Energy Storage: What’s the 

Next Big Thing?

Paul Denholm

June 5, 2018

• Publication number or conference
NREL | 2

Storage

• Its becoming difficult to ignore the dramatic cost 

reductions.

• But what are the market opportunities?

• How big are they?

BNEF lithium-ion battery price survey, 2010-16 ($/kWh)

[Source: Bloomberg New Energy Finance, Lithium-ion Battery Costs and Market (July 2017)
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Applications of Utility-Scale Energy Storage

Application Description Timescale of Operation

Load Leveling/

Arbitrage

Purchasing low-cost off-peak energy and selling it 

during periods of high prices

Hours

Firm Capacity Provide reliable capacity to meet peak system 

demand

4 + Hours

Operating Reserves

Regulation

Contingency

Spinning 

Replacement/

Supplemental 

Fast response to random, unpredictable variations 

in demand

Fast response to respond to a contingency such as a 

generator failure

Units brought on-line to replace spinning units

15 minutes to 1 hour

30 minutes to 2 hours

Hours

Ramping/Load Following Follow longer term (hourly) changes in electricity 

demand

30 minutes to hours

T&D Replacement and 

Deferral

Reduce loading on T&D system during peak times Hours

Black-Start Units brought online to start system after a systemwide failure (blackout)Hours
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Value Capture?

• The concept of stacked services is well documented

• But so are the challenges

• Depending on location, these values are captured by 1-4 

different entities under different regulatory framework

• What are the likely market applications that can achieve 

significant market share from a limited number of revenue 

streams?
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5

Applications of Utility-Scale Energy Storage

Application Valued in A Single Restructured Market?

Load Leveling/ Arbitrage Yes

Firm Capacity Via scarcity pricing, combined scarcity plus capacity markets, or through 

resource adequacy payments

Regulation Reserves Yes

Contingency Spinning 

Reserves

Yes

Replacement/Supplemental/

Non-Spinning

Yes but values are very low

Primary Frequency Response 

/ Inertia

No. Early-stage proposals

Ramping/Load Following No. Proposed in several markets

Transmission Replacement 

and Deferral

Only partially via congestion prices

All Distribution Specific 

Applications

No. Will likely remain cost of service through regulated entities

Renewable Integration Captured through other services

5
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Frequency Regulation?

• Total market for regulating reserves in all RTO/ISO markets 

is ~2.5 GW

• Already have ~500 MW of battery storage providing FR

• Several hundred MW that are capable of providing FR 

(and probably is)

EIA 2018 - U.S. Battery Storage

Market Trends 
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Other Ancillary Services

• Perhaps, but much lower prices for spinning reserves

– Non-spin is basically worthless

• Increased competition from DR

0

2

4

6

8

10

12

14

16

18

20

12:00 AM 6:00 AM 12:00 PM 6:00 PM 12:00 AM

Reserve Price ($/MW-h)

NYISO Reg MISO Reg

NYISO Spin MISO Spin
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The Next Big Thing?
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U.S. Peaking Capacity 

Installation dates of U.S. peaking capacity 

(non CHP CT, IC, oil/gas steam)

Data from EIA 860

0

2

4

6

8

10

12

14

16

18

20

22

24

Peaking Capacity Installed (GW)
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U.S. Peaking Capacity 

Significant peaking capacity now over 40 

years old. Over the next 20 years, we 

would expect about 152 GW of peaking 

capacity to retire

Age of retirement 

for U.S. peaking 

capacity (EIA-860)

0%

1%

2%

3%

4%

5%

6%

7%

<20

2123252729313335373941434547495153555759

>60

Fraction Retired 

Age at Retirement

0

20

40

60

80

100

120

140

160

180

200

60 55 50 45 40 35 30 25 20 15

Cumulative Capacity (GW)

Plant Age (Years)
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How to Compare Costs

• Difficult for storage to compete purely on capital cost

• CT: $700/kW (frame) - $1200/kW (aeroderivative)

• Translates to $75 to $200/kWh for battery module if we 

assume $400/kW BOS 

• Assumes 4-hour duration

• And before accounting for limited lifetime

• But storage provides other values that can be captured in 

an energy market
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$50

$100

$150

$200

$250

$300

$350

$400

3 4 5 6 7 8 Battery (Module Only) Installed Cost ($/kWh)

Hours of Storage Needed

High Cost CT/High

Value Location

Low Cost CT/Low

Value Location

So How Cheap Does Storage Have to Be? 

We are nearing a tipping point for 4-hour storage providing 

capacity services – but how big is this market?

GTM 2020 

Estimate 

($217/kWh)

Denholm et al. unpublished
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But How Big Is the Market?

CAISO and MISO allows 4-hour storage to provide resource 

adequacy. But only a limited market size due to “widening” of net 

demand peak.

32,000

33,000

34,000

35,000

36,000

37,000

38,000

39,000

40,000

41,000

42,000

12 AM 6 AM 12 PM 6 PM

Load Met by Storage (MW)

Hour of Day

4 Hr Storage

6 Hr Storage

8 Hr Storage

Load Met with

Other Generators

Denholm et al. unpublished
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Market Potential?

Total market potential for energy storage as a peaking 

capacity in the U.S.

Denholm et al. unpublished
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Total U.S. Market Potential for Storage as Peaking 

Capacity

Total market potential for energy storage as a peaking 

capacity in the U.S.
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How Do Renewables Affect This?

With increased PV penetration, the capacity credit of PV decreases while the 

capacity credit of storage increases

Zero PV

10% PV

5% PV
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Impact of PV in California on Potential

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30

4-Hour Storage Capacity (MW) 

Providing 100% Peak Demand 

Reduction Credit

PV Penetration (%)

2017 Estimated 

PV Penetration

2020 Estimated 

PV Penetration

2016 Estimated 

PV Penetration

Denholm and Margolis 2017
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Increase in 4-hour storage technical potential

Preliminary, non-bankable results

Denholm et al. unpublished
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Conclusions / Opinions

1. When properly scheduled, long-duration (several hours of 

capacity) batteries provide an alternative to combustion 

turbines for meeting peak capacity requirements

2. We are at or close to a tipping point for storage as peaker

alternative

3. This market is 10s of GWs for 4-hour storage and could be 

>100 GW for 8 hour storage after considering growth in PV 

4. MANY CAVEATS

– Current markets long on capacity, still need to address missing money in 

energy-only markets, etc.
NREL is a national laboratory of the U.S. Department of Energy, Office of Energy Efficiency 

and Renewable Energy, operated by the Alliance for Sustainable Energy, LLC.

www.nrel.gov

NREL is a national laboratory of the U.S. Department of Energy, Office of Energy Efficiency 

and Renewable Energy, operated by the Alliance for Sustainable Energy, LLC.

This work was authored by Alliance for Sustainable Energy, LLC, the manager and operator of the National 

Renewable Energy Laboratory for the U.S. Department of Energy (DOE) under Contract No. DE-AC36-08GO28308. 

Funding provided by U.S. Department of Energy Office of Energy Efficiency and Renewable Energy Solar Energy 

Technologies Office. The views expressed in the article do not necessarily represent the views of the DOE or the U.S. 

Government. The U.S. Government retains and the publisher, by accepting the article for publication, acknowledges 

that the U.S. Government retains a nonexclusive, paid-up, irrevocable, worldwide license to publish or reproduce 

the published form of this work, or allow others to do so, for U.S. Government purposes.

Contact: 

Paul Denholm, Paul.Denholm@nrel.gov