet! energy! storage! can! costX

effectively! help! address! California’s! many! energy! policy! challenges,! such! as! green! house! gas! emissions!

reduction,! renewables! integration,! transmission! and! distribution! constraints,! increasing! peak! demand! and!

enabling!electric!vehicles.!Energy!storage!is!particularly!relevant,!as!many!of!these!complex!challenges!need!to!

be!addressed!in!the!near!term,!and!storage!technology!is!currently!available!and!deployable!on!a!large!scale.

Energy! storage! technologies! are! well! established! in! other! industries! and! market! applications,! such! as! the!

transportation and! consumer! electronics industries.! Grid! storage,! a! key! component! of! the! electric! power!

industry,! represents! a large! new! market! application! for! both! existing! and! emerging! energy! storage!

technologies.! ! Unfortunately,! the! electric! power! industry! is! a! highly! regulated! industry! that! has! historically!

overlooked! using! storage! for! grid! optimization.! As! a! result,! current!market! structure! does! not! allow! for! the!

buyer! of! the! energy!storage! equipment! to! easily! capture! all! the! value! streams! provided! by! energy!storage!

across!the!entire!electric!power!system.!

The! barrier! is! neither! the! availability! of! a! reliable! energy! storage! technology! nor! its! cost;! the! barrier! is! the!

current!accounting!of!disaggregated!benefits!in!a!regulated!utility!industry!and the lack!of clear!policy!direction!

to!utilities!that!energy!storage!is a!superior!alternative!to!natural!gasXfired!peakers.!Thus,!while!energy!storage!

presents! compelling! social! and! economic! benefits,! California’s! current! market! structure! has! led! to!

underinvestment.!

Key'State'and Federal'Policy'Recommendations

Energy!storage!can!costXeffectively!help!address!California’s!many!near!term,!complex!and!interXrelated!energy!

policy! challenges,! such! as! green! house! gas! emissions! reduction,! renewables! integration,! transmission! and!

distribution!constraints,!increasing!peak!demand!and!enabling!electric!vehicles.!

State'Recommendations

1) Require! utilities! to! evaluate! procurement! targets! for! costXeffective! energy!storage! deployment! (e.g.,! AB!

2514)
Energy' Storage—a' Cheaper' and' Cleaner' Alternative' to'

Natural'Gas9Fired'Peaker'Plants

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Page!7 of!9

2) Encourage!diversity!in!energy!storage!technology!deployment,!including!market!application!and!ownership!

options, to!foster!utility,!third!party, and!customerXowned!applications!!!

3) Fully! implement! SB! 412! to! provide! Self! Generation! Incentive! Program! (“SGIP”)! incentives! for! energy!

storage!coupled!with!solar!and!used!standalone!on!the!customer!side!of!the!meter

4) Implement!energyXstorage!focused!rulemaking,!require!consideration!of!energy!storage!as!a!valued!system!

resource! in! all! regulatory! proceedings (e.g.! distributed! generation,! smart! grid,! renewables,! and! demand!

response/permanent!load!shifting)

5) Include!energy!storage!in!a!standardized!costXeffectiveness!methodology!applicable!to!all!resources

6) Require! utilities! to! include! energy! storage! as! a! bidding! option! in! peaking! capacity! Requests! for! Offers!

(RFOs)

7) Require!energy!storage!as!part!of!the!long!term!procurement!process,!including!pursuing!standard!offers!

for!permanent!load!shifting!

8) Explore!tariff!design!that!encourages!load!shifting!

9) Increase!FeedXinXTariff!price!for!renewables!firmed/shifted!with!energy!storage!

10) Accelerate!the!CAISO's!stakeholder!processes!to!achieve!comparability!of!energy!storage!(implementation!

of!FERC!!Orders!890!and!719)

11) Consider!peak!reduction!standard!for!state!agency!power!purchases!

12) Clarify!net!metering!rules!for!renewable!energy!projects!with!storage!

Federal'Recommendations

1) Support!extension!of!the!existing!federal!investment!tax!credit!to!energy!storage!systems!(e.g.,!S.1091)

2) Add!energy!storage!as!its!own!category!in!the!FERC's!Uniform!System!of!Accounts

Glossary15,16

Levelized' Cost' of'Generation: According! to! the! CEC,! levelized! cost! of! generation! of! a! resource! represents! a!

constant!cost!per!unit!of!generation!computed! to!compare!one!unit’s!generation!costs!with!other! resources!

over! similar! periods.!This! is! necessary! because! both! the! costs!and!generation! capabilities! differ! dramatically!

from!year!to!year!between!generation!technologies,!making!spot!comparisons!using!any!year!problematic.!The!

levelized!cost! formula!used!in! this!model! first!sums! the!net!present!value!of! the!individual!cost!components!

and!then!computes!the!annual!payment!with!interest!(or!discount!rate)!required!to!pay!off!that!present!value!

over!the!specified!period.!These!results!are!presented!as!a!cost!per!unit!of!generation!over!the!period!under!

investigation.!This!is!done!by!dividing!the!costs!by!the!sum!of!all!the!expected!generation!over!the!time!horizon!

being!analyzed.!The!most!common!presentation!of!levelized!costs!is!in!dollars!per!megawattXhour!($/MWh)!or!

cents!per!kilowattXhour!(¢/kWh).

Capacity' Factor:' The! capacity! factor! is! specified! as! a! percentage! and! is! a!measure! of! how!much! the! power!

plant!operates.!More!precisely,!it!is!equal!to!the!energy!generated!by!the!power!plant!during!the!year!divided!

by!the!energy!it!could!have!generated!if!it!had!run!at!its!full!capacity!throughout!the!entire!year!(Gross!MW!x!

8,760!hours).!For!the!purposes!of!this!analysis,!specifically!for!energy!storage,!the!capacity!factor!is!measured!

using! the! number! of! hours! discharged! only! and! does! not! include! the! number! of! hours! used! to! charge! the

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 15 Source:!CEC!2009!Comparative!Cost!of!California!Central!Station!Electricity!Generation!Technologies!Report 16 Source:!SANDIA!Report!SAND2010X0815,!Energy!Storage! for! the!Electricity!Grid:!Benefits!and!Market!Potential!Assessment!Guide,! Jim!Eyer!&!Garth!

Corey!(February!2010)
Energy' Storage—a' Cheaper' and' Cleaner' Alternative' to'

Natural'Gas9Fired'Peaker'Plants

CESA ! 2150!Allston!Way,!Suite!210,!Berkeley,!CA!94704 ! 510.665.7811!! www.storagealliance.org

Page!8 of!9

energy storage!system.

Electric'Energy'Time9Shift: Electric!energy!timeXshift!involves!purchasing!inexpensive!electric!energy,!available!

during!periods!when!the!price!is!low,! to!charge! the!energy!storage!system so! that! the!stored!energy!can!be!

used!or!sold!at!a!later!time!when!the!price!is!high. This!is!also!sometimes!referred!to!as!“arbitrage.”

Voltage'Support:'An!important!technical!challenge!for!electric!grid!system!operators!is!to!maintain!necessary!

voltage! levels! with! the! required! stability.! In! most! cases,! meeting! that! challenge! requires! management! of! a!

phenomenon! called! “reactance.” Reactance! occurs! because! equipment! that! generates,! transmits,! or! uses!

electricity!often!has!or!exhibits!characteristics!like! those!of!inductors!and!capacitors!in!an!electric!circuit.!To!

manage! reactance!at! the!grid! system level,!grid! system!operators! rely!on!an!ancillary! service!called! “voltage!

support.” The! purpose! of! voltage! support! is! to! offset! reactive! effects! so! that! grid! system! voltage! can! be!

restored!or!maintained.

Electric'Supply'Reserve'Capacity: Prudent!operation!of!an!electric!grid!includes!use!of!electric!supply!reserve!

capacity! that! can! be! called! upon! when! some! portion! of! the! normal! electric! supply! resources! become!

unavailable!unexpectedly.!In!the!electric!utility!realm,!this!reserve!capacity!is!classified!as an!ancillary!service.

Transmission'Congestion'Relief: In!many!areas,!transmission!capacity!additions!are!not!keeping!pace!with!the!

growth!in!peak!electric!demand.!Consequently,!transmission!systems!are!becoming!congested!during!periods!

of!peak!demand,!driving!the!need!and!cost!for!more!transmission!capacity!and!increased!transmission!access!

charges.!Additionally,! transmission!congestion!may!lead! to!increased!use!of!congestion!charges!or!locational!

marginal!pricing!for!electric!energy.

Frequency' Regulation: regulation! is! used! to! reconcile!momentary! differences! between! supply! and! demand.!

That!is,!at!any!given!moment,!the!amount!of!electric!supply!capacity!that!is!operating!may!exceed!or!may!be!

less!than!load.!Regulation!is!used!for!damping!of!that!difference.

Analysis'Methodology:'Peaker'vs.'Energy'Storage

For! further! examination! of! the! analysis! above! and! access! to! the! spreadsheet! model! used! for! the! above!

analysis,!see!the!following!website: http://www.storagealliance.org/workXwhitepapers.html.

Analysis'Methodology:'Additional'Benefits

Unlike!a!singleXuse!centralized!peaker!plant,!energy!storage!can!be!used!for!a!multitude!of!applications!beyond!

those!of! simple!peaker!plant! substitution.!When! reasonable!and!“stackable”!additional!benefits!are! factored!

into!the!maximum!allowable!installed!cost,!energy!storages’!“cost!effective” price!point!increases.!This!means!

that!energy!storage!technologies!that!are!technically!capable!of!capturing!these!additional!benefits!should!be!

cost!effective!even!at!higher!installed!costs.

To! help! illustrate! the! impact! of! additional! value! streams! to! the! maximum! allowed! installed! cost! of! gridX

Start!with!Storage!as!

Central!Peaker!Subsltulon!

Levelize!Addilonal!Benefits!

in!$/MWh!

Adjust!Addilonal!

Operalng!Costs!as!

Necessary!for!Each!Benefit!

Solve!for!the!Maximum!

Allowable!Installed!Cost!of!

Storage!
Energy' Storage—a' Cheaper' and' Cleaner' Alternative' to'

Natural'Gas9Fired'Peaker'Plants

CESA ! 2150!Allston!Way,!Suite!210,!Berkeley,!CA!94704 ! 510.665.7811!! www.storagealliance.org

Page!9 of!9

integrated!storage,!we!utilized!the!midpoint!of!the!Sandia!report benefit!estimate!for!each!value!stream17,!and!

utilized!the!same!20!year!time!horizon!and!targeted!return!for!investors!and!solved!for!the!maximum increase

in!installed!cost!of!the!storage!system!resulting!from!these!added!benefits.!The!incremental!allowable!installed!

cost! for!energy!storage!was! then!added! to! the!maximum!allowable!installed!cost!per!kWh!of!energy!storage!

capacity!calculated!for!the!peaker!substitution.!To!be!conservative,!we!further!adjusted!operating!assumptions!

for!each!benefit!to!allow!for!increased!transaction!and!maintenance!costs!for!distributed!systems!to!arrive!at!

the!final!installed!cost/kWh!capacity!of!the!energy!storage!system,!as!indicated!in!the!chart!below.

Stacking'Additional'Levelized'Benefits Total'Levelized'Cost'of'Generation'Breakdown

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 17 Source:!SANDIA!Report!SAND2010X0815,!Energy!Storage! for! the!Electricity!Grid:!Benefits!and!Market!Potential!Assessment!Guide,! Jim!Eyer!&!Garth!

Corey!(February!2010)

0!

400!

800!

1200!

1600!

Levelized'$/MWh'Benefit'

Frequency!Regulalon!

Transmission!

Congeslon!Relief!

Electric!Supply!

Reserve!Capacity!

Voltage!Support!

Electric!Energy!TimeX

Shim!

0!

400!

800!

1,200!

1,600!

Gas!Peaker! Storage!

Peaker!

Subsltulon!

Distributed!

w/Electricity!

Time!Shim!

Distributed!

w/Mullple!

Benefits!

Levelized'$/MWh'Benefit'

Variable!O&M!

Fuel!&!GHG!Emissions!Costs!

Fixed!O&M!

Property!Taxes!

Insurance!

Installed!Cost!