SANDIA REPORT 

SAND2010-0815 

Unlimited Release 

Printed February 2010 

Energy Storage for the Electricity Grid: 

Benefits and Market Potential Assessment 

Guide 

A Study for the DOE Energy Storage Systems Program 

Jim Eyer 

Garth Corey 

Prepared by 

Sandia National Laboratories 

Albuquerque, New Mexico 87185 and Livermore, California 94550 

Sandia is a multiprogram laboratory operated by Sandia Corporation, 

a Lockheed Martin Company, for the United States Department of Energy’s 

National Nuclear Security Administration under Contract DE-AC04-94AL85000. 

Approved for public release; further dissemination unlimited. 
ii 

Issued by Sandia National Laboratories, operated for the United States Department of Energy by Sandia 

Corporation. 

NOTICE: This report was prepared as an account of work sponsored by an agency of the United States 

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assume any legal liability or responsibility for the accuracy, completeness, or usefulness of any 

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iii

SAND2010-0815 

Unlimited Release 

Printed February 2010 

Energy Storage for the Electricity Grid: Benefits 

and Market Potential Assessment Guide 

A Study for the DOE Energy Storage Systems Program 

Jim Eyer 

Distributed Utility Associates, Inc. 

1530 Holmes Street 

Livermore, CA 94550 

Garth Corey 

KTech Corporation 

10800 Gibson SE 

Albuquerque, NM 87123 

Contract #10612 

Abstract 

This guide describes a high-level, technology-neutral framework for assessing potential benefits 

from and economic market potential for energy storage used for electric-utility-related 

applications. The overarching theme addressed is the concept of combining applications/benefits 

into attractive value propositions that include use of energy storage, possibly including 

distributed and/or modular systems. Other topics addressed include: high-level estimates of 

application-specific lifecycle benefit (10 years) in $/kW and maximum market potential 

(10 years) in MW. Combined, these criteria indicate the economic potential (in $Millions) for a 

given energy storage application/benefit. 

The benefits and value propositions characterized provide an important indication of storage 

system cost targets for system and subsystem developers, vendors, and prospective users. 

Maximum market potential estimates provide developers, vendors, and energy policymakers 

with an indication of the upper bound of the potential demand for storage. The combination of 

the value of an individual benefit (in $/kW) and the corresponding maximum market potential 

estimate (in MW) indicates the possible impact that storage could have on the U.S. economy. 

The intended audience for this document includes persons or organizations needing a framework 

for making first-cut or high-level estimates of benefits for a specific storage project and/or those 

seeking a high-level estimate of viable price points and/or maximum market potential for their 

products. Thus, the intended audience includes: electric utility planners, electricity end users, 

non-utility electric energy and electric services providers, electric utility regulators and 

policymakers, intermittent renewables advocates and developers, Smart Grid advocates and 

developers, storage technology and project developers, and energy storage advocates. 
iv

ACKNOWLEDGEMENTS 

The authors give special thanks to Imre Gyuk of the U.S. Department of Energy (DOE) for his 

support of this work and related research. Thanks also to Dan Borneo and John Boyes of Sandia 

National Laboratories for their support. Joel Klein and Mike Gravely of the California Energy 

Commission, Tom Key of the Electric Power Research Institute Power Electronics Applications 

Center and Susan Schoenung of Longitude 122 West also provided valuable support. Finally, 

authors are grateful to Paul Butler of Sandia National Laboratories who provided a thoughtful, 

thorough, and very valuable review. 

This work was sponsored by the DOE Energy Storage Systems Program under contract to Sandia 

National Laboratories. Sandia is a multiprogram laboratory operated by Sandia Corporation, a 

Lockheed Martin Company for the DOE’s National Nuclear Security Administration under 

Contract DE-AC04-94AL85000. 
v

CONTENTS 

Executive Summary....................................................................................................................xv 

Acronyms and Abbreviations ................................................................................................. xxiii 

Glossary ....................................................................................................................................xxv 

1. Introduction .............................................................................................................................1 

1.1. About This Document ....................................................................................................1 

1.2. Background and Genesis ................................................................................................1 

1.3. Intended Audience..........................................................................................................1 

1.4. Analysis Philosophy .......................................................................................................2 

1.4.1. Application versus Benefit........................................................................................2 

1.4.2. Internalizable Benefits ..............................................................................................2 

1.4.3. Societal Benefits .......................................................................................................3 

1.5. Grid and Utility-related General Considerations............................................................3 

1.5.1. Real Power versus Apparent Power..........................................................................3 

1.5.2. Ancillary Services.....................................................................................................4

1.5.3. Electricity Transmission and Distribution ................................................................4 

1.5.4. Utility Regulations and Rules ...................................................................................5 

1.5.5. Utility Financials: Fixed Charge Rate.......................................................................5 

1.6. Standard Assumption Values .........................................................................................6 

1.6.1. Standard Assumption Values for Financial Calculations .........................................6 

1.7. Results Summary............................................................................................................9 

2. Electric Energy Storage Technology Overview....................................................................11 

2.1. Overview of Storage Types ..........................................................................................11 

2.1.1. Electrochemical Batteries .......................................................................................11 

2.1.2. Capacitors ...............................................................................................................11 

2.1.3. Compressed Air Energy Storage.............................................................................12 

2.1.4. Flywheel Energy Storage........................................................................................12 

2.1.5. Pumped Hydroelectric ............................................................................................12 

2.1.6. Superconducting Magnetic Energy Storage............................................................12 

2.1.7. Thermal Energy Storage .........................................................................................13 
vi

2.2. Storage System Power and Discharge Duration...........................................................13 

2.2.1. Storage Power .........................................................................................................13

2.2.2. Storage Discharge Duration....................................................................................14 

2.3. Energy and Power Density ...........................................................................................14 

2.4. Storage System Footprint and Space Requirements.....................................................14 

2.5. Storage System Round-trip Efficiency.........................................................................14 

2.6. Storage Operating Cost.................................................................................................14 

2.6.1. Charging Energy-Related Costs..............................................................................14 

2.6.2. Labor for Plant Operation .......................................................................................15 

2.6.3. Plant Maintenance...................................................................................................15 

2.6.4. Replacement Cost ...................................................................................................15 

2.6.5. Variable Operating Cost .........................................................................................15 

2.7. Lifetime Discharges......................................................................................................16 

2.8. Reliability .....................................................................................................................16 

2.9. Response Time .............................................................................................................17 

2.10. Ramp Rate ....................................................................................................................17 

2.11. Charge Rate ..................................................................................................................17 

2.12. Energy Retention and Standby Losses .........................................................................17 

2.13. Transportability ............................................................................................................18 

2.14. Modularity ....................................................................................................................18 

2.15. Power Conditioning......................................................................................................18 

2.16. Power Quality...............................................................................................................18 

2.16.1. Power Factor ...........................................................................................................18 

2.16.2. Voltage Stability .....................................................................................................19 

2.16.3. Waveform ...............................................................................................................19 

2.16.4. Harmonics ...............................................................................................................19 

2.17. Storage System Reactive Power Capability .................................................................19 

2.18. Communications and Control.......................................................................................19 

2.19. Interconnection .............................................................................................................19 

2.20. Decommissioning and Disposal Needs and Cost .........................................................20 
vii

3. Electric Energy Storage Applications ...................................................................................21 

3.1. Introduction ..................................................................................................................21 

3.1.1. Power Applications versus Energy Applications....................................................21 

3.1.2. Capacity Applications versus Energy Applications................................................22 

3.1.3. Application-specific Power and Discharge Duration..............................................22 

3.2. Electric Supply Applications........................................................................................25 

3.2.1. Application #1 — Electric Energy Time-shift........................................................25 

3.2.2. Application #2 — Electric Supply Capacity...........................................................26 

3.3. Ancillary Services Applications ...................................................................................27 

3.3.1. Application #3 — Load Following .........................................................................27 

3.3.2. Application #4 — Area Regulation ........................................................................29 

3.3.3. Application #5 — Electric Supply Reserve Capacity.............................................31 

3.3.4. Application #6 — Voltage Support ........................................................................32 

3.4. Grid System Applications.............................................................................................34 

3.4.1. Application #7 — Transmission Support ...............................................................34 

3.4.2. Application #8 — Transmission Congestion Relief ...............................................35 

3.4.3. Application #9 — Transmission and Distribution Upgrade Deferral.....................36 

3.4.4. Application #10 — Substation On-site Power........................................................37 

3.5. End User/Utility Customer Applications......................................................................38 

3.5.1. Application #11 — Time-of-use Energy Cost Management ..................................38 

3.5.2. Application #12 — Demand Charge Management.................................................39 

3.5.3. Application #13 — Electric Service Reliability .....................................................42 

3.5.4. Application #14 — Electric Service Power Quality ...............................................43 

3.6. Renewables Integration Applications...........................................................................43 

3.6.1. Application #15 — Renewables Energy Time-shift...............................................43 

3.6.2. Application #16 — Renewables Capacity Firming ................................................47 

3.6.3. Application #17 — Wind Generation Grid Integration ..........................................52 

3.7. Distributed Energy Storage Applications.....................................................................56 

3.7.1. Locational Distributed Storage Applications..........................................................56 

3.7.2. Non-locational Distributed Storage Applications...................................................58 

3.7.3. Incidental Applications from Distributed Storage ..................................................59 

3.8. Applications Not Addressed in this Guide ...................................................................59 
viii

4. Maximum Market Potential Estimation ................................................................................61 

4.1. Market Potential Estimation Framework......................................................................61 

4.1.1. Role of Aggregators................................................................................................62 

4.2. Technical Potential: Peak Electric Load.......................................................................62 

4.3. Maximum Market Potential..........................................................................................62 

4.3.1. Maximum Market Potential Estimates....................................................................63 

4.3.2. Renewables Portfolio Standard...............................................................................64 

4.4. Market Estimate............................................................................................................65 

4.4.1. Important Considerations........................................................................................65 

4.4.2. Market Estimates for Combined Applications and Benefits...................................66 

5. Storage Benefits ....................................................................................................................69 

5.1. Introduction ..................................................................................................................69 

5.1.1. Benefit Definition ...................................................................................................70 

5.1.2. Benefits Summary...................................................................................................71 

5.1.3. Economic Impact Summary....................................................................................73 

5.2. Application-specific Benefits .......................................................................................74 

5.2.1. Benefit #1 — Electric Energy Time-shift...............................................................74 

5.2.2. Benefit #2 — Electric Supply Capacity..................................................................76 

5.2.3. Benefit #3 — Load Following ................................................................................77 

5.2.4. Benefit #4 — Area Regulation ...............................................................................78 

5.2.5. Benefit #5 — Electric Supply Reserve Capacity....................................................80 

5.2.6. Benefit #6 — Voltage Support ...............................................................................81 

5.2.7. Benefit #7 — Transmission Support.......................................................................82 

5.2.8. Benefit #8 — Transmission Congestion Relief ......................................................83 

5.2.9. Benefit #9 — Transmission and Distribution Upgrade Deferral ............................84 

5.2.10. Benefit #10 — Substation On-site Power...............................................................86 

5.2.11. Benefit #11 — Time-of-use Energy Cost Management .........................................87 

5.2.12. Benefit #12 — Demand Charge Management........................................................89 

5.2.13. Benefit #13 — Electric Service Reliability ............................................................91 

5.2.14. Benefit #14 — Electric Service Power Quality ......................................................94 

5.2.15. Benefit #15 — Renewables Energy Time-shift ......................................................95 

5.2.16. Benefit #16 — Renewables Capacity Firming .......................................................98 
ix

5.2.17. Benefit #17 — Wind Generation Grid Integration ...............................................102 

5.3. Incidental Benefits......................................................................................................109 

5.3.1. Benefit #18 — Increased Asset Utilization ..........................................................109 

5.3.2. Benefit #19 — Avoided Transmission and Distribution Energy Losses..............110 

5.3.3. Benefit #20 — Avoided Transmission Access Charges .......................................111 

5.3.4. Benefit #21 — Reduced Transmission and Distribution Investment Risk ...........112 

5.3.5. Benefit #22 — Dynamic Operating Benefits........................................................113 

5.3.6. Benefit #23 — Power Factor Correction ..............................................................113 

5.3.7. Benefit #24 — Reduced Generation Fossil Fuel Use ...........................................114 

5.3.8. Benefit #25 — Reduced Air Emissions from Generation ....................................115 

5.3.9. Benefit #26 — Flexibility .....................................................................................116 

5.3.10. Incidental Energy Benefit .....................................................................................117 

5.4. Benefits Not Addressed in This Report......................................................................117 

5.4.1. Utility Incentives, Special Tariffs and Pricing Approaches Not Addressed.........117 

6. Storage Value Propositions .................................................................................................119 

6.1. Introduction ................................................................................................................119 

6.2. Benefits Aggregation Challenges...............................................................................123 

6.2.1. Technical Conflicts ...............................................................................................123 

6.2.2. Operational Conflicts ............................................................................................123 

6.2.3. Aggregating Benefits among Stakeholders...........................................................124 

6.2.4. Effect on Market Potential ....................................................................................124 

6.3. Notable Application Synergies...................................................................................125 

6.3.1. Electric Energy Time-shift and Electric Supply Capacity....................................125 

6.3.2. Electric Supply Reserve Capacity.........................................................................125 

6.3.3. Load Following.....................................................................................................125 

6.3.4. Transmission and Distribution Upgrade Deferral.................................................125 

6.3.5. Demand Charge Management and Time-of-use Energy Cost Management ........125 

6.3.6. Electric Service Reliability and Electric Service Power Quality..........................126 

6.4. Distributed Energy Storage ........................................................................................126 

6.4.1. Locational Benefits ...............................................................................................126 

6.4.2. Non-locational Benefits ........................................................................................126 
x

6.5. Storage Modularity.....................................................................................................126

6.5.1. Optimal Capacity Additions .................................................................................127 

6.5.2. T&D Planning Flexibility .....................................................................................127 

6.5.3. Unit Diversity........................................................................................................127 

6.5.4. Resource Aggregation...........................................................................................127 

6.5.5. Transportability.....................................................................................................128

6.6. Value Proposition Examples ......................................................................................128 

6.6.1. Electric Energy Time-shift Plus Transmission and Distribution 

Upgrade Deferral ..................................................................................................128 

6.6.2. Time-of-use Energy Cost Management Plus Demand Charge Management .......128 

6.6.3. Renewables Energy Time-shift Plus Electric Energy Time-shift .........................128 

6.6.4. Renewables Energy Time-shift Plus Electric Energy Time-shift 

Plus Electric Supply Reserve Capacity.................................................................129 

6.6.5. Transportable Storage for Transmission and Distribution Upgrade Deferral 

and Electric Service Power Quality/Reliability at Multiple Locations.................129 

6.6.6. Storage to Serve Small Air Conditioning Loads...................................................130 

6.6.7. Distributed Storage in lieu of New Transmission Capacity..................................133 

6.6.8. Distributed Storage for Bilateral Contracts with Wind Generators ......................134 

6.7. The Societal Storage Value Proposition.....................................................................134 

7. Electricity Storage Opportunity Stakeholders, Challenges, and Drivers ............................137 

7.1. Stakeholders ...............................................................................................................137 

7.2. Challenges ..................................................................................................................138 

7.3. Opportunity Drivers....................................................................................................139

7.4. Notable Developments Affecting Prospects for Storage............................................141 

7.4.1. Smart Grid and Electricity Storage .......................................................................141 

7.4.2. Increasing use of Demand Response Resources...................................................142 

7.4.3. Load Aggregators..................................................................................................142 

7.4.4. Increasingly Rich Electricity Price Signals...........................................................143 

7.4.5. Tax and Regulatory Incentives for Storage ..........................................................143 

7.4.6. Transmission Capacity Constraints.......................................................................144 

7.4.7. Expected Proliferation of Electric Vehicles..........................................................144 

7.4.8. Increasing Use of Intermittent Renewables ..........................................................144 

7.4.9. Increasing Use of Modular Distributed Energy Resources...................................144 
xi

7.4.10. Reducing Generation Fuel Use and Air Emissions...............................................145 

7.4.11. Storage Technology Innovation............................................................................145 

8. Conclusions, Observations, and Next Steps........................................................................147 

8.1. Summary Conclusions and Observations...................................................................147 

8.1.1. The Storage Opportunity.......................................................................................147 

8.1.2. Storage Opportunity Drivers.................................................................................148 

8.1.3. Notable Stakeholders ............................................................................................148 

8.1.4. Notable Challenges ...............................................................................................149 

8.1.5. The Importance of Benefits Aggregation .............................................................150 

8.1.6. Multi-faceted Nature of the Storage Opportunity.................................................150 

8.2. Next Steps – Research Needs and Opportunities .......................................................150 

8.2.1. Establish Consensus about Priorities and Actions ................................................150 

8.2.2. Identify and Characterize Attractive Value Propositions .....................................151 

8.2.3. Identify and Characterize Important Challenges and Possible Solutions .............151 

8.2.4. Identify, Characterize and Develop Financial and Engineering Standards, 

Models, and Tools.................................................................................................151 

8.2.5. Ensure Robust Integration of Distributed/Modular Storage with Smart Grid 

and Demand Response Programs..........................................................................151 

8.2.6. Develop More Refined Market Potential Estimates .............................................152 

8.2.7. Develop Model Risk and Reward Sharing Mechanisms ......................................152 

8.2.8. Develop Model Rules for Utility Ownership of Distributed/Modular Storage ....152 

8.2.9. Characterize, Understand, and Communicate the Societal Value Proposition 

for Storage.............................................................................................................152 

8.2.10. Storage Technology and Value Proposition Demonstrations ...............................153 

Appendix A – Ancillary Services Overview ........................................................................... A-1 

Appendix B – Storage Replacement Cost Estimation Worksheet............................................B-1 

Appendix C – Distributed Energy Storage for Voltage Support and Reactive Power .............C-1 

Appendix D – Storage for Load Following ............................................................................. D-1 

Appendix E – Area Regulation.................................................................................................E-1 

Appendix F – Energy Prices .....................................................................................................F-1 

Appendix G – Challenges for Storage ..................................................................................... G-1 

Appendix H – Distribution....................................................................................................... H-1 
xii

FIGURES 

Figure 1. Present worth factors. ...................................................................................................... 8 

Figure 2. Storage total variable operation cost for 75% storage efficiency.................................. 16 

Figure 3. Electric supply resource stack. ...................................................................................... 27 

Figure 4. System load without and with area regulation. ............................................................. 29 

Figure 5. Storage and generation operation for area regulation.................................................... 30 

Figure 6. Summer energy prices for PG&E’s Small Commercial A-6 TOU rate. ....................... 38 

Figure 7. On-peak demand reduction using energy storage. ........................................................ 41 

Figure 8. Wind generation energy time-shift................................................................................ 45 

Figure 9. Baseload renewables energy time-shift......................................................................... 46 

Figure 10. Renewable-fueled generation, short-duration intermittency (example)...................... 49 

Figure 11. PV generation output variability during peak demand hours (example)..................... 50 

Figure 12. Wind generation diurnal intermittency during peak demand hours. ........................... 51 

Figure 13. Market potential and estimate. .................................................................................... 61

Figure 14. U.S. Renewables Portfolio Standard targets by state. ................................................. 64 

Figure 15. Market intersection...................................................................................................... 67 

Figure 16. Chronological electricity price data for California, 2009 (projected). ........................ 75 

Figure 17. Annual and 10-year present worth time-shift benefit.................................................. 76 

Figure 18. Generation variable cost, for various fuel prices and fuel efficiencies. ...................... 96 

Figure 19. Benefit for T&D I2R energy losses avoided.............................................................. 111 

Figure 20. Value proposition for transportable storage. ............................................................. 130 

Figure 21. Components of peak electric demand in California. ................................................. 131 

Figure 22. Load duration curve for an electricity distribution node........................................... 132 

Figure 23. Portion of load duration curve with highest values................................................... 132 
xiii

TABLES 

Table 1. Present Worth Factors, 2.5% Escalation, 10% Discount Rate.......................................... 8 

Table 2. Primary Results Summary — Benefits, Maximum Market Potential, and 

Maximum Economic Value .................................................................................................. 10 

Table 3. Five Categories of Energy Storage Applications............................................................ 21 

Table 4. Standard Assumption Values for Storage Power............................................................ 23 

Table 5. Standard Assumption Values for Discharge Duration.................................................... 24 

Table 6. Types of Transmission Support ...................................................................................... 34 

Table 7. Wind Generation Grid Integration Categories and Subtypes ......................................... 53 

Table 8. U.S. and California Peak Load and Peak Load Growth ................................................. 62 

Table 9. Maximum Market Potential Estimates ........................................................................... 63 

Table 10. Application-specific and Incidental Benefits of Using Energy Storage....................... 69 

Table 11. Application-specific Benefit Estimates ........................................................................ 72 

Table 12. Application-specific Potential Economic Impact Estimates......................................... 73 

Table 13. Load Following Benefit Calculations........................................................................... 78 

Table 14. Area Regulation Annual and Lifecycle Benefit Summary ........................................... 80 

Table 15. Electric Supply Reserve Capacity Annual Benefit....................................................... 81 

Table 16. Transmission Support Annual Financial Benefit.......................................................... 83 

Table 17. Congestion Charges in California, $2007..................................................................... 84 

Table 18. T&D Upgrade Cost and Benefit Summary, 50th Percentile.......................................... 86 

Table 19. T&D Upgrade Cost and Benefit Summary, 90th Percentile.......................................... 86 

Table 20. PG&E A-6 Time-of-use Energy Price Tariff................................................................ 88 

Table 21. Electricity Bill, E-19 Tariff, without Storage ............................................................... 90 

Table 22. Electricity Bill, E-19 Tariff, with Storage .................................................................... 90 

Table 23. Electricity Bill Comparison, E-19 Tariff, with and without Storage............................ 91 

Table 24. Commercially Available UPS Ratings and Prices........................................................ 93 

Table 25. UPS Lifecycle Cost....................................................................................................... 93 

Table 26. Wholesale Spot Energy Price Differentials, On-peak and Off-peak, Weekdays, 

California Forecast for 2009 (in $/MWh)............................................................................. 96 

Table 27. Energy Time-shift Benefit from Renewable Energy Generation 

During Operation for Capacity Firming.............................................................................. 101 
xiv

Table 28. Total Annual Renewables Capacity Firming Benefit................................................. 102 

Table 29. Wind Generation Grid Integration Application Subtypes .......................................... 102 

Table 30. Estimated Total Transmission Cost for Wind Capacity Additions in California ....... 105 

Table 31. Transmission Cost for Wind Capacity Additions in California, 

High-value Locations.......................................................................................................... 107 

Table 32. Benefit for Avoided Service Outages Due to Sudden Drop of 

Wind Generation Output..................................................................................................... 108 

Table 33. Low and High Values for Minimum Load Violations................................................ 108 

Table 34. Wind Integration Benefits Summary .......................................................................... 109 

Table 35. Generation Fuel Use Implications of Energy Storage Use......................................... 115 

Table 36. Generation CO2 and NOx Emissions Implications of Energy Storage Use ................ 116 

Table 37. Applications Synergies Matrix ................................................................................... 121 
xv

Executive Summary 

Introduction 

Electric energy storage is poised to become an important element of the electricity infrastructure 

of the future. The storage opportunity is multifaceted – involving numerous stakeholders and 

interests – and could involve potentially rich value propositions. Those rich value propositions 

are possible because, as described in this report, there are numerous potentially complementary 

and significant benefits associated with storage use that could be aggregated into attractive value 

propositions. In addition, proven storage technologies are in use today, while emerging storage 

technologies are expected to have improved performance and/or lower cost. In fact, recent 

improvements in energy storage and power electronics technologies, coupled with changes in the 

electricity marketplace, indicate an era of expanding opportunity for electricity storage as a costeffective electric energy resource. 

Scope and Purpose 

This guide provides readers with a high-level understanding of important bases for electricutility-related business opportunities involving electric energy storage. More specifically, this 

guide is intended to give readers a basic understanding of the benefits for electric-utility-related 

uses of energy storage. 

The guide includes characterization of 26 benefits associated with the use of electricity storage 

for electric-utility-related applications. The 26 storage benefits characterized are categorized as 

follows: 1) Electric Supply, 2) Ancillary Services, 3) Grid System, 4) End User/Utility 

Customer, 5) Renewables Integration, and 6) Incidental. For most of these benefits, the financial 

value and maximum market potential are estimated. An estimate of the potential economic 

impact associated with each benefit is also provided. 

As a complement to characterizations of individual benefits, another key topic addressed is the 

concept of aggregating benefits to comprise financially attractive value propositions. Value 

propositions examples are provided. 

Also addressed are storage opportunity drivers, challenges, and notable developments affecting 

storage. Finally, observations and recommendations are provided regarding the needs and 

opportunities for electric-energy-storage-related research and development. 

Intended Audience 

The intended audience for this guide includes persons or organizations needing a framework for 

making first-cut or high-level estimates of benefits for a specific storage project and/or those 

seeking a high-level estimate of viable price points and/or maximum market potential for their 

products. Thus, the intended audience includes, in no particular order: electric utility planners 

and researchers, non-utility electricity service providers and load aggregators, electricity end 

users, electric utility regulators and policymakers, and storage project and technology developers 

and vendors. 
xvi

Value Propositions 

As a complement to coverage of individual benefits, a key topic addressed in this guide is the 

aggregation of benefits into financially attractive value propositions. That is important because, 

in many cases, the value of a single benefit may not exceed storage cost whereas the value of 

combined benefits may be greater than the cost. 

Characterizing the full spectrum of possible value propositions is beyond the scope of this guide; 

however, eight potentially attractive value propositions are characterized as examples: 

1. Electric Energy Time-shift Plus Transmission and Distribution Upgrade Deferral 

2. Time-of-use Energy Cost Management Plus Demand Charge Management 

3. Renewables Energy Time-shift Plus Electric Energy Time-shift 

4. Renewables Energy Time-shift plus Electric Energy Time-shift plus Electric Supply 

Reserve Capacity 

5. Transportable Storage for Transmission and Distribution Upgrade Deferral and Electric 

Service Power Quality/Reliability at Multiple Locations 

6. Storage to Serve Small Air Conditioning Loads 

7. Distributed Storage in lieu of New Transmission Capacity 

8. Distributed Storage for Bilateral Contracts with Wind Generators 

Notable Challenges for Storage 

Clearly, there are important challenges to be addressed before the full potential for storage is 

realized. At the highest level, in most cases storage cost exceeds internalizable benefits* for a 

variety of reasons, primarily the following: 

• High storage cost (relative to internalizable benefits) for modular storage. 

• To a large extent, pricing of electric energy and services does not enable storage owners 

to internalize most benefits. 

• Limited regulatory ‘permission’ to use storage and/or to share benefits among 

stakeholders – especially benefits from distributed/modular storage. 

• Key stakeholders have limited or no familiarity with storage technology and/or benefits. 

• Infrastructure needed to control and coordinate storage, especially smaller distributed 

systems, is limited or does not exist. 

 

*

 The concept of an internalizable benefit is an important theme for this report. An internalizable benefit is one that 

can be ‘captured’, ‘realized’, or received by a given stakeholder. An internalizable financial benefit takes the form 

of revenue and/or a cost reduction or avoided cost. 
xvii

Notable Storage Opportunity Drivers 

Some notable recent and emerging developments driving the opportunities for storage include 

the following (in no particular order): 

• Modular storage technology development in response to the growing market for hybrid 

vehicles and for portable electronic devices. 

• Increasing interest in managing peak demand and reliance on ‘demand response’ 

programs – due to peaking generation and transmission constraints. 

• Expected increased penetration of distributed energy resources. 

• Adoption of the Renewables Portfolio Standard, which will drive increased use of 

renewables generation with intermittent output. 

• Financial risk that limits investment in new transmission capacity, coupled with 

increasing congestion on some transmission lines and the need for new transmission 

capacity in many regions. 

• Increasing emphasis on richer electric energy and services pricing, such as time-of-use 

energy prices, locational marginal pricing, and increasing exposure of market-based 

prices for ancillary services. 

• The increasing use of distributed energy resources and the emergence of Smart Grid and 

distributed energy resource and load aggregation. 

• Accelerating storage cost reduction and performance improvement. 

• Increasing recognition by lawmakers, regulators, and policymakers of the important role 

that storage should play in the electricity marketplace of the future. 

Research and Development Needs and Opportunities 

The following R&D needs and opportunities have been identified as ways to address some of the 

important challenges that limit increased use of storage: 

1. Establish consensus about priorities and actions. 

2. Identify and characterize attractive value propositions. 

3. Identify and characterize important challenges and possible solutions. 

4. Identify and develop standards, models, and tools. 

5. Ensure robust integration of distributed/modular storage and Smart Grid. 

6. Develop more refined market potential estimates. 

7. Develop model risk and reward sharing mechanisms. 

8. Develop model rules for utility ownership of distributed/modular storage. 

9. Characterize, understand, and communicate the societal value proposition for storage. 
xviii

Key Assumptions and Primary Results 

Key assumptions and primary results from the guide are provided in Table ES-1. That table 

contains five criteria for the 17 primary benefits characterized in this report. Discharge duration 

indicates the amount of time that the storage must discharge at its rated output before charging. 

Capacity indicates the range of storage system power ratings that apply for a given benefit. The 

benefit indicates the present worth of the respective benefit type for 10 years (2.5% inflation, 

10% discount rate). Potential indicates the maximum market potential for the respective benefit 

over 10 years. Economy reflects the total value of the benefit given the maximum market 

potential. 
xix

Table ES-1. Summary of Key Assumptions and Results 

Discharge

Duration*

Capacity

(Power: kW, MW)

Benefit

($/kW)**

Potential

(MW, 10 Years)

E

# Benefit Type Low High Low High Low High CA U.S. C

1 Electric Energy Time-shift 2 8 1 MW 500 MW 400 700 1,445 18,417 72 Electric Supply Capacity 4 6 1 MW 500 MW 359 710 1,445 18,417 73 Load Following 2 4 1 MW 500 MW 600 1,000 2,889 36,834 2,4 Area Regulation 15 min. 30 min. 1 MW 40 MW 785 2,010 80 1,012 15 Electric Supply Reserve Capacity 1 2 1 MW 500 MW 57 225 636 5,986 6 Voltage Support 15 min. 1 1 MW 10 MW 722 9,209 47 Transmission Support 2 sec. 5 sec. 10 MW 100 MW 1,084 13,813 28 Transmission Congestion Relief 3 6 1 MW 100 MW 31 141 2,889 36,834 2

9.1 T&D Upgrade Deferral 50th 

percentile†† 3 6 250 kW 5 MW 481 687 386 4,986 2

9.2 T&D Upgrade Deferral 90th 

percentile†† 3 6 250 kW 2 MW 759 1,079 77 997 

10 Substation On-site Power 8 16 1.5 kW 5 kW 1,800 3,000 20 250 11 Time-of-use Energy Cost Management 4 6 1 kW 1 MW 5,038 64,228 6,12 Demand Charge Management 5 11 50 kW 10 MW 2,519 32,111 1,13 Electric Service Reliability 5 min. 1 0.2 kW 10 MW 359 978 722 9,209 414 Electric Service Power Quality 10 sec. 1 min. 0.2 kW 10 MW 359 978 722 9,209 415 Renewables Energy Time-shift 3 5 1 kW 500 MW 233 389 2,889 36,834 816 Renewables Capacity Firming 2 4 1 kW 500 MW 709 915 2,889 36,834 2,

17.1 Wind Generation Grid Integration, Short Duration 10 sec. 15 min. 0.2 kW 500 MW 500 1,000 181 2,302 117.2 Wind Generation Grid Integration, Long Duration 1 6 0.2 kW 500 MW 100 782 1,445 18,417 6

*Hours unless indicated otherwise. min. = minutes. sec. = seconds.**Lifecycle, 10 years, 2.5% escalation, 10.0% discount rate.

 †Based on potential (MW, 10 years) times average of low and high benefit ($/kW). †† Benefit for one year . However, storage could be used at more than one location at different times for similar benefits.

1,226

582400192
xx

Financial benefits and maximum market potential estimates for the U.S. are provided in Figure 

ES-1. The same values for California are provided in Figure ES-2. 

0

500

1,000

1,500

2,000

2,500

3,000

Energy Time-shift

Capacity

Load Following

Area Regulation

Reserve Capacity

Voltage Support

Transmission Support

Transmission Congestion

T&D Deferral 50th Percentile

T&D Deferral 90th Percentile

Substation On-site

Time-of-use Energy

Demand Charge

Reliability

Power Quality

RE Time-shift

RE Firming

Wind. Gen. Integration, Short

Wind. Gen. Integration, Long

Benefit ($/kW, 10 Years) 

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

Max. Market Potential (MW, 10 Years) 

Benefit

Maximum Market Potential

Figure ES-1. Application-specific 10-year benefit and 

maximum market potential estimates for the U.S. 
xxi

0

500

1,000

1,500

2,000

2,500

3,000

Energy Time-shift

Capacity

Load Following

Area Regulation

Reserve Capacity

Voltage Support

Transmission Support

Transmission Congestion

T&D Deferral 50th Percentile

T&D Deferral 90th Percentile

Substation On-site

Time-of-use Energy

Demand Charge

Reliability

Power Quality

RE Time-shift

RE Firming

Wind. Gen. Integration, Short

Wind. Gen. Integration, Long

Benefit ($/kW, 10 Years) 

0

1,000

2,000

3,000

4,000

5,000

6,000

Max. Market Potential (MW, 10 Years) 

Benefit

Maximum Market Potential

Figure ES-2. Application-specific 10-year benefit and 

maximum market potential estimates for California. 

Care must be used when aggregating specific benefits and market potential values because there 

may be technical and/or operational conflicts, and/or institutional barriers may hinder or even 

preclude aggregation, as described in Section 4.4.2. 
xxii
xxiii

Acronyms and Abbreviations 

AC alternating current 

A/C air conditioning 

ACE area control error 

AGC automated generation control 

AMI Advanced Metering Infrastructure 

CAES compressed air energy storage 

CAISO California Independent System Operator 

CEC California Energy Commission 

C&I commercial and industrial (energy users) 

DC direct current 

DER distributed energy resource(s) 

DOB dynamic operating benefit 

DOE U.S. Department of Energy 

ELCC effective load carrying capacity 

EPRI Electric Power Research Institute 

EV electric vehicle 

FACTS flexible AC transmission systems 

FERC Federal Energy Regulatory Commission 

kW kilowatt 

kWh kilowatt-hour 

kV kilovolt 

kVA kilovolt-Ampere (or kilovolt-Amp) 

kVAR kilovolt-Ampere reactive (or kilovolt-Amp reactive) 

IEEE Institute of Electronics and Electrical Engineers 

IOU investor-owned utility 

ISO independent system operator 

I

2

R pronounced “I squared R” meaning current squared times electric resistance 

LDC load duration curve 

Li-ion lithium-ion 

MES modular energy storage 
xxiv

MW megawatt 

MWh megawatt-hour 

MVA megavolt-Ampere (or megavolt-Amp) 

Na/S sodium/sulfur 

NERC North American Electric Reliability Council 

NiCad nickel-cadmium 

Ni-MH nickel-metal hydride 

O&M operation and maintenance 

ORNL Oak Ridge National Laboratory 

PCU power conditioning unit 

PEAC Power Electronics Applications Center 

PEV plug-in electric vehicle 

PG&E Pacific Gas and Electric Company 

PHEV plug-in hybrid electric vehicle 

PV photovoltaic 

PW present worth (factor) 

R&D research and development 

RPS Renewables Portfolio Standard 

SCADA supervisory control and data acquisition 

SMES superconducting magnetic energy storage 

SNL Sandia National Laboratories 

StatCom static synchronous compensator 

T&D transmission and distribution 

THD total harmonic distortion 

TOU time-of-use (energy pricing) 

UPS uninterruptible power supply 

VAR volt-Amperes reactive (or volt-Amps reactive) 

VOC variable operating cost 

VOS value-of-service 

Zn/Br zinc/bromine 
xxv

Glossary 

Area Control Error (ACE) – The momentary difference between electric supply and electric 

demand within a given part of the electric grid (area). 

Automated Generation Control (AGC) – A protocol for dispatching electric supply resources 

(possibly including demand management) in response to changing demand. AGC resources often 

respond by changing output at a rate of a few percentage points per minute over a predetermined 

output range. The AGC signal can vary as frequently as every six seconds though generation is 

rarely called upon to respond that frequently. Typically, generation responds to an average of 

that more frequent signal, such that a response (change of output) is required once per minute or 

perhaps as infrequently as every five minutes. 

Application – A specific way or ways that energy storage is used to satisfy a specific need; 

how/for what energy storage is used. 

Arbitrage – Simultaneous purchase and sale of identical or equivalent commodities or other 

instruments across two or more markets in order to benefit from a discrepancy in their price 

relationship. 

Benefit – See Financial Benefit. 

Beneficiaries – Entities to whom financial benefits accrue due to use of a storage system. 

Carrying Charges – The annual financial requirements needed to service debt and/or equity 

capital used to purchase and to install capital equipment (i.e., a storage plant), including tax 

effects. For utilities, this is the revenue requirement. See also Fixed Charge Rate. 

Combined Applications – Energy storage used for two or more compatible applications. 

Combined Benefits – The sum of all benefits that accrue due to use of an energy storage system, 

regardless of the purpose for installing the system. 

Demand Response – Controlled reduction of power draw by electricity end users accomplished 

via automated communication and control protocols done to balance demand and supply, 

possibly in lieu of adding generation and/or transmission and distribution (T&D) capacity. 

Discharge Duration – Total amount of time that the storage plant can discharge, at its nameplate 

rating, without recharging. Nameplate rating is the nominal full-load rating, not the emergency, 

short-duration, or contingency rating. 

Discount Rate – The interest rate used to discount future cash flows to account for the time 

value of money. For this document, the assumed value is 10%. 

Dispatchable – Electric power resource whose output can be controlled – increased and/or 

decreased – as needed. Applies to generation, storage, and load-control resources. 

Diurnal – Having a daily cycle or occurring every day. 

Diversity – The amount of variability and/or difference there is among members of a group. To 

the extent that electric resources are diverse – with regard to geography and/or fuel – their 

reliability is enhanced because diversity limits the chance that failure of one or a few individual 

resources will cause significant problems. 
xxvi

Economic Benefit – The sum of all financial benefits that accrue to all beneficiaries using 

storage. For example, if the average financial benefit is $100 for 1 million storage users then the 

economic benefit is $100 × 1 million = $100 Million. See Financial Benefit. 

Efficiency (Storage Efficiency) – See Round-trip Efficiency. 

Effective Load Carrying Capacity (ELCC) – A characterization of a generator’s contribution 

to planning reserves for a given level of electric supply system reliability. ELCC is a robust and 

mathematically consistent measure of capacity value. ELCC can be used to establish appropriate 

payments for resources used to provide capacity needed to meet system reliability goals. 

Financial Benefit (Benefit) – Monies received and/or cost avoided by a specific beneficiary, due 

to use of energy storage. 

Financial Life –The plant life assumed when estimating lifecycle costs and benefits. A plant life 

of 10 years is assumed for lifecycle financial evaluations in this document (i.e., 10 years is the 

standard assumption value). 

Fixed Charge Rate – The rate used to convert capital plant installed cost into an annuity 

equivalent (payment) representing annual carrying charges for capital equipment. It includes 

consideration of interest and equity return rates, annual interest payments and return of debt 

principal, dividends and return of equity principal, income taxes, and property taxes. The 

standard assumption value is 0.13 for utilities. 

Flexible AC Transmission Systems (FACTS) – “A power electronic-based system and other 

static equipment that provide control of one or more alternating current (AC) transmission 

system parameters to enhance controllability and increase power transfer capability.”*

I

2

R Energy Losses – Energy losses incurred during transmission and distribution of electric 

energy, due to heating in an electrical system, caused by electrical currents in the conductors of 

transformer windings or other electrical equipment. I2R (pronounced I squared R) indicates that 

those energy losses are a function of the square of the current (I2

) times the resistance (R) per 

Joule’s Law (which characterizes the amount of heat generated when current flows through a 

conductor). So, for example, reducing current by 50% reduces I2

R energy losses to one quarter of 

the original value. 

Inflation Rate (Inflation) – The annual average rate at which the price of goods and services 

increases during a specific time period. For this document, inflation is assumed to be 2.5% per 

year. 

Internalizable Benefit – A benefit (revenue and/or reduced cost) that accrues, in part or in 

whole, to a specific stakeholder or stakeholders. A benefit is most readily internalizable if there 

is a price associated with it. 

Lifecycle – See Financial Life. 

Lifecycle Benefit – Present worth (value) of financial benefits that are expected to accrue over 

the life of a storage plant. 

 

*

 Definition provided by the Institute of Electrical and Electronics Engineers (IEEE). 
xxvii

Load Duration Curve (LDC) – Hourly demand values (usually for one year) arranged in order 

of magnitude, regardless of which hour during the year that the demand occurs. Values to the left 

represent the highest levels of demand during the year and values to the right represent the 

lowest demand values during the year.

Loss of Load Expectation – Measure of the electric supply system’s reliability that indicates the 

adequacy of the system to satisfy demand. 

Loss of Load Probability – measure of the electric supply system’s reliability indicating the 

likelihood that the system cannot satisfy demand. 

Market Estimate – The estimated amount of energy storage capacity (MW) that will be 

installed. For this document, market estimates are made for a 10-year period. Market estimates 

reflect consideration of prospects for lower cost alternatives to compete for the same applications 

and benefits. (The Market Estimate is a portion of the Maximum Market Potential.) 

Maximum Market Potential – The maximum potential for actual sale and installation of 

energy storage, estimated based on reasonable assumptions about technology and market 

readiness and trends, and about the persistence of existing institutional challenges. In the context 

of this document, it is the plausible market potential for a given application. (The Maximum 

Market Potential is a portion of the Market Technical Potential.) 

Market Technical Potential – The estimated maximum possible amount of energy storage (MW 

and MWh) that could be installed over 10 years, given purely technical constraints. 

Plant Rating (Rating) – Storage plant ratings include two primary criteria: 1) power – nominal 

power output and 2) energy – the maximum amount of energy that the system can deliver to the 

load without being recharged. 

Present Worth Factor (PW Factor) – A value used to estimate the present worth of a stream of 

annual expenses or revenues. It is a function of a specific combination of investment duration 

(equipment life), financial escalation rate (e.g., inflation), and an annual discount rate. The PW 

factor of 7.17 used in this guide is based on the following standard assumption values: a 10-year 

equipment life, 2.5% annual price/cost inflation rate, 10% annual discount rate, and a mid-year 

convention. 

Price Inflation Rate (Inflation) – See Inflation. 

Revenue Requirement – For a utility, the amount of annual revenue required to pay carrying 

charges for capital equipment and to cover expenses including fuel and maintenance. See also 

Carrying Charges and Fixed Charge Rate. 

Round-trip Efficiency – The amount of electric energy output from a given storage 

plant/system per unit of electric energy input. 

Smart Grid – A concept involving an electricity grid that delivers electric energy using 

communications, control, and computer technology for lower cost and with superior reliability. 

As characterized by the U.S. Department of Energy, the following are characteristics or 

performance features of a Smart Grid: 1) self-healing from power disturbance events; 2) enabling 

active participation by consumers in demand response; 3) operating resiliently against physical 

and cyber attack; 4) providing power quality for 21st century needs; 5) accommodating all 

generation and storage options; 6) enabling new products, services, and markets; and 

7) optimizing assets and operating efficiently. 
xxviii

Societal Benefit – A benefit that accrues, in part or in whole, to utility customers as a group 

and/or to society at large. 

Standard Assumption Values (Standard Values) – Standardized/generic values used for 

example calculations. For example, financial benefits are calculated based on the following 

standard assumption values: a 10-year lifecycle, 10% discount rate, and 2.5% annual inflation. 

See also Standard Calculations. 

Standard Calculations – Methodologies for calculating benefits and market potential – used in 

conjunction with Standard Assumption Values. 

Storage Discharge Duration – See Discharge Duration. 

Storage System Life (System Life) – The period during which the storage system is expected to 

be operated. For this document, the Storage System Life is equal to the Financial Life. 

Supervisory Control and Data Acquisition (SCADA) – A generic term describing various 

approaches used to automate monitoring and control of T&D equipment and to gather and store 

data about equipment operation. 
1

1. Introduction 

1.1. About This Document 

This document provides high-level characterizations of electric energy storage applications, 

including key characteristics needed for storage used in electric-grid-related applications. 

Financial benefits and maximum market potential estimates, in California and the U.S., are 

provided for those applications. 

Financial benefit estimates provide an indication of the financial attractiveness of storage for 

specific applications. Individual benefits provide bases for value propositions that comprise two 

or more individual benefits, especially value propositions involving benefits that exceed cost. 

Application-specific maximum market potential estimates provide an indication of the potential 

demand for storage. Values for application-specific benefits are multiplied by the maximum 

market potential to estimate the potential economic effect ($Millions) for storage used for 

specific applications. 

The goal is to provide 1) bases for first-cut or screening-level evaluation of the benefits and 

market potential for specific, possibly attractive, storage value propositions and 2) a possible 

framework for making region-specific or circumstance-specific estimates. 

The presentation in this document is storage-technology-neutral, though there is some coverage 

of storage technology system characteristics as context for coverage of applications, benefits, and 

value propositions. In fact, value propositions characterized using values and insights in this 

report may provide a helpful indication of storage system cost and performance targets. Many 

other existing resources can be used to determine the cost for, and technical viability of, specific 

storage types.[1][2][3] 

1.2. Background and Genesis 

The original work underlying this report, supported and funded by the U.S. Department of 

Energy (DOE), was developed in support of the California Energy Commission (CEC) Public 

Interest Energy Research (PIER) Program. The purpose of that work – documented in the report 

Energy Storage Benefits and Market Analysis Handbook (Sandia National Laboratories report 

#SAND2004-6177) – was to provide guidance for organizations seeking CEC co-funding for 

storage demonstrations. The approach used for selecting co-funding proposals emphasized 

demonstration of storage to be used for a specific value proposition. Furthermore, the CEC gave 

some preference to value propositions with more potential to have a positive impact. 

1.3. Intended Audience 

The intended audience for this document includes persons or organizations needing a framework 

for making first-cut or high-level estimates of benefits for a specific storage project and/or those 

seeking a high-level estimate of viable price points and/or maximum market potential for their 

products. Thus, the intended audience includes, in no particular order: electric utility planners 

and researchers, non-utility electricity service providers and load aggregators, electricity end 
2

users, electric utility regulators and policymakers, and storage project and technology 

developers, and vendors. 

1.4. Analysis Philosophy 

The methodologies used to estimate application-specific values for benefits and market potential 

are intended to balance a general preference for precision with the cost to perform rigorous 

financial assessments and to make rigorous market assessments. Much of the data needed for a 

more rigorous approach is proprietary or otherwise unavailable; is too expensive, does not exist 

in a usable form, or does not exist at all. It is also challenging to establish extremely credible 

generic values for benefits when those values are somewhat-to-very specific to region and 

circumstances. Similarly, making national estimates of maximum market potential using limited 

data requires many assumptions that are established using a combination of informal surveys of 

experts, subjectivity, and authors’ familiarity with the subject. Nonetheless, despite those 

challenges, this report includes just such estimates of generic, application-specific values for 

benefits and maximum market potential. 

Given the diversity of California’s generation mix, load types and sizes, regions, weather 

conditions, etc., it was assumed to be a reasonable basis for estimating national values. The 

application-specific benefit estimates are especially California-centric. Also, maximum market 

potential estimates developed for California are extrapolated to estimate values for the entire 

country. (See Section 4 for details.) 

Although the methodology used to estimate benefits and maximum market potential involves 

some less than rigorous analysis, it was the authors’ intention to make reasonable attempts to 

document assumptions and methodologies used so that the evaluation is as transparent and 

auditable as is practical. This gives the necessary information to readers and analysts so that they 

may consider the merits and appropriateness of data and methodologies used in this report. To 

the extent that superior data or estimates are available, and/or a superior or preferred estimation 

methodology exists, those should be used in lieu of the assumptions and approaches in this 

report. 

Similarly, given the generic nature of the benefit estimates, for specific situations or projects it is 

prudent to undertake a more circumstance-specific and possibly more detailed evaluation than is 

possible using the assumptions and estimates in this guide. 

1.4.1. Application versus Benefit 

It is important to note the distinction made in this document between applications and benefits. 

In general terms, an application is a use whereas a benefit connotes a value. In many cases, a 

benefit is quantified in terms of the monetary or financial value. Of course, some qualitative 

benefits – such as the ‘goodness’ of reduced noise and improved aesthetics – may not be readily 

quantifiable and/or expressed in financial terms. 

1.4.2. Internalizable Benefits 

The concept of an internalizable benefit is an important theme for this report. An internalizable 

benefit is one that can be ‘captured’, ‘realized’, or received by a given stakeholder or 

stakeholders. An internalizable financial benefit takes the form of revenue or reduced cost. A 

benefit is most readily internalizable if there is a price associated with it. (Some refer to a benefit 
3

for which there is an established financial value – especially in the form of a price – as a benefit 

that is ‘monetized’.) 

An example of a readily internalized benefit is electricity bill reduction that accrues to a utility 

customer who uses storage to reduce on-peak a) energy cost and b) demand charges. In that 

example, the benefit is a function of a) the amount of energy and the level of demand involved 

and b) the on-peak and the off-peak prices for energy and the on-peak demand charge. 

Continuing with the example; consider that the same customer-owned and -operated storage 

could also reduce or delay the need (and cost) for additional utility-owned transmission and 

distribution (T&D) capacity. The resulting ‘T&D upgrade deferral’ benefit (i.e., reduced, 

deferred or avoided cost) though real, cannot be directly internalized by the utility customer who 

installs the storage. That is because there is no established ‘price’ associated with reducing the 

need for a specific T&D capacity upgrade (i.e., the utility’s avoided cost cannot be shared with 

end users who take actions that defer/reduce the need and cost for a T&D upgrade). Rather, the 

resulting T&D upgrade deferral benefit is internalized by the utility and/or the utility’s ratepayers 

as a group (in the form of reduced, deferred, or avoided price increase). 

1.4.3. Societal Benefits 

Although not addressed in detail in this report, it is important to consider some important 

storage-related benefits that accrue, in part or in whole, to electric utility customers as a group 

and/or to society at large. Three examples of possible storage-related societal benefits are the 

integration of more renewables, more effectively; reduced air emissions from generation; and 

improved utilization of grid assets (i.e., generation and T&D equipment). 

In most cases, societal benefits are accompanied by an internalizable or partially internalizable 

benefit. Consider an example: A utility customer uses storage to reduce on-peak energy use. An 

internalizable benefit accrues to that customer in the form of reduced cost; however, other 

societal benefits may accrue to utility customers as a group and/or to society as a whole. For 

example, reduced peak demand could lead to reduced need for generation and transmission 

capacity, reduced air emissions, and a general improvement of businesses’ cost competitiveness. 

This topic is especially important for lawmakers, electric utility regulators, energy and electricity 

policymakers and policy analysts, and storage advocates as laws, regulations, and policies that 

could affect prospects for increased storage use are developed. 

1.5. Grid and Utility-related General Considerations 

Applications described in this report affect the electric supply system and the T&D system – 

known collectively as ‘the grid’. This subsection characterizes several important considerations 

and topics related to the electric grid. Those topics are presented here as context for results 

presented throughout the rest of this report. 

1.5.1. Real Power versus Apparent Power 

For the purposes of this document, units of kW and MW (real or true power) are used universally 

when kVA and MVA (apparent power) may be the more technically correct units. Given the 
4

degree of precision possible for market potential and financial benefit estimation, the distinction 

between these units has relatively little impact on most results.*

1.5.2. Ancillary Services 

Some possible uses of storage are typically classified as ancillary services. The electric utility 

industry has a specific definition of ancillary services. (See Appendix A for brief overview of 

ancillary services.) 

Three specific ancillary services are explicitly addressed in this report: 1) area regulation, 

2) electric supply reserve capacity, and 3) voltage support. Although not always categorized as 

an ancillary service, in this guide load following is also included in the ancillary services 

category. 

1.5.3. Electricity Transmission and Distribution 

The electric utility transmission and distribution (T&D) system comprises three primary 

subsystems: 1) transmission, 2) subtransmission, and 3) distribution, as described below. Several 

storage applications involve benefits associated with one or more of these subsystems. 

Electricity Transmission – Electricity transmission is the backbone of the electric grid. 

Transmission wires, transformers, and control systems transfer electricity from supply sources 

(generation or electricity storage) to utility distribution systems. Often, the transmission system 

is used to send large amounts of electricity over relatively long distances. In the U.S., 

transmission system operating voltages generally range from 200 kV (200,000 V) to 500 kV 

(500,000 V). Transmission systems typically transfer the equivalent of 200 MW to 500 MW. 

Most transmission systems use alternating current (AC), though some larger, longer transmission 

corridors employ high-voltage direct current (DC). 

Electricity Subtransmission – Relative to transmission, subtransmission transfers smaller 

amounts of electricity, at lower operating voltages, over shorter distances. Normally, 

subtransmission voltages fall within the range of 50 kV (50,000 V) to 100 kV (100,000 V) with 

69 kV (69,000 V) being somewhat common. 

Electricity Distribution – Electricity distribution is the part of the electric grid that delivers 

electricity to end users. It is connected to the subtransmission system which, in turn, is connected 

to the transmission system and the electric supply system (generation). Relative to electricity 

transmission, the distribution system is used to send relatively small amounts of electricity over 

relatively short distances. In the U.S., distribution system operating voltages generally range 

from a few thousand volts to 50 kV. Typical power transfer capacities range from a few tens of 

MW for substation transformers to as few as tens of kW for very small circuits. 

Two applications addressed in this report apply only to the transmission system: 1) transmission 

support and 2) transmission congestion relief. 

 

*

 In practice, there are important technical and cost differences between true power (kW or MW) and apparent 

power (kVA or MVA). Various load types reduce the effectiveness of the grid by, for example, injecting harmonic 

currents or by increasing reactive power flows. As a general indication of the magnitude of the difference, consider 

this example: a power system serves 10 MW of peak load (true power). During times when load is at its peak, the 

‘power factor’ may drop to 0.85. Given that power factor, the T&D equipment should have an apparent power rating 

of at least 10 MW/0.85 = 11.76 MVA. 
5

1.5.4. Utility Regulations and Rules 

Some of the benefits characterized in this report may not apply in any particular circumstance 

because provisions of applicable rules or regulations may not provide the means for a given 

stakeholder to internalize the benefit. For example, one application characterized is demand 

charge reduction for utility customers; but, if the customer is not eligible for demand charges, 

then that application does not apply. Consider another example: A utility customer with 100 kW 

may not be allowed to participate in the market for ancillary services (without some type of ‘load 

aggregation’) because the minimum capacity required is 1 MW. 

1.5.5. Utility Financials: Fixed Charge Rate 

 Some important applications involve storage used to reduce 

the need to own other utility equipment – generation, 

transmission, and/or distribution. The cost reduction is often 

referred to as an avoided cost. 

For investor-owned utilities (IOUs), the avoided cost of 

equipment ownership is primarily consists of six elements: 

1) interest payments for bond holders, 2) equity returns 

(dividends) for stock owners, 3) annual return of principal or 

depreciation, 4) income taxes, 5) property taxes, and 

6) insurance. 

Though circumstances can vary, the avoided cost for 

municipal utilities (munis) and co-operative utilities (coops) includes annual interest payments and ‘return of 

capital’ (i.e., amortization). Cooperatives’ cost may also be 

subject to property taxes and insurance. 

When estimating benefits related to deferred or avoided cost 

for utility equipment ownership, it is usually necessary to 

first estimate the annual cost. Utilities often refer to this 

annual avoided cost as the annual revenue requirement

because it is equal to the annual revenue needed (from utility customers) to cover the full cost of 

owning the equipment. 

In this guide, a fixed charge rate is used to estimate annual avoided cost of equipment 

ownership. The fixed charge rate reflects the six elements of utility equipment cost listed above 

(annual interest and equity payments, etc.) as applicable for a given utility. 

Annual avoided cost is calculated by multiplying the equipment’s total installed cost by a utilityspecific fixed charge rate. (Installed cost includes all costs incurred until equipment enters 

service, including equipment purchase price, design, installation, commissioning, etc.) 

Note that the annual avoided cost calculated using the fixed charge rate is equivalent to an 

annuity payment involving a series of equal annual payments over the equipment’s life, similar 

to a mortgage. Given that the annual avoided cost is expressed as equal annual payments, it is 

often referred to as a ‘levelized’ cost. 

Consider an example: A new storage system costing $500,000 is installed. Given the utility 

financial structure and the expected life of the storage system, the utility financial group 

Although the topic is beyond the 

scope of this guide, readers should 

note the important distinction 

between— 

1) avoided cost for ownership of a 

capital investment (in this case, 

utility equipment) 

and 

2) avoided cost for an expense

incurred due to equipment 

operation, such as the cost for fuel 

or variable maintenance. 

The distinction is important because 

investor-owned utilities’ profit is 

based on investments made in 

equipment, whereas expenses are 

pass throughs to end users as-is 

(i.e., without profit). 
6

calculates the fixed charge rate for the equipment to be 0.11. So, the full ‘capital carrying 

charges’ incurred to own the storage plant (without regard to energy charging cost and other 

variable expenses) is $500,000 × 0.11 = $55,000 per year for each year during the expected life 

of the storage plant. (A fixed charge rate of 0.11 is the standard value used in this guide.) 

1.6. Standard Assumption Values 

Standard assumption values established for this guide are used to make high-level, generic 

estimates of financial benefits and maximum market potential for storage. Key standard 

assumption values are those provided for financial criteria and for storage discharge duration, 

power rating, and maximum market potential. 

Certainly, to one extent or another, establishing such generic values requires subjectivity, 

speculation, simplifying assumptions, and/or generalizations. So, for any particular circumstance 

or situation, analysts are encouraged to use circumstance-specific assumptions and/or additional 

or superior information to establish superior values instead of the generic assumptions, as 

appropriate. To the extent possible, the rationale and underlying assumptions used to establish 

standard assumption values are presented and described in this report. 

1.6.1. Standard Assumption Values for Financial Calculations 

The following standard assumption values are used in this report to generalize and to simplify 

the calculations used as examples. 

1.6.1.1. Storage Project Life 

A storage project life of 10 years is assumed for lifecycle financial evaluations. That is an 

especially important standard assumption value for a variety of reasons. Clearly, using any one 

value is suboptimal because, if nothing else, each storage type and system may have a different 

life and each circumstance is different. Important factors affecting storage life also include the 

way(s) and amount that storage is used and the frequency and quality of storage system 

maintenance. 

Given such considerations, without selecting one standard assumption for storage project life, it 

is conceivable that many estimates would have to be made for each benefit. Estimating benefits 

for various timeframes would add complexity to the evaluations and would yield results that are 

unwieldy and challenging to report. Furthermore, making numerous estimates for each benefit 

would require more resources than were allocated for this report. 

Although the selection of 10 years is may seem somewhat arbitrary, there was a rationale for 

doing so. First, though a 10-year life is too short for compressed-air energy storage (CAES) and 

pumped hydro, it may be generous for the other storage types, given their somewhat-to-very 

limited record. Additionally, estimates of benefits accruing over periods of 10 to 20 years may 

not be credible and/or precise, given expected changes to and increasing uncertainty in the 

electricity marketplace. In fact, given that uncertainty, there is even a chance that some of the 

benefits may not even exist 10 or 20 years from now. Finally, when accounting for the time 

value of money, a significant majority of benefits accrue in the first 10 years. 

Consider also that, for most benefits, there may be fairly straightforward ways to adjust benefit 

estimates to accommodate timeframes that are longer than the 10 years assumed. Section 1.6.1.4 

provides an indication of a simplified way to accommodate a lifecycle other than 10 years. 
7

Σ

e = annual price escalation rate (%/year)

d = discount rate (%/year)

i = year

(1+e)i -.5

(1+d)i -.5

10

i=1

1.6.1.2. Price Escalation 

A general price escalation of 2.5% per year is assumed for the analysis in this guide. Electric 

energy and capacity costs and prices are assumed to escalate at that rate during the storage 

plant’s financial life. 

1.6.1.3. Discount Rate for Present Worth Calculations 

An annual discount rate of 10.0% is used for making present worth (PW) calculations to estimate 

lifecycle benefits. 

1.6.1.4. Present Worth Factor 

The simplified approach described below for estimating the present worth (PW) of a stream of 

annual expenses or revenues is used throughout this guide. It is intended to provide a simple, 

auditable, and flexible way to estimate PW. Detailed treatment of more sophisticated financial 

calculations is beyond the scope of this guide. 

Present worth calculations are made using these standard assumptions: 

• 2.5% per year annual price/cost escalation 

• 10.0% per year discount rate 

• 10-year storage equipment life 

• Mid-year convention 

The PW factor is calculated based on these assumptions. That value is used to estimate present 

worth based on the value in the first year of operation. Given the standard assumption values of 

2.5% cost/price escalation rate, 10% discount rate, and 10-year storage system life, the standard 

assumption value for the PW factor is 7.17. 

Consider an example of how the PW factor is used: For an annual/first year benefit of $100,000, 

the estimated lifecycle benefit is $100,000 × 7.17 = $717,000 (present worth) for 10 years. 

The equation for the PW factor for a 10-year service life is as follows: 

 PW Factor = 

Figure 1 shows PW factors for three discount rates, assuming a cost escalation of 2.5% per year. 

(Note that the value of ‘I’ is calculated at mid-year.) For a given life/discount rate combination, 

the PW factor represents the present worth for a sum of a stream of annual values. Table 1 

includes PW factors for Years 5 to 20 for a discount rate of 10% (shown with the solid line). The 

figure allows for quick comparisons of annually recurring costs and benefits for various storage 

project lifecycles and discount rates. 
8

0

2

4

6

8

10

12

14

16

0 2 4 6 8 10 12 14 16 18 20

Service Life (years)

Present Worth Factor 

7.00%

10.0%

13.0%

Escalation Rate: 2.5%/yr. Mid Year Convention.

Discount Rate

Figure 1. Present worth factors. 

Table 1. Present Worth Factors, 2.5% Escalation, 10% Discount Rate 

Year 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

PW Factor 4.21 4.89 5.52 6.11 6.66 7.17 7.65 8.09 8.5 8.89 9.25 9.58 9.9 10.2 10.5 10.7

Consider another example: Assume that a storage plant will operate for 20 years and that it has a 

first-year operating cost of $100,000 which is expected to escalate at a rate of 2.5% per year. If 

the owner uses a 13% discount rate, then the PW factor is about 8.80 (as shown in Figure 1). So, 

the 20-year present worth of all operating costs (before taxes) is 

$100,000 × 8.80 = $880,000. 

Implicit in this approach is the assumption that annual benefits for all years considered (10 in this 

case) are the same as the first year, except that the cost or price escalates at 2.5%. If that 

approach is not appropriate, then an actual cash flow evaluation may be required to estimate the 

lifecycle benefits. 

1.6.1.5. Fixed Charge Rate 

The standard assumption value for fixed charge rate – which applies to utilities only – is 0.11. 

The fixed charge rate is used as follows: Consider utility equipment whose installed cost is 

$500,000. The utility’s annual revenue requirement (and avoided cost) is 

$500,000 × 0.11 = $55,000/year. 
9

1.7. Results Summary 

Key study results are summarized in Table 2. The table contains three criteria for the 17 primary 

benefits characterized in this guide, for California and for the U.S.: 1) benefit, 2) potential, and 

3) economy. The ‘benefit’ value indicates the present worth of the respective benefit type for 

10 years (assuming 2.5% inflation and 10% discount rate). ‘Potential’ indicates the maximum 

market potential for the respective benefit over 10 years. ‘Economy’ reflects the total value of 

the benefit given the maximum market potential. 
10

Table 2. Primary Results Summary — Benefits, 

Maximum Market Potential, and Maximum Economic Value 

Benefit

($/kW)**

Potential

(MW, 10 Years)

Economy

($Million)†

# Benefit Type Low High CA U.S. CA U.S.

1 Electric Energy Time-shift 400 700 1,445 18,417 795 10,129

2 Electric Supply Capacity 359 710 1,445 18,417 772 9,838

3 Load Following 600 1,000 2,889 36,834 2,312 29,467

4 Area Regulation 785 2,010 80 1,012 112 1,415

5 Electric Supply Reserve Capacity 57 225 636 5,986 90 844

6 Voltage Support 722 9,209 433 5,525

7 Transmission Support 1,084 13,813 208 2,646

8 Transmission Congestion Relief 31 141 2,889 36,834 248 3,168

9.1 T&D Upgrade Deferral 50th 

percentile†† 481 687 386 4,986 226 2,912

9.2 T&D Upgrade Deferral 90th 

percentile†† 759 1,079 77 997 71 916

10 Substation On-site Power 1,800 3,000 20 250 47 600

11 Time-of-use Energy Cost Management 5,038 64,228 6,177 78,743

12 Demand Charge Management 2,519 32,111 1,466 18,695

13 Electric Service Reliability 359 978 722 9,209 483 6,154

14 Electric Service Power Quality 359 978 722 9,209 483 6,154

15 Renewables Energy Time-shift 233 389 2,889 36,834 899 11,455

16 Renewables Capacity Firming 709 915 2,889 36,834 2,346 29,909

17.1 Wind Generation Grid Integration, 

Short Duration 500 1,000 181 2,302 135 1,727

17.2 Wind Generation Grid Integration, 

Long Duration 100 782 1,445 18,417 637 8,122

*Hours unless indicated otherwise. min. = minutes. sec. = seconds.

**Lifecycle, 10 years, 2.5% escalation, 10.0% discount rate.

 †Based on potential (MW, 10 years) times average of low and high benefit ($/kW).

 †† Benefit for one year . However, storage could be used at more than one location at different times for similar b

1,226

582

400

192
11

2. Electric Energy Storage Technology Overview 

A general introduction to energy storage technology is provided as context for the applications 

and benefits addressed in this guide. Storage technology and subsystems are subjects covered in 

detail by other studies and reports. Section 2.1 provides a brief description of storage types. 

Sections 2.2 through 2.20 briefly describe important storage characteristics. Note that the order 

in which these characteristics are presented is not meant to imply order of importance. 

2.1. Overview of Storage Types 

2.1.1. Electrochemical Batteries 

Electrochemical batteries consist of two or more electrochemical cells. The cells use chemical 

reaction(s) to create a flow of electrons – electric current. Primary elements of a cell include the 

container, two electrodes (anode and cathode), and electrolyte material. The electrolyte is in 

contact with the electrodes. Current is created by the oxidation-reduction process involving 

chemical reactions between the cell’s electrolyte and electrodes. 

When a battery discharges through a connected load, electrically charged ions in the electrolyte 

that are near one of the cell’s electrodes supply electrons (oxidation) while ions near the cell’s 

other electrode accept electrons (reduction), to complete the process. The process is reversed to 

charge the battery, which involves ionizing of the electrolyte. 

An increasing number of chemistries are used for this process. More familiar ones include leadacid, nickel-cadmium (NiCad), lithium-ion (Li-ion), sodium/sulfur (Na/S), zinc/bromine (Zn/Br), 

vanadium-redox, nickel-metal hydride (Ni-MH), and others. 

2.1.1.1. Flow Batteries 

Some electrochemical batteries (e.g., automobile batteries) contain electrolyte in the same 

container as the cells (where the electrochemical reactions occur). Other battery types – called 

flow batteries – use electrolyte that is stored in a separate container (e.g., a tank) outside of the 

battery cell container. Flow battery cells are said to be configured as a ‘stack’. 

When flow batteries are charging or discharging, the electrolyte is transported (i.e., pumped) 

between the electrolyte container and the cell stack. Vanadium redox and Zn/Br are two of the 

more familiar types of flow batteries. A key advantage to flow batteries is that the storage 

system’s discharge duration can be increased by adding more electrolyte (and, if needed to hold 

the added electrolyte, additional electrolyte containers). It is also relatively easy to replace a flow 

battery’s electrolyte when it degrades. 

2.1.2. Capacitors 

Capacitors store electric energy as an electrostatic charge. An increasing array of larger capacity 

capacitors have characteristics that make them well-suited for use as energy storage.* They store 

significantly more electric energy than conventional capacitors. They are especially well-suited 

 

*

 Trade names for such devices include Supercapacitor and Ultracapacitor. 
12

to being discharged quite rapidly, to deliver a significant amount of energy over a short period of 

time (i.e., they are attractive for high-power applications that require short or very short 

discharge durations). 

2.1.3. Compressed Air Energy Storage 

Compressed air energy storage (CAES) involves compressing air using inexpensive energy so 

that the compressed air may be used to generate electricity when the energy is worth more. To 

convert the stored energy into electric energy, the compressed air is released into a combustion 

turbine generator system. Typically, as the air is released, it is heated and then sent through the 

system’s turbine. As the turbine spins, it turns the generator to generate electricity. 

For larger CAES plants, compressed air is stored in underground geologic formations, such as 

salt formations, aquifers, and depleted natural gas fields. For smaller CAES plants, compressed 

air is stored in tanks or large on-site pipes such as those designed for high-pressure natural gas 

transmission (in most cases, tanks or pipes are above ground). 

2.1.4. Flywheel Energy Storage 

Flywheel electric energy storage systems (flywheel storage or flywheels) include a cylinder with 

a shaft that can spin rapidly within a robust enclosure. A magnet levitates the cylinder, thus 

limiting friction-related losses and wear. The shaft is connected to a motor/generator. Electric 

energy is converted by the motor/generator to kinetic energy. That kinetic energy is stored by 

increasing the flywheel’s rotational speed. The stored (kinetic) energy is converted back to 

electric energy via the motor/generator, slowing the flywheel’s rotational speed. 

2.1.5. Pumped Hydroelectric 

Key elements of a pumped hydroelectric (pumped hydro) system include turbine/generator 

equipment, a waterway, an upper reservoir, and a lower reservoir. The turbine/generator is 

similar to equipment used for normal hydroelectric power plants that do not incorporate storage. 

Pumped hydro systems store energy by operating the turbine/generator in reserve to pump water 

uphill or into an elevated vessel when inexpensive energy is available. The water is later released 

when energy is more valuable. When the water is released, it goes through the turbine which 

turns the generator to produce electric power. 

2.1.6. Superconducting Magnetic Energy Storage 

The storage medium in a superconducting magnetic energy storage (SMES) system consists of a 

coil made of superconducting material. Additional SMES system components include power 

conditioning equipment and a cryogenically cooled refrigeration system. 

The coil is cooled to a temperature below the temperature needed for superconductivity (the 

material’s ‘critical’ temperature). Energy is stored in the magnetic field created by the flow of 

direct current in the coil. Once energy is stored, the current will not degrade, so energy can be 

stored indefinitely (as long as the refrigeration is operational). 
13

2.1.7. Thermal Energy Storage 

There are various ways to store thermal energy. One somewhat common way that thermal energy 

storage is used involves making ice when energy prices are low so the cold that is stored can be 

used to reduce cooling needs – especially compressor-based cooling – when energy is expensive. 

2.2. Storage System Power and Discharge Duration 

When characterizing the rating of a storage system, the two key criteria to address are power and 

energy. Power indicates the rate at which the system can supply energy. Energy relates to the 

amount of energy that can be delivered to loads. In practical terms, the amount of energy stored 

determines the amount of time that the system can discharge at its rated power (output), hence 

the term discharge duration. 

Storage power and energy are described in more detail below. For detailed coverage of the topic, 

readers should refer to a report developed by the Electric Power Research Institute (EPRI) and 

the DOE entitled Estimating Electricity Storage Power Rating and Discharge Duration for 

Utility Transmission and Distribution Deferral, a Study for the DOE Energy Storage 

Program.[4] 

2.2.1. Storage Power 

A storage system’s power rating is assumed to be the system’s nameplate power rating under 

normal operating conditions. Furthermore, that rating is assumed to represent the storage 

system’s maximum power output under normal operating conditions. In this guide, the normal 

discharge rate used is commonly referred to as the system’s ‘design’ or ‘nominal’ (power) rating. 

Generic application-specific power requirements are summarized in Table 4 (in Section 3). 

2.2.1.1. Storage ‘Emergency’ Power Capability 

Some types of storage systems can discharge at a relatively high rate (e.g., 1.5 to 2 times their 

nominal rating) for relatively short periods of time (e.g., several minutes to as much as 

30 minutes). One example is storage systems involving an Na/S battery, which is capable of 

producing two times its rated (normal) output for relatively short durations.[5] 

That feature – often referred to as the equipment’s ‘emergency’ rating – is valuable if there are 

circumstances that occur infrequently that involve an urgent need for relatively high power 

output, for relatively short durations. 

Importantly, while discharging at the higher rate, storage efficiency is reduced (relative to 

efficiency during discharge at the nominal discharge rate), and storage equipment damage 

increases (compared to damage incurred at the normal discharge rate). 

So, in simple terms, storage with emergency power capability could be used to provide the 

nominal amount of power required to serve a regularly occurring need (e.g., peak demand 

reduction) while the same storage could provide additional power for urgent needs that occur 

infrequently and that last for a few to several minutes at a time. 
14

2.2.2. Storage Discharge Duration 

Discharge duration is the amount of time that storage can discharge at its rated output (power) 

without recharging. Discharge duration is an important criterion affecting the technical viability 

of a given storage system for a given application and storage plant cost. 

To the extent possible, this document includes generalized guidance about the necessary 

discharge duration for specific applications. Application-specific guidance and standard 

assumption values are provided in their respective subsections, below. Application-specific 

discharge durations and the assumptions used to establish them are summarized in Table 5 (in 

Section 3). 

2.3. Energy and Power Density 

Power density is the amount of power that can be delivered from a storage system with a given 

volume or mass. Similarly, energy density is the amount of energy that can be stored in a storage 

device that has a given volume or mass. These criteria are important in situations for which space 

is valuable or limited and/or if weight is important. 

2.4. Storage System Footprint and Space Requirements 

Closely related to energy and power density are footprint and space requirements for energy 

storage. Depending on the storage technology, floor area and/or space constraints may indeed be 

a challenge, especially in heavily urbanized areas. 

2.5. Storage System Round-trip Efficiency 

All energy transfer and conversion processes have losses. Energy storage is no different. Storage 

system round-trip efficiency (efficiency) reflects the amount of energy that comes out of storage 

relative to the amount put into the storage. 

Typical values for efficiency include the following: 60% to 75% for conventional 

electrochemical batteries; 75% to 85% for advanced electrochemical batteries; 73% to 80% for 

CAES; 75% to 78% for pumped hydro; 80% to 90% for flywheel storage; and 95% for 

capacitors and SMES.[6][7] 

2.6. Storage Operating Cost 

Storage total operating cost (as distinct from plant capital cost or plant financial carrying 

charges) consists of two key components: 1) energy-related costs and 2) operating costs not 

related to energy. Non-energy operating costs include at least four elements: 1) labor associated 

with plant operation, 2) plant maintenance, 3) equipment wear leading to loss-of-life, and 

4) decommissioning and disposal cost (addressed in Section 2.20). 

2.6.1. Charging Energy-Related Costs 

The energy cost for storage consists of all costs incurred to purchase energy used to charge the 

storage, including the cost to purchase energy needed to make up for (round trip) energy losses. 

An example: For a storage system with 75% efficiency, if the unit price for energy used for 

charging is 4¢/kWh, then the plant energy cost is 

4¢/kWh ÷ 0.75 = 5.33¢/kWh. 
15

2.6.2. Labor for Plant Operation 

In some cases, labor may be required for storage plant operation. Fixed labor costs are the same 

magnitude irrespective of how much the storage is used. Variable labor costs are proportional to 

the frequency and duration of storage use. In many cases, labor is required to operate larger 

storage facilities and/or ‘blocks’ of aggregated storage capacity whereas little or no labor may be 

needed for smaller/distributed systems that tend to be designed for autonomous operation. No 

explicit value is ascribed to this criterion, due in part to the wide range of labor costs that are 

possible given the spectrum of storage types and storage system sizes. 

2.6.3. Plant Maintenance 

Plant maintenance costs are incurred to undertake normal, scheduled, and unplanned repairs and 

replacements for equipment, buildings, grounds, and infrastructure. Fixed maintenance costs are 

the same magnitude irrespective of how much the storage is used. Variable maintenance costs 

are proportional to the frequency and duration of storage use. Plant maintenance costs are highly 

circumstance-specific and are not addressed explicitly in this report. 

2.6.4. Replacement Cost 

If specific equipment or subsystems within a storage system are expected to wear out during the 

expected life of the system, then a ‘replacement cost’ will be incurred. In such circumstances, a 

‘sinking fund’ is needed to accumulate funds to pay for replacements when needed. That 

replacement cost is treated as a variable cost (i.e., the total cost is spread out over each unit of 

energy output from the storage plant). Replacement cost is highly technology- and circumstancespecific and is not addressed explicitly in this report. (See Appendix B for an example 

calculation of equipment replacement cost.) 

2.6.5. Variable Operating Cost 

A storage system’s total variable operating cost consists of applicable non-energy-related 

variable operating costs plus plant energy cost, possibly including charging energy, labor for 

plant operation, variable maintenance, and replacement costs. Variable operating cost is a key 

factor affecting the cost-effectiveness of storage. It is especially important for ‘high-use’ value 

propositions involving many charge-discharge cycles. 

Ideally, storage for high-use applications should have relatively high or very high efficiency and 

relatively low variable operating cost. Otherwise, the total cost to charge then discharge the 

storage is somewhat-to-very likely to be higher than the benefit. That can be a significant 

challenge for some storage types and value propositions. 

Consider the example illustrated in Figure 2, which involves a 75% efficient storage system with 

a non-energy-related variable operating cost of 4¢/kWhout. If that storage system is charged with 

energy costing 4¢/kWhin, then the total variable operating cost – for energy output – is about 

9.33¢/kWhout. 
16

4

5

6

7

8

9

10

11

12

13

14

15

16

17

2345678

Charging Energy Price (¢/kWh)

Total Variable Operation Cost (¢/kW

h

4

5

6

7

8

9

10

11

12

13

14

15

16

17

Variable Operation Cost 6¢/kWh

Variable Operation Cost 4¢/kWh

Variable Operation Cost 2¢/kWh

Figure 2. Storage total variable operation cost for 75% storage efficiency. 

2.7. Lifetime Discharges 

To one extent or another, most energy storage media degrade with use (i.e., during each chargedischarge cycle). The rate of degradation depends on the type of storage technology, operating 

conditions, and other variables. This is especially important for electrochemical batteries. 

For some storage technologies – especially batteries – the extent to which the system is emptied 

(discharged) also affects the storage media’s useful life. Discharging a small portion of stored 

energy is a ‘shallow’ discharge and discharging most or all of the stored energy is a ‘deep’ 

discharge. For these technologies, a shallow discharge is less damaging to the storage medium 

than a deep discharge. 

Note that many battery vendors can produce storage media with extra service life (relative to the 

baseline product) to accommodate additional charge-discharge cycles and/or deeper discharges. 

Of course, there is usually a corresponding incremental cost for the superior performance. To the 

extent that the storage medium degrades and must be replaced during the expected useful life of 

the storage system, the cost for that replacement must be added to the variable operating cost of 

the storage system. 

2.8. Reliability 

Like power rating and discharge duration, storage system reliability requirements are 

circumstance-specific. Little guidance is possible. The project design engineer is responsible for 

designing a plant that provides enough power and that is as reliable as necessary to serve the 

specific application. 
17

2.9. Response Time 

Storage response time is the amount of time required to go from no discharge to full discharge. 

At one extreme, under almost all conditions, storage has to respond quite rapidly if used to 

provide capacity on the margin in lieu of T&D capacity. That is because the output from T&D 

equipment (i.e., wires and transformers) changes nearly instantaneously in response to demand. 

In contrast, consider storage used in lieu of generation capacity. That storage does not need to 

respond as quickly because generation tends to respond relatively slowly to demand changes. 

Specifically, some types of generation – such as engines and combustion turbines – take several 

seconds to many minutes before generating at full output. For other generation types, such as 

those fueled by coal and nuclear energy, the response time may be hours. 

Most types of storage have a response time of several seconds or less. CAES and pumped 

hydroelectric storage tend to have a slower response, though they still respond quickly enough to 

serve several important applications. 

2.10. Ramp Rate 

An important storage system characteristic for some applications is the ramp rate – the rate at 

which power output can change. Generally, storage ramp rates are rapid (i.e., output can change 

quite rapidly); pumped hydro is the exception. Power devices with a slow response time tend 

also to have a slow ramp rate. 

2.11. Charge Rate 

Charge rate – the rate at which storage can be charged – is an important criterion because, often, 

modular energy storage (MES) must be recharged so it can serve load during the next day. If 

storage cannot recharge quickly enough, then it will not have enough energy to provide the 

necessary service. In most cases, storage charges at a rate that is similar to the rate at which it 

discharges. In some cases, storage may charge more rapidly or more slowly, depending on the 

capacity of the power conditioning equipment and the condition and/or chemistry and/or physics 

of the energy storage medium. 

2.12. Energy Retention and Standby Losses 

Energy retention time is the amount of time that storage retains its charge. The concept of energy 

retention is important because of the tendency for some types of storage to self-discharge or to 

otherwise dissipate energy while the storage is not in use. In general terms, energy losses could 

be referred to as standby losses. 

Storage that depends on chemical media is prone to self-discharge. This self-discharge is due to 

chemical reactions that occur while the energy is stored. Each type of chemistry is different, both 

in terms of the chemical reactions involved and the rate of self-discharge. Storage that uses 

mechanical means to store energy tends to be prone to energy dissipation. For example, energy 

stored using pumped hydroelectric storage may be lost to evaporation. CAES may lose energy 

due to air escaping from the reservoir. 

To the extent that storage is prone to self-discharge or energy dissipation, retention time is 

reduced. This characteristic tends to be less important for storage that is used frequently. For 
18

storage that is used infrequently (i.e., is in standby mode for a significant amount of time 

between uses), this criterion may be very important. 

2.13. Transportability 

Transportability can be an especially valuable feature of storage systems for at least two reasons. 

First, transportable storage can be (re)located where it is needed most and/or where benefits are 

most significant. Second, some locational benefits only last for one or two years. Perhaps the 

most compelling example of the latter is T&D deferral, as discussed in detail in Section 3. Given 

those considerations, transportability may significantly enhance the prospects that lifecycle 

benefits will exceed lifecycle cost. 

2.14. Modularity 

One attractive feature of modular energy storage is the flexibility that system ‘building blocks’ 

provide. Modularity allows for more optimal levels and types of capacity and/or discharge 

duration because modular resources allow utilities to increase or decrease storage capacity, when 

and where needed, in response to changing conditions. Among other attractive effects, modular 

capacity provides attractive means for utilities to address uncertainty and to manage risk 

associated with large, ‘lumpy’ utility T&D investments. 

2.15. Power Conditioning 

To one extent or another, most storage types require some type of power conditioning (i.e.,

conversion) subsystem. Equipment used for power conditioning – the power conditioning unit 

(PCU) – modifies electricity so that the electricity has the necessary voltage and the necessary 

form; either alternating current (AC) or direct current (DC). The PCU, in concert with an 

included control system, must also synchronize storage output with the oscillations of AC power 

from the grid. 

Output from storage with relatively low-voltage DC output must be converted to AC with higher 

voltage before being discharged into the grid and/or before being used by most load types. In 

most cases, conversion from DC to AC is accomplished using a device known as an inverter. 

For storage requiring DC input, the electricity used for charging must be converted from the 

form available from the grid (i.e., AC at relatively high voltage) to the form needed by the 

storage system (e.g., DC at lower voltage). That is often accomplished via a PCU that can 

function as a DC ‘power supply’. 

2.16. Power Quality 

Although requirements for applications vary, the following storage characteristics may or may 

not be important. To one extent or another, they are affected by the PCU used and/or they drive 

the specifications for the PCU. In general, higher quality power (output) costs more. 

2.16.1. Power Factor 

Although detailed coverage of the concept of power factor is beyond the scope of this report, it is 

important to be aware of the importance of this criterion. At a minimum, the power output from 

storage should have an acceptable power factor, where acceptable is somewhat circumstance-
19

specific. For some applications, the storage system may be called upon to provide power with a 

variable power factor. (See Appendix C for more details about this consideration.) 

2.16.2. Voltage Stability 

In most cases, it is important for storage output voltage to remain somewhat-to-very constant. 

Depending on the circumstances, voltage can vary; though, it should probably remain within 

about 5% to 8% of the rated value. 

2.16.3. Waveform 

Assuming that storage output is AC, in most cases, the waveform should be as close as possible 

to that of a sine wave. In general, higher quality PCUs tend to have waveforms that are quite 

close to that of a sine wave whereas output from lower quality PCUs tends to have a waveform 

that is somewhat square. 

2.16.4. Harmonics 

Harmonic currents in distribution equipment can pose a significant challenge. Harmonic currents 

are components of a periodic wave whose frequency is an integral multiple of the fundamental 

frequency. In this case, the fundamental frequency is the utility power line frequency of 60 Hz. 

So, for example, harmonic currents might exist with frequencies of 3 × 60 Hz (180 Hz) or 7 ×

60 Hz (420 Hz). Total harmonic distortion (THD) is the contribution of all the individual 

harmonic currents to the fundamental. 

2.17. Storage System Reactive Power Capability 

One application (Voltage Support) and one incidental benefit (Power Factor Correction) 

described in this guide involve storage whose capabilities include absorbing and injecting 

reactive power (expressed in units of volt-Amperes reactive or VARs). This feature is commonly 

referred as VAR support. In most cases, storage systems by themselves do not have reactive 

power capability. For a relatively modest incremental cost, however, reactive power capability 

can be added to most storage system types. (See Appendix C for more details.) 

2.18. Communications and Control 

Storage used for most applications addressed in this report must receive and respond to 

appropriate control signals. In some cases, storage may have to respond to a dispatch control 

signal. In other cases, the signal may be driven by a price or prices. Storage response to a control 

signal may be a simple ramp up or ramp down of power output in proportion to the control 

signal. A more sophisticated response, requiring one or more control algorithms, may be needed. 

An example of that is storage used to respond to price signals or to accommodate more than one 

application. 

2.19. Interconnection 

If storage will be charged with energy from the grid or will inject energy into the grid, it must 

meet applicable interconnection requirements. At the distribution level, an important point of 

reference is the Institute of Electronics and Electrical Engineers (IEEE) Standard 1547.[8] Some 

states and utilities have more specific interconnection rules and requirements. 
20

2.20. Decommissioning and Disposal Needs and Cost 

Although not addressed explicitly in this report, in most cases there will be non-trivial 

decommissioning costs associated with almost any storage system. For example, eventually 

batteries must be dismantled and the chemicals must be removed. Ideally, dismantled batteries 

and their chemicals can be recycled, as is the case for the materials in lead-acid batteries. 

Ultimately, decommissioning-related costs should be included in the total cost to own and to 

operate storage. 
21

3. Electric Energy Storage Applications 

3.1. Introduction 

This section characterizes 17 electric grid-related energy storage applications. Included in each 

characterization are a description of the application, an overview of application-specific technical 

considerations, and a summary of possible synergies with other applications. (Section 2 includes 

a brief characterization of several important storage system characteristics.) The 17 applications 

are grouped into five categories as shown in Table 3. 

Table 3. Five Categories of Energy Storage Applications 

Category 1 — Electric Supply 

1. Electric Energy Time-shift 

2. Electric Supply Capacity 

Category 2 — Ancillary Services 

3. Load Following 

4. Area Regulation 

5. Electric Supply Reserve Capacity 

6. Voltage Support 

Category 3 — Grid System 

7. Transmission Support 

8. Transmission Congestion Relief 

9. Transmission & Distribution (T&D) Upgrade Deferral 

10. Substation On-site Power 

Category 4 — End User/Utility Customer 

11. Time-of-use (TOU) Energy Cost Management 

12. Demand Charge Management 

13. Electric Service Reliability 

14. Electric Service Power Quality 

Category 5 — Renewables Integration 

15. Renewables Energy Time-shift 

16. Renewables Capacity Firming 

17. Wind Generation Grid Integration 

3.1.1. Power Applications versus Energy Applications 

Although this report does not focus on specific storage technologies, it is helpful to be aware of 

the distinction between storage technologies classified as those that are best suited for power 

applications and those best suited to energy applications. 

Power applications require high power output, usually for relatively short periods of time (a few 

seconds to a few minutes). Storage used for power applications usually has capacity to store 
22

fairly modest amounts of energy per kW of rated power output. Notable storage technologies that 

are especially well-suited to power applications include capacitors, SMES, and flywheels.

Energy applications are uses of storage requiring relatively large amounts of energy, often for 

discharge durations of many minutes to hours. So, storage used for energy applications must 

have a much larger energy storage reservoir than storage used for power applications. Storage 

technologies that are best suited to energy applications include CAES, pumped hydro, thermal 

energy storage, and most battery types. 

3.1.2. Capacity Applications versus Energy Applications 

Similar to the distinction between power applications and energy applications is the distinction 

between capacity applications and energy applications. In simple terms, capacity applications are 

those involving storage used to defer or to reduce the need for other equipment. For example, 

storage can be used to reduce the need for generation or T&D equipment. Depending on 

circumstances, capacity applications tend to require relatively limited amounts of energy 

discharge throughout the year. 

As described above, energy applications involve storing a significant amount of electric energy 

to offset the need to purchase or to generate the energy when needed. Typically, energy-related 

applications require a relatively significant amount of energy to be stored and discharged 

throughout the year. An important consideration is that storage used for energy applications 

should be relatively efficient, or the cost incurred due to energy losses will offset a significant 

amount of the benefit. The same applies to non-energy-related variable operation cost. 

Importantly, for investor-owned utilities (IOUs) capacity is generally treated like an investment 

whereas purchases of or generation of energy are typically thought of as an expenses involving 

variable operating cost and fuel-related costs. This distinction is especially important for 

investor-owned utilities given what is sometimes referred to as the revenue requirement method 

for establishing cost-of-service. Under that regulatory scheme utilities earn a rate of return 

(i.e., profit) on investments in capital equipment whereas expenses are treated as a ‘pass-through’ 

to end users without any mark-up (i.e., IOUs do not earn profit for energy provided). 

3.1.3. Application-specific Power and Discharge Duration 

Table 4 and Table 5 list application-specific standard assumption values for two key storage 

design criteria: 1) power rating and 2) discharge duration. Also shown are key underlying 

assumptions used when establishing those values. Table 4 lists application-specific, standard 

assumption values for storage power ratings and notes explaining the rationale used to make the 

estimates. Table 5 lists application-specific standard assumption values for discharge durations 

along with notes explaining the rationale used to make the estimates. 

The standard assumption values used herein are intended to be generic. They were developed 

based on varying levels of engineering judgment and simplifying assumptions. Readers are 

encouraged to use case-specific assumptions and additional information, as needed and available, 

for more precise estimates of power ratings and discharge durations. 
23

Table 4. Standard Assumption Values for Storage Power 

Storage Power

# Type Low High Note

1 Electric Energy Time-shift 1 MW 500 MW Low per ISO transaction min. (Can aggregate smaller 

capacity.) High = combined cycle gen.

2 Electric Supply Capacity 1 MW 500 MW Same as above.

3 Load Following 1 MW 500 MW Same as above.

4 Area Regulation 1 MW 40 MW Low per ISO transaction min. Max is 50% of 

estimated CA technical potential of 80 MW.

5 Electric Supply Reserve Capacity 1 MW 500 MW Low per ISO transaction min. (Can aggregate smaller 

capacity.) High = combined cycle gen.

6 Voltage Support 1 MW 10 MW Assume distributed deployment, to serve Voltage 

support needs locally. 

7 Transmission Support 10 MW 100 MW Low value is for substransmission.

8 Transmission Congestion Relief 1 MW 100 MW Low per ISO transaction min. (Can aggregate smaller 

capacity.) High = 20% of high capacity transmission.

9.1 T&D Upgrade Deferral 50th percentile 250 kW 5 MW Low = smallest likely, High = high end for distribution 

& subtransmission.

9.2 T&D Upgrade Deferral 90th percentile 250 kW 2 MW Same as above.

10 Substation On-site Power 1.5 kW 5 kW Per EPRI/DOE Substation Battery Survey.

11 Time-of-use Energy Cost Management 1 kW 1 MW Residential to medium sized commercial/industrial 

users.

12 Demand Charge Management 50 kW 10 MW Small commercial to large commercial/industrial 

users.

13 Electric Service Reliability 0.2 kW 10 MW Low = Under desk UPS. 

High = facility-wide for commercial/industrial users.

14 Electric Service Power Quality 0.2 kW 10 MW Same as above.

15 Renewables Energy Time-shift 1 kW 500 MW Low = small residential PV.

High = "bulk" renewable energy fueled generation.

16 Renewables Capacity Firming 1 kW 500 MW Same as above.

17.1 Wind Generation Grid Integration, 

Short Duration 0.2 kW 500 MW Low = small residential turbine. High = larged wind farm boundary.

17.2 Wind Generation Grid Integration, 

Long Duration 0.2 kW 500 MW Same as above.

 
24

Table 5. Standard Assumption Values for Discharge Duration 

Discharge Duration*

# Type Low High Note

1 Electric Energy Time-shift 2 8 Depends on energy price differential, storage 

efficiency, and storage variable operating cost.

2 Electric Supply Capacity 4 6 Peak demand hours

3 Load Following 2 4 Assume: 1 hour of discharge duration provides

approximately 2 hours of load following.

4 Area Regulation 15 min. 30 min. Based on demonstration of Beacon Flywheel.

5 Electric Supply Reserve Capacity 1 2 Allow time for generation-based reserves to

come on-line.

6 Voltage Support 15 min. 1 Time needed for a) system stabilization or b) 

orderly load shedding.

7 Transmission Support 2 sec. 5 sec.

Per EPRI-DOE Handbook of Energy Storage for 

Transmission and Distribution 

Applications.[17]

8 Transmission Congestion Relief 3 6 Peak demand hours. Low value is for "peaky" 

loads, high value is for "flatter" load profiles.

9.1 T&D Upgrade Deferral 50th percentile 3 6 Same as Above

9.2 T&D Upgrade Deferral 90th percentile 3 6 Same as Above

10 Substation On-site Power 8 16 Per EPRI/DOE Substation Battery Survey.

11 Time-of-use Energy Cost Management 4 6 Peak demand hours.

12 Demand Charge Management 5 11 Maximum daily demand charge hours, per 

utility tariff.

13 Electric Service Reliability 5 min. 1 Time needed for a) shorter duration outages 

or b) orderly load shutdown.

14 Electric Service Power Quality 10 sec. 1 min. Time needed for events ridethrough depends 

on the type of PQ challenges addressed.

15 Renewables Energy Time-shift 3 5 Depends on energy cost/price differential and 

storage efficiency and variable operating cost.

16 Renewables Capacity Firming 2 4 Low & high values for Renewable Gen./Peak 

Load correlation (>6 hours) of 85% & 50%.

17.1 Wind Generation Grid Integration, 

Short Duration 10 sec. 15 min.

For a) Power Quality (depends on type of 

challenge addressed) and b) Wind 

Intermittency.

17.2 Wind Generation Grid Integration, 

Long Duration 1 6 Backup, Time Shift, Congestion Relief.

*Hours unless indicated otherwise. Min. = minutes. Sec. = Seconds.
25

3.2. Electric Supply Applications 

3.2.1. Application #1 — Electric Energy Time-shift 

3.2.1.1. Application Overview 

Electric energy time-shift (time-shift) involves purchasing 

inexpensive electric energy, available during periods when 

price is low, to charge the storage plant so that the stored 

energy can be used or sold at a later time when the price is 

high. 

Entities that time-shift may be regulated utilities or nonutility merchants. Importantly, this application tends to 

involve purchase of inexpensive energy from the wholesale

electric energy market for storage charging. When the 

energy is discharged, it could be resold via the wholesale 

market, or it may offset the need to purchase wholesale 

energy and/or to generate energy to serve end users’ needs. 

3.2.1.2. Technical Considerations 

For the time-shift application, the plant storage discharge 

duration is determined based on the incremental benefit 

associated with being able to make additional buy-low/sellhigh transactions during the year versus the incremental cost 

for additional energy storage (discharge duration). 

The standard assumption value for storage minimum

discharge duration for this application is two hours. The 

upper boundary for discharge duration is defined by 

potential CAES or pumped hydroelectric facilities. For 

storage types that have a high incremental cost to increase 

the amount of energy that can be stored (i.e., to increase 

discharge duration), the upper boundary is probably five or 

six hours — the typical duration of a utility’s daily peak demand period. 

Both storage (non-energy-related) variable operating cost and storage efficiency are especially 

important for this application because electric energy time-shift involves many possible 

transactions whose economic merit is based on the difference between the cost to purchase, store, 

and discharge energy (discharge cost) and the benefit derived when the energy is discharged. 

Any increase in variable operating cost or reduction of efficiency reduces the number of 

transactions for which the benefit exceeds the cost. That number of transactions is quite sensitive 

to the discharge cost, so a modest increase may reduce the number of viable transactions 

considerably. 

Two performance characteristics that have a significant impact on storage variable operating cost 

are efficiency and the rate at which storage performance declines as it is used. 

It is common for those involved with 

storage to refer to energy time-shift 

transactions (using storage) as 

arbitrage. It is important to note, 

however, what arbitrage means to 

people involved in finance. 

A finance-centric definition of 

arbitrage is the simultaneous

purchase and sale of identical or 

equivalent commodities or other 

instruments across two or more 

markets in order to benefit from a 

discrepancy in their price 

relationship.

So, strictly speaking, from a finance 

perspective the term ‘arbitrage’ may 

be regarded as a misnomer when it 

is applied to most energy storage 

‘buy-low/sell-high’ (time-shift) 

transactions. That is because the 

purchase and storage of electric 

energy occurs at a different time 

than sale or use of the energy. In 

fact, most often charging and 

discharging are separated by 

several hours. 
26

3.2.1.3. Application Synergies 

Although each case is unique, if a plant used for electric energy time-shift is in the right location 

and if it is discharged at the right times, it could also serve the following applications: electric 

supply capacity, T&D upgrade deferral, transmission congestion relief, electric service 

reliability, electric service power quality, and ancillary services. 

3.2.2. Application #2 — Electric Supply Capacity 

3.2.2.1. Application Overview 

Depending on the circumstances in a given electric supply system, energy storage could be used 

to defer and/or to reduce the need to buy new central station generation capacity and/or to ‘rent’ 

generation capacity in the wholesale electricity marketplace. 

In many areas of the U.S., the most likely type of new generation plant ‘on the margin’ is a 

natural gas-fired combined cycle power plant. For utilities needing additional peaking capacity, 

the conventional proxy or default alternative is usually a relatively clean, simple cycle 

combustion turbine. Depending on circumstances, however, other peaking resources may be 

preferred (e.g., other types of central/bulk generation, distributed generation, demand response, 

and energy efficiency). 

The marketplace for electric supply capacity is evolving. In some cases, to one extent or another, 

generation capacity cost is included in wholesale energy prices (as an allocated cost per unit of 

energy). In other cases, market mechanisms may allow for capacity-related payments. In fact, the 

price paid for capacity not used – under terms of utility demand response programs – may reflect 

some or all of the marginal cost for generation capacity. 

3.2.2.2. Technical Considerations 

The operating profile for storage used as supply capacity (characterized by annual hours of 

operation, frequency of operation, and duration of operation for each use) is circumstancespecific. Consequently, it is challenging to make generalizations about storage discharge 

duration for this application. Another key criterion affecting discharge duration for this 

application is the way that generation capacity is priced. For example, if capacity is priced per 

hour, then storage plant duration is flexible. If prices require that the capacity resource be 

available for a specified duration for each occurrence (e.g., five hours), or require operation 

during an entire time period (e.g., 12:00 p.m. to 5:00 p.m.), then the storage plant discharge 

duration must accommodate those requirements. 

3.2.2.3. Application Synergies 

Depending on location and other circumstances, storage used for this application may be 

compatible with the following applications: electric energy time-shift, electric supply reserve 

capacity, area regulation, voltage support, T&D upgrade deferral, transmission support and 

congestion relief, electric service power quality, and electric service reliability. 
27

3.3. Ancillary Services Applications 

3.3.1. Application #3 — Load Following 

3.3.1.1. Application Overview 

Load following is one of the ancillary services required to operate the electricity grid. (See 

Appendix A for more detail about ancillary services.) Load following capacity is characterized 

by power output that changes as frequently as every several minutes. The output changes in 

response to the changing balance between electric supply (primarily generation) and end user 

demand (load) within a specific region or area. Output variation is a “...response to changes in 

system frequency, timeline loading, or the relation of these to each other...” that occurs as 

needed to “...maintain the scheduled system frequency and/or established interchange with other 

areas within predetermined limits.”[9] 

Conventional generation-based load following resources’ output increases to follow demand up

as system load increases. Conversely, load following resources’ output decreases to follow 

demand down as system load decreases. Typically, the amount of load following needed in the 

up direction (load following up) increases each day as load increases during the morning. In the 

evening, the amount of load following needed in the down direction (load following down) 

increases as aggregate load on the grid drops. A simple depiction of load following is shown in 

Figure 3. 

Hour

Baseload Generation

up down

Peak 

Generation

MW

System 

Load Load 

Following

Energy Purchases

Intermediate Duty 

Generation

Hour

Baseload Generation

up down

Peak 

Generation

MW

System 

Load Load 

Following

Energy Purchases

Intermediate Duty 

Generation

Figure 3. Electric supply resource stack. 

Normally, generation is used for load following. For load following up, generation is operated 

such that its output is less than its design or rated output (also referred to as ‘part load 

operation’). That allows operators to increase the generator’s output, as needed, to provide load 
28

following up to accommodate increasing load. For load following down, generation starts at a 

high output level, perhaps even at design output, and the output is decreased as load decreases. 

These operating scenarios are notable because operating generation at part load requires more 

fuel and results in increased air emissions relative to generation operated at its design output 

level. Also, varying the output of generators (rather than operating at constant output) may 

increase fuel use and air emissions, and it increases the need for generator variable maintenance. 

Storage is well-suited to load following for several reasons. First, most types of storage can 

operate at partial output levels with relatively modest performance penalties. Second, most types 

of storage can respond very quickly (compared to most types of generation) when more or less 

output is needed for load following. Consider also that storage can be used effectively for both 

load following up (as load increases) and for load following down (as load decreases), either by 

discharging or by charging. (See Appendix D for details.) 

When charging storage for load following, the energy stored must be purchased at the prevailing 

wholesale price. This is an important consideration – especially for storage with lower efficiency 

and/or if the energy used for charging is relatively expensive – because the cost of energy used to 

charge storage (to provide load following) may exceed the value of the load following service. 

Conversely, the value of energy discharged from storage to provide load following is determined 

by the prevailing price for wholesale energy. Depending on circumstances (i.e., if the price for 

the load following service does not include the value of the wholesale energy involved), when 

discharging for load following, two benefits accrue – one for the load following service and 

another for the energy. 

Storage competes with central and aggregated distributed generation and with aggregated 

demand response/load management resources including curtailable/interruptible loads and direct 

load control. 

3.3.1.2. Technical Considerations 

Storage used for load following should be somewhat-to-very reliable or it cannot be used to meet 

contractual obligations associated with bidding in the load following market. Storage used for 

load following will probably need access to automated generation control (AGC) from the 

respective independent system operator (ISO). Typically, an ISO requires output from an AGC 

resource to change every minute. 

For this application, storage could provide up to two service hours per hour of discharge 

duration. (See Appendix D for details.) 

3.3.1.3. Application Synergies 

Large/central storage used for load following may be especially complementary to other 

applications if charging and discharging for the other applications can be coordinated with 

charging and discharging to provide load following. For example, storage used to provide 

generation capacity mid-day could be charged in the evening thus following diminished system 

demand down during evening hours. 

Load following could have good synergies with renewables capacity firming, electric energy 

time-shift, and possibly electric supply reserve capacity applications. If storage is distributed, 
29

then that same storage could also be used for most of the distributed applications and for voltage 

support. 

3.3.2. Application #4 — Area Regulation 

3.3.2.1. Application Overview 

Area regulation (regulation) is one of the ancillary services for which storage may be especially 

well-suited. Regulation involves managing “interchange flows with other control areas to match 

closely the scheduled interchange flows” and moment to moment variations in demand within 

the control area.[10] 

The primary reasons for including regulation in the power system are to maintain the grid 

frequency and to comply with the North American Electric Reliability Council’s (NERC’s) 

Control Performance Standards 1 and 2 (NERC 1999a). Regulation also assists in recovery from 

disturbances, as measured by compliance with NERC’s Disturbance Control Standard.[11] 

In more basic terms, 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. Consider 

the example shown in Figure 4. In that figure, the thin (red) plot with numerous fluctuations 

depicts total system demand without regulation. The thicker (black) plot shows system load after 

damping of the short-duration fluctuations with regulation. 

Baseload Generation

Energy Purchases

Intermediate Duty 

Generation

Hour

up down

Peak 

Generation

MW

Load 

Following

Load Without Regulation

Load With Regulation

Figure 4. System load without and with area regulation. 

Regulation is typically provided by generating units that are online and ready to increase or 

decrease power as needed. When there is a momentary shortfall of electric supply capacity, 

output from regulation resources is increased to provide up regulation. Conversely, regulation 

resources’ output is reduced to provide down regulation when there is a momentary excess of 

electric supply capacity. 
30

An important consideration for this application is that most thermal/baseload generation used for 

regulation service is not especially well-suited or designed to provide regulation. This is because 

most types of thermal/baseload generation are not designed for operation at part load or to 

provide variable output. Notably, thermal power plant fuel conversion is usually most efficient 

when power plants operate at a specific and constant (power) output level. Similarly, air 

emissions and plant wear and tear are usually lowest (per kWh of output) when thermal 

generation operates at full load and with constant output. 

So, storage may be an attractive alternative to most generation-based load following for at least 

three reasons: 1) in general, storage has superior part-load efficiency, 2) efficient storage can be 

used to provide up to two times its rated capacity (for regulation), and 3) storage output can be 

varied rapidly (e.g., output can change from none to full or from full to none within seconds 

rather than minutes). 

Two possible operational modes for 1 MW of storage used for regulation and three possible 

operational modes for generation used for regulation are shown in Figure 5. The leftmost plot 

shows how less-efficient storage could be used for regulation. In that case, increased storage 

discharge is used to provide up regulation and reduced discharge is used to provide down 

regulation. In essence, one half of the storage’s capacity is used for up regulation and the other 

half of the storage capacity is used for down regulation (similar to the rightmost plot which 

shows how 1 MW of generation is often used for regulation service). Next, consider the second 

plot which shows how 1 MW of efficient storage can be used to provide 2 MW of regulation – 

1 MW up and 1 MW down – using discharging and charging, respectively. 

1 MW 

Storage

1 

MW 

up

1 

MW 

charge

down

discharge

1 

MW 

down - output

1 MW 

Generation

0.5 

MW 

down

0.5 

MW 

up

+ discharge - discharge

0.5 

MW 

down

0.5 

MW 

up

+ output - output

1 

MW 

up

+ output

1 MW 

Storage

1 

MW 

up

1 

MW 

charge

down

discharge

1 

MW 

up

1 

MW 

charge

down

discharge

1 

MW 

down - output

1 MW 

Generation

0.5 

MW 

down

0.5 

MW 

up

+ discharge - discharge

0.5 

MW 

down

0.5 

MW 

up

+ discharge - discharge

0.5 

MW 

down

0.5 

MW 

up

+ output - output

0.5 

MW 

down

0.5 

MW 

up

+ output - output

1 

MW 

up

+ output

Figure 5. Storage and generation operation for area regulation. 

When storage provides down regulation by charging, it absorbs energy from the grid, and the 

storage operator must pay for that energy. That is notable – especially for storage with lower 
31

efficiency – because the cost for that energy may exceed the value of the load following service. 

(Energy stored during load following, however, could be used later for other benefits which, if 

combined with the load following benefit, may still be attractive.) 

3.3.2.2. Technical Considerations 

The rapid-response characteristic (i.e., fast ramp rate) of some types of storage makes that 

storage especially valuable as a regulation resource. In fact, the benefit of regulation from 

storage with a fast ramp rate (e.g., flywheels, capacitors, and some battery types) is on the order 

of two times that of regulation provided by generation. (See Appendix E for details.) 

Storage used for regulation should have access to and be able to respond to the area control error 

(ACE) signal which may require a response time of less than five seconds. Resources used to 

provide regulation should be quite reliable, and they must have high quality, stable (power) 

output characteristics. 

3.3.2.3. Application Synergies 

In most cases, storage used to provide area regulation cannot be used simultaneously for another 

application. However, at any given time, storage could be used for another more beneficial 

application instead of using it for regulation (e.g., electric energy time-shift, electric supply 

capacity, electric supply reserve capacity, or T&D upgrade deferral). 

3.3.3. Application #5 — Electric Supply Reserve Capacity 

3.3.3.1. Application Overview 

Prudent operation of an electric grid includes use of electric supply reserve capacity (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. (See Appendix A and [12] for details about ancillary services.) 

At minimum, reserves should be at least as large as the single largest resource (e.g., the single 

largest generation unit) serving the system. Generally, reserve capacity is equivalent to 15% to 

20% of the normal electric supply capacity, although specific reserve margins are designated in 

rules and/or regulations. In the U.S., the National Electric Reliability Council (NERC) is a key 

agency involved in establishing reserve capacity requirements.[13] 

The three generic types of reserve capacity are: 

• Spinning Reserve – Generation capacity that is online but unloaded and that can respond 

within 10 minutes to compensate for generation or transmission outages. ‘Frequencyresponsive’ spinning reserve responds within 10 seconds to maintain system frequency. 

Spinning reserves are the first type used when a shortfall occurs. 

• Supplemental Reserve – Generation capacity that may be offline, or that comprises a 

block of curtailable and/or interruptible loads, and that can be available within 

10 minutes. Unlike spinning reserve capacity, supplemental reserve capacity is not 

synchronized with the grid (frequency). Supplemental reserves are used after all spinning 

reserves are online. 
32

• Backup Supply – Generation that can pick up load within one hour. Its role is, 

essentially, a backup for spinning and supplemental reserves. Backup supply may also be 

used as backup for commercial energy sales. 

Importantly for storage, generation resources used as reserve capacity must be online and 

operational (i.e., at part load). Unlike generation, in almost all circumstances, storage used for 

reserve capacity does not discharge at all – it just has to be ready and available to discharge if 

needed. 

Note that storage can provide two times its capacity as reserve capacity when the storage is 

charging, because the storage can simultaneously stop charging and start discharging. 

3.3.3.2. Technical Considerations 

Of course, storage used for reserve capacity must have enough stored energy to discharge for the 

required amount of time (usually at least one hour). 

Storage used for this application must be somewhat reliable, though penalties for not providing 

the service after a bid are not onerous for individual events. Reserve capacity resources must 

receive and respond to appropriate control signals. Typical discharge durations for this 

application are between one and two hours. Reserve capacity may have to respond to the ISO’s 

AGC signal. 

3.3.3.3. Application Synergies 

Electric supply reserve capacity is especially compatible with other applications and application 

combinations primarily for the following reasons: 

• Most times when storage is used for reserves, it does not discharge. 

• While charging, storage can provide two times its capacity as reserve capacity. 

• If there is an hour-ahead market for reserve capacity, then decisions can be made almost 

real-time regarding the merits of discharging – if needed – compared to saving the energy 

to use later, for more benefit.[14] 

In most cases, storage cannot serve any other applications while it is providing electric supply 

reserve capacity. Nevertheless, when storage is not used as electric supply reserve capacity, it 

could be used for electric energy time-shift, electric supply capacity, other ancillary services, 

renewables energy time-shift, renewables capacity firming, and wind generation grid integration. 

Depending on location, it could also be used for transmission congestion relief and T&D upgrade 

deferral. 

3.3.4. Application #6 — Voltage Support 

3.3.4.1. Application Overview 

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. (See Appendix C for more details.) 
33

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. 

Historically, voltage support has been provided by generation resources. Those resources are 

used to generate reactive power (VAR) that offsets reactance in the grid. New technologies 

(e.g., modular energy storage, modular generation, power electronics, and communications and 

control systems) make new alternatives for voltage support increasingly viable.[15][16] 

(Conventional ‘power factor correction’ capacitors are good for managing localized reactance 

that occurs during normal operating conditions. Capacitors do not perform well as a voltage 

support resource, however, because they draw an increasing amount of current as voltage drops – 

to maintain power – which adds to voltage-related problems affecting the greater grid system. 

See Section 5.3.6 and Appendix C for more details about power factor correction.) 

This is an application for which distributed storage may be especially attractive because reactive 

power cannot be transmitted efficaciously over long distances. Notably, many major power 

outages are at least partially attributable to problems related to transmitting reactive power to 

load centers. So, distributed storage – located within load centers where most reactance occurs – 

provides especially helpful voltage support.[17][18] 

One especially notable load type for this application is smaller air conditioning (A/C) equipment 

like that used for residences and for small businesses. The reactance from motors used for A/C 

compressors poses a significant voltage-related challenge because, as grid voltage drops – during 

localized or region-wide grid emergencies – the motors draw an increasing amount of current to 

maintain power. That exacerbates the voltage problem, in part because air conditioners are most 

likely to be turned on when the grid is most heavily loaded and possibly when the grid is 

especially prone to voltage-related problems. 

3.3.4.2. Technical Considerations 

Storage systems used for voltage support must have VAR support capability if they will be used 

to inject reactive power. Also, storage used for voltage support must receive and respond quickly 

to appropriate control signals. 

The standard value for discharge duration is assumed to be 30 minutes — time for the grid 

system to stabilize and, if necessary, to begin orderly load shedding. 

3.3.4.3. Application Synergies 

In general, storage used for voltage support must be available within a few seconds to serve load 

for a few minutes to perhaps as much as an hour. Thus, storage serving another application could 

also provide voltage support if the storage can be available within a few seconds to provide 

voltage support and if the storage has enough stored energy to discharge for durations ranging 

from a few minutes to an hour. 

Central/bulk storage used for voltage support could also be used for electric energy time-shift, 

electric supply capacity, other ancillary services, renewables energy time-shift, renewables 

capacity firming, and wind generation integration. 

Distributed storage used for voltage support probably cannot be used for area regulation or 

transmission support though it probably could be used for most or all of the other applications 
34

covered in this report with little or no technical conflict, though circumstance-specific dispatch 

needs may cause operational conflicts. 

If the same storage is used for voltage support and for another ‘must-run’ application (e.g., T&D 

upgrade deferral), then the worst case is that the storage is completely dedicated to serving local 

demand during the few dozen to few hundred hours per year when the T&D equipment is most 

heavily loaded, leaving storage available during 95%+ of the year to serve other applications. 

3.4. Grid System Applications 

3.4.1. Application #7 — Transmission Support 

3.4.1.1. Application Overview 

Energy storage used for transmission support improves T&D system performance by 

compensating for electrical anomalies and disturbances such as voltage sag, unstable voltage, 

and sub-synchronous resonance. The result is a more stable system with improved performance 

(throughput). It is similar to the ancillary service (not addressed in this guide) referred to as 

Network Stability. Benefits from transmission support are highly situation-specific and sitespecific. Table 6 briefly describes ways that energy storage can provide transmission support. 

Table 6. Types of Transmission Support 

Type Description 

Transmission Stability Damping Increase load carrying capacity by improving dynamic 

stability. 

Sub-synchronous Resonance Damping Increase line capacity by allowing higher levels of 

series compensation by providing active real and/or 

reactive power modulation at sub-synchronous 

resonance modal frequencies. 

Voltage Control and Stability 1. Transient Voltage Dip Improvement 

Increase load carrying capacity by reducing the 

voltage dip that follows a system disturbance. 

2. Dynamic Voltage Stability 

Improve transfer capability by improving voltage 

stability. 

Under-frequency Load Shedding 

Reduction 

Reduce load shedding needed to manage underfrequency conditions which occur during large system 

disturbances. 

Source: adapted from information provided by EPRI.[19][20][21] 

3.4.1.2. Technical Considerations 

To be used for transmission support, energy storage must be capable of sub-second response, 

partial state-of-charge operation, and many charge-discharge cycles. Communication and control 

systems are important for this application. Also, storage used for transmission support must be 
35

very reliable. For storage to be most beneficial as a transmission support resource, it should 

provide both real and reactive power.[22] 

Typical discharge durations for transmission support are between one and twenty seconds. The 

standard discharge duration assumed for this application is five seconds. 

3.4.1.3. Application Synergies 

Storage that is used for transmission support probably cannot be used concurrently for other 

applications. Nevertheless, storage used for transmission support during peak demand or peak 

congestion times could be used at other times for several other applications, if the storage has the 

necessary discharge duration (e.g., one hour or more for ancillary services). 

3.4.2. Application #8 — Transmission Congestion Relief 

3.4.2.1. Application Overview 

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 (LMP) for electric energy. 

Storage could be used to avoid congestion-related costs and charges, especially if the charges 

become onerous due to significant transmission system congestion. In this application, storage 

systems would be installed at locations that are electrically downstream from the congested 

portion of the transmission system. Energy would be stored when there is no transmission 

congestion, and it would be discharged (during peak demand periods) to reduce transmission 

capacity requirements. 

3.4.2.2. Technical Considerations 

The discharge duration needed for transmission congestion relief cannot be generalized easily, 

given all the possible manifestations. As with the T&D upgrade deferral application, it may be 

that there are just a few individual hours throughout the year when congestion charges apply. Or, 

there may be a few occurrences during a year when there are several consecutive hours of 

transmission congestion. Also, congestion charges may be applied like demand charges with 

payments made for maximum demand during specific times during specific months of the year. 

Congestion charges may vary from year to year because supply and demand are always 

changing. 

The standard discharge duration assumed for this application is four hours. 

3.4.2.3. Application Synergies 

Depending on location, the owner, the discharge duration, and other circumstances, storage used 

for transmission congestion relief may be compatible with most if not all applications described 

in this report, especially electric energy time-shift, electric supply capacity (peaking), ancillary 

services, and possibly renewable energy time-shift. 
36

3.4.3. Application #9 — Transmission and Distribution Upgrade Deferral 

3.4.3.1. Application Overview 

Transmission and distribution (T&D) upgrade deferral involves delaying – and in some cases 

avoiding entirely – utility investments in transmission and/or distribution system upgrades, using 

relatively small amounts of storage. Consider a T&D system whose peak electric loading is 

approaching the system’s load carrying capacity (design rating). In some cases, installing a small 

amount of energy storage downstream from the nearly overloaded T&D node will defer the need 

for a T&D upgrade. 

Consider a more specific example: A 15-MW substation is operating at 3% below its rating and 

load growth is about 2% per year. In response, engineers plan to upgrade the substation next year 

by adding 5 MVA of additional capacity. As an alternative, engineers could consider installing 

enough storage to meet the expected load growth for next year, plus any appropriate engineering 

contingencies (i.e., it may not be prudent to install ‘just enough’ storage, especially if there is 

uncertainty about load growth). For the 15-MW substation in this example: At a 2% load growth 

rate, the load growth during the next year will be 300 kW (2% × 15 MW). Adding a 25% 

engineering contingency, the storage plant needed to defer T&D upgrade would be about 

375 kW. 

The key theme is that a small amount of storage can be used provide enough incremental

capacity to defer the need for a large ‘lump’ investment in T&D equipment. Doing so reduces 

overall cost to ratepayers; improves utility asset utilization; allows use of the capital for other 

projects; and reduces the financial risk associated with lump investments. 

Notably, for most nodes within a T&D system, the highest loads occur on just a few days per 

year, for just a few hours per year. Often, the highest annual load occurs on one specific day 

whose peak is somewhat higher than any other day. One important implication is that storage 

used for this application can provide a lot of benefit with limited or no need to discharge. Given 

that most modular storage types have a high variable operating cost, this application may be 

especially attractive for some storage types. 

Alhough the emphasis for this application is on T&D upgrade deferral, a similar rationale 

applies to T&D equipment life extension. That is, if storage use reduces loading on existing 

equipment that is nearing its expected life, the result could be to extend the life of the existing 

equipment. This may be especially compelling for T&D equipment that includes aging 

transformers and underground power cables. 

Readers are encouraged to see the Sandia National Laboratories report entitled Electric Utility 

Transmission and Distribution Upgrade Deferral Benefits from Modular Electricity Storage for 

more details.[23] 

3.4.3.2. Technical Considerations 

Energy storage must serve sufficient load, for as long as needed, to keep loading on the T&D 

equipment below a specified maximum. Discharge duration is a critical design criterion that 

cannot be generalized well. It may require interaction with utility engineers or engineers that 

design and/or operate distribution systems. The standard discharge duration is assumed to range 

from three to six hours. 
37

3.4.3.3. Application Synergies 

Utility-owned storage used for T&D deferral is also likely to be well-suited for several other 

applications, especially electric energy time-shift, electric supply capacity (peaking), and electric 

supply reserve capacity. Depending on location and circumstances, the same utility-owned 

storage could also be used for voltage support, transmission congestion relief, electric service 

reliability, electric service power quality, and renewables energy time-shift. 

If the storage is customer-owned, it may be especially compatible with TOU energy cost and 

demand charge management as well as electric service reliability and electric service power 

quality and for renewables (co-located distributed PV) capacity firming. 

3.4.4. Application #10 — Substation On-site Power 

3.4.4.1. Application Overview 

There are at least 100,000 battery storage systems at utility substations in the U.S. They provide 

power to switching components and to substation communication and control equipment when 

the grid is not energized. The vast majority of these systems use lead-acid batteries, mostly 

vented and to a lesser extent valve-regulated, with 5% of systems being powered by NiCad 

batteries.[24] 

Apparently, users are generally satisfied, though reduced need for routine maintenance, 

improved reliability, and longer battery life would make alternatives attractive, especially if the 

cost is comparable to that of the incumbent technologies. 

3.4.4.2. Technical Considerations 

One important feature that competitive substation on-site power options must have is equal or 

better reliability than the standard option. Ideally, new options have lower maintenance 

requirements than the existing systems. Also, competitive options should have a straightforward 

way to determine the storage system’s remaining useful life and ideally its ‘state-of-health’. 

One feature needed to address an emerging opportunity is the ability to serve the growing 

number of on-site DC loads (e.g., from DC motors and actuators replacing electro-mechanical 

systems). Especially important are the capacity to provide inrush currents (e.g., for motor 

startup) and a faster ramp rate to serve momentary loads including switchgear operation, motordriven valves, isolating switches, and the field flashing of generators.[25] 

IEEE Standard 485, which addresses sizing of battery systems for substation DC loads, groups 

substation DC loads into three categories: 1) continuous loads, 2) non-continuous loads, and 

3) momentary loads. Based on results from a survey of systems, locations serving voltages of 

about 69 kV are rated at 1.6 kVA; locations serving the grid at 69 kV to 169 kV have storage 

rated at about 2.9 kVA; and substations serving the grid at voltages exceeding 169 kV have 

storage systems rated at 8.5 kVA. The standard value assumed is 2.5 kW. The standard discharge 

duration is assumed to range from 8 to 16 hours. 

3.4.4.3. Application Synergies 

Conceptually, the same storage used for substation on-site power could be used for other 

applications. Key considerations include a) use of the storage for other applications cannot 

degrade reliability and b) the storage must have sufficient discharge duration to serve the 
38

substation on-site power application plus other applications (i.e., enough energy must be stored 

to serve the substation on-site power application and the other applications). For example, if 

8 hours of discharge duration is required for substation on-site power and 5 hours are required 

for another application then the total discharge duration must be 8 + 5 = 13 hours. Given the high 

incremental cost for most types of storage that would be used for substation on-site power, use of 

the same storage system for other applications may be impractical in most circumstances. 

3.5. End User/Utility Customer Applications 

3.5.1. Application #11 — Time-of-use Energy Cost Management 

3.5.1.1. Application Overview 

Time-of-use (TOU) energy cost management involves storage used by energy end users (utility 

customers) to reduce their overall costs for electricity. Customers charge the storage during offpeak time periods when the electric energy price is low, then discharge the energy during times 

when on-peak TOU energy prices apply. This application is similar to electric energy time-shift, 

although electric energy prices are based on the customer’s retail tariff, whereas at any given 

time the price for electric energy time-shift is the prevailing wholesale price. 

Pacific Gas and Electric Company’s (PG&E’s) Small Commercial TOU A-6 tariff was used for 

the working example. It applies from May to October, Monday through Friday. Commercial and 

industrial electricity end users whose peak power requirements are less than or equal to 500 kW 

are eligible for the A-6 tariff. 

0.00

0.05

0.10

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0.20

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0.35

0.40

0 4 8 12 16 20 24

Hour of Day

Price ($/kWh)

Figure 6. Summer energy prices for PG&E’s Small Commercial A-6 TOU rate. 
39

As shown in Figure 6, energy prices are about 32 ¢/kWh on-peak (12:00 p.m. to 6:00 p.m.). 

Prices during partial-peak (8:30 a.m. to 12:00 p.m. and 6:00 p.m. to 9:30 p.m.) are about 

15 ¢/kWh, and during off-peak (9:30 p.m. to 8:30 a.m.) prices are about 10 ¢/kWh. 

Although electricity end users receive the benefit for reducing energy cost, it is likely that that 

storage design, procurement, transaction costs, etc. would be too challenging for many potential 

users, especially those with relatively small energy use. If so, one option is to establish a 

partnership with an aggregator, as discussed in Section 6.5.4. 

3.5.1.2. Technical Considerations 

The maximum discharge duration for this application is determined based on the relevant tariff. 

For example, for the A-6 tariff there are six on-peak hours (12:00 p.m. to 6:00 p.m.). The 

standard value assumed for this application is five hours of discharge duration. 

3.5.1.3. Application Synergies 

Depending on overlaps between on-peak energy prices and times when peak demand charges 

apply, the same storage system use for time-of-use energy cost management might also be 

compatible with the demand charge management application. It could also provide benefits 

associated with improved electric service power quality and improved electric service reliability. 

Similarly, depending on a plant’s discharge duration and when discharge occurs, it may be 

compatible with the T&D upgrade deferral application. 

3.5.2. Application #12 — Demand Charge Management 

3.5.2.1. Application Overview 

Energy storage could be used by electricity end users (i.e., utility customers) to reduce the 

overall costs for electric service by reducing demand charges, by reducing power draw during 

specified periods, normally the utility’s peak demand periods. 

To avoid a demand charge, load* must be reduced during all hours of the demand charge period, 

usually a specified period of time (e.g., 11:00 a.m. to 5:00 p.m.) and on specified days (most 

often weekdays). In many cases, the demand charge is assessed if load is present during just one 

15-minute period, during times of the day and during months when demand charges apply. 

The most significant demand charges assessed are those based on the maximum load during the 

peak demand period (e.g., 12:00 p.m. to 5:00 p.m.) in the respective month. It is somewhat 

common to also assess additional demand charges for 1) part peak or (partial peak) demand that 

occurs during times such as ‘shoulder hours’ in the mornings and evenings and during winter 

weekdays and 2) ‘baseload’ or ‘facility’ demand charges that are based on the peak demand no 

matter what time (day and month) it occurs. The latter is important for storage because facility 

demand charges apply at any time, including at night when most storage charging occurs. 

Because there is a facility demand charge assessed during charging, the amount paid for facility 

demand charges offsets some of the benefit for reducing demand during times when the higher 

 

*

 In the utility realm, ‘demand’ often refers to the maximum power draw during a specified period of time (e.g., a 

month or year). To avoid confusion relative to the more general economics definition, especially regarding demand 

for energy, in this report ‘load’ is often used instead of the term demand when referring to power draw. 
40

peak demand charges apply. Consider a simple example: The peak demand charge (which 

applies during summer afternoons, from 12:00 p.m. to 5:00 p.m.) is $10/kW-month, and the 

annual facility demand charge is $2/kW-month. During the night, when charging occurs, the 

$2/kW facility demand charge is incurred; when storage discharges mid-day (when peak demand 

charges apply), the $10/kW-month demand charge is avoided. The net demand charge reduction 

in the example is 

$10/kW-month – $2/kW-month = $8/kW-month. 

Note that the price for electric energy is expressed in $/kWh used, whereas demand charges are 

denominated in $/kW of maximum power draw. Tariffs with demand charges have separate 

prices for energy and for power (demand charges). Furthermore, demand charges are typically 

assessed for a given month, thus demand charges are often expressed using $/kW per month 

($/kW-month). 

To reduce load when demand charges are high, storage is charged when there are no or low 

demand charges. (Presumably, the price for charging energy is low too.) The stored energy is 

discharged to serve load during times when demand charges apply. Typically, energy storage 

must discharge for five to six hours for this application, depending on the provisions of the 

applicable tariff. 

Consider the example illustrated in Figure 7. The figure shows a manufacturer’s load that is 

nearly constant at 1 MW for three shifts. During mornings and evenings, the end user’s direct 

load and the facilities’ net demand are 1 MW. At night, when the price for energy is low, the 

facility’s net demand doubles as low-priced energy is stored at a rate of 1 MW while the normal 

load from the end user’s operations requires another MW of power. During peak demand times 

(12:00 p.m. to 5:00 pm in the example), storage discharges (at the rate of 1 MW) to serve the end 

user’s direct load of 1 MW, thus eliminating the real-time demand on the grid. 
41

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Storage Power

Net Demand

Storage 

Charging

Storage 

Discharging

No Net 

Demand 

12:00 to 5:00 

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MW

Direct Load

Storage Power

Net Demand

Storage 

Charging

Storage 

Discharging

No Net 

Demand 

12:00 to 5:00 

Figure 7. On-peak demand reduction using energy storage. 

In the above example, storage is 80% efficient. To discharge for 5 hours, it must be charged for 

5 hours ÷ 0.8 = 6.25 hours. 

The ‘additional’ 1.25 hours of charging is needed to offset energy losses. If a facility demand 

charge applies, it would be assessed on the entire 2 MW (of net demand) used to serve both load 

and storage charging. 

Although it is the electricity customer that internalizes the benefit, for this application, the author 

presumes that the design, procurement, transaction cost, etc. could be challenging for many 

prospective users, especially those with relatively small peak loads. One possible way for storage 

to be viable for those prospective users is to partner with an aggregator. 

3.5.2.2. Technical Considerations 

Given that demand charges apply for an entire month (and perhaps even for an entire year), for 

maximum load that occurs for even a few minutes, storage must be reliable. It must have 

acceptable or better power quality for loads served. 

For this application, the storage plant discharge duration is based on the applicable tariff. For 

example, PG&E’s E-19 Medium General Demand-Metered TOU tariff defines six on-peak hours 

(12:00 p.m. to 6:00 p.m.). The standard assumption for this application is five hours of discharge 

duration. 
42

3.5.2.3. Application Synergies 

Although each circumstance is different, storage used for demand charge management may be 

compatible with the electric energy time-shift application, and it could provide some ancillary 

services if end users are allowed to participate in the wholesale energy marketplace. 

This application may be compatible with the transmission congestion relief and T&D upgrade 

deferral applications if storage use reduces load on T&D equipment when and where needed. 

(Note that T&D owners must be motivated and allowed to share related benefits, either by 

contract or prices.) Storage used for demand charge management is also likely to be compatible 

with the TOU energy cost management application if storage is discharging during times when 

energy price is high. Storage used for this application may also be compatible with the electric 

service power quality, electric service reliability, renewables capacity firming, and electric 

energy time-shift applications. 

3.5.3. Application #13 — Electric Service Reliability 

3.5.3.1. Application Overview 

The electric service reliability application entails using energy storage to provide highly reliable 

electric service. In the event of a complete power outage lasting more than a few seconds, the 

storage system provides enough energy to ride through outages of extended duration; to 

complete an orderly shutdown of processes; and/or to transfer to on-site generation resources. 

3.5.3.2. Technical Considerations 

The discharge duration required is based on situation-specific criteria. If an orderly shutdown is 

the objective, then discharge duration may be an hour or more. If an orderly transfer to a 

generation device is the objective, then no more than a few minutes of discharge duration are 

needed. The standard value for discharge duration is 15 minutes. 

Storage used for this application must reliably yield power with sufficient quality. 

3.5.3.3. Application Synergies 

The electric service reliability application may be compatible with most applications described in 

this report except area regulation and transmission support. It is especially compatible with the 

electric service power quality application. 

If a storage system has sufficient discharge duration to serve the electric service reliability 

application plus other applications, it could be especially well-suited to serving the TOU energy 

cost and demand charge management applications as well as renewables (co-located distributed 

PV) capacity firming. 

Depending on circumstances, the same storage system could also be used for electric energy 

time-shift, electric supply capacity (peaking), ancillary services, voltage support, transmission 

congestion relief, T&D upgrade deferral, electric service reliability, electric service power 

quality, and renewables energy time-shift applications. 
43

3.5.4. Application #14 — Electric Service Power Quality 

3.5.4.1. Application Overview 

The electric service power quality application involves using energy storage to protect on-site 

loads downstream (from storage) against short-duration events that affect the quality of power 

delivered to the load. Some manifestations of poor power quality include the following: 

• Variations in voltage magnitude (e.g., short-term spikes or dips, longer term surges, 

or sags). 

• Variations in the primary 60-Hz frequency at which power is delivered. 

• Low power factor (voltage and current excessively out of phase with each other). 

• Harmonics (i.e., the presence of currents or voltages at frequencies other than the 

primary frequency). 

• Interruptions in service, of any duration, ranging from a fraction of a second to 

several or even many minutes. 

3.5.4.2. Technical Considerations 

Needless to say, storage used for power quality should produce high-quality power output and 

should not adversely affect the grid. Typically, the discharge duration required for the power 

quality application ranges from a few seconds to about one minute. 

3.5.4.3. Application Synergies 

Given the short discharge duration and distributed deployment of storage for electric service 

power quality, few if any applications are compatible with storage designed specifically for that 

application. Nevertheless, the electric service power quality application may be compatible with 

several other applications if storage is designed for those other applications (i.e., with longer 

discharge duration), especially time-of-use energy cost management, demand charge 

management, and electric service reliability. 

3.6. Renewables Integration Applications 

3.6.1. Application #15 — Renewables Energy Time-shift 

3.6.1.1. Application Overview 

Many renewable energy generation resources produce a significant portion of electric energy 

when that energy has a low financial value (e.g., at night, on weekends and during holidays) – 

generally referred to as off-peak times. Energy storage used in conjunction with renewable 

energy generation could be charged using low-value energy from the renewable energy 

generation so that energy may be used to offset other purchases or sold when it is more valuable. 

The low-value energy is generated off-peak at night and during early mornings when demand is 

low and supply is adequate. The energy is more valuable on-peak when demand is high and 

supply is tight. The energy value is especially high during hot summer afternoons when A/C use 

is most prevalent. The energy that is discharged from the storage could be used by the owner, 
44

sold via the wholesale or ‘spot’ market, or sold under terms of an energy purchase contract 

(commonly referred to as a ‘power purchase agreement’ or PPA). 

Storage used for renewables energy time-shift could be located at or near the renewable energy 

generation site or in other parts of the grid, including at or near loads. Energy discharged from 

storage located at or near the renewable energy generation would have to be transported via the 

transmission system during on-peak times whereas storage located at or near loads is charged 

using low-value energy that is transmitted during off-peak times. 

Typically, the storage discharge duration needed for energy time-shift ranges from four to six 

hours, depending mostly on the duration of the region’s off-peak and on-peak periods and the onpeak versus off-peak energy value or price differential. 

Two variations of the renewables energy time-shift application are evaluated in this guide. They 

are 1) time-shift of energy from intermittent renewable energy generation resources and 2) timeshift of energy from baseload renewable energy generation resources. Intermittent renewables 

include solar, wind, ocean wave, tidal and, in some cases, hydroelectric. Baseload renewables – 

those whose output is somewhat-to-very constant, for several thousand hours per year – include 

geothermal, biomass, and, in some cases, hydroelectric. The intermittent renewable energy 

generation type evaluated here is wind-fueled generation. The baseload renewable energy 

generation evaluated is generic: It operates 24 hours per day and at a minimum it operates during 

every weekday during the year. 

Storing electric energy from solar generation is not addressed in this report for two reasons. 

First, for situations involving grid-connected solar generation, a lot or even most electricity is 

produced when energy is already valuable, making energy time-shift relatively unattractive. 

Second, most of the value for storage used with solar generation is for capacity firming. (See 

Section 3.6.2.) Also not addressed is seasonal renewables energy time-shift. That is because 

storing enough energy for seasonal renewables energy time-shift is either impractical or 

prohibitively expensive with the possible exception of CAES. 

3.6.1.2. Energy Time-shift from Wind Generation 

For the case involving wind generation, low-value electric energy from wind generation is stored 

at night and during early mornings. The stored energy is discharged when it is most valuable — 

during weekday afternoons when demand for electricity is highest. 

Not only does energy from wind generation produced off-peak have a low value, depending on 

regional circumstances wind generation occurring during off-peak hours can cause operational 

challenges. Two such operational challenges are minimum load violations and accommodating 

rapid changes to output from intermittent renewable energy generation. (See Section 3.6.3.) 

When minimum load violations occur, the combined output from wind generation capacity plus 

other ‘must-run’ generation exceeds demand (must-run generation tends to include that which is 

fueled by coal, nuclear, baseload renewable energy, and some types of natural-gas-fueled 

generation). Rapid output changes from intermittent renewable energy generation can lead to 

‘ramping’ of other dispatchable generation, which increases wear, fuel use, and emissions (all 

per kWh). 

An example of the daily operation profile for wind generation plus storage on a summer day is 

shown in Figure 8. For the scenario depicted, wind generation output occurring at night, when 

the energy’s value is low, is used to charge storage. In the example, about one-half of the energy 
45

used on-peak is from wind generation that occurs off-peak. The result is constant power for five 

hours. 

For the wind generation case, storage discharge duration required ranges from two and one-half 

hours to as much as four hours, depending on the amount of energy from wind generation that 

occurs during on-peak times. 

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Time of Day

Power (kW)

System Output (to grid)

Wind Generation

Storage Charging

Wind Energy 

to Storage

Time-shifted 

Energy from 

Storage

Figure 8. Wind generation energy time-shift. 

3.6.1.3. Energy Time-shift from Baseload Renewable Energy Generation 

Baseload renewables energy time-shift is accomplished by storing energy at night, during offpeak periods, so the energy can be used when it is most valuable, especially when hot 

temperatures drive significant air conditioning use. 

An example of the concept is illustrated in Figure 9. The example involves storage whose power 

is equal to that of the generator’s (1 MW) and whose discharge duration is five hours. The 

storage is charged during off-peak times using most or all of the generator’s output and the 

storage discharges during five on-peak hours. Note that time-shift energy from baseload 

renewable energy generation has the effect of doubling the renewable energy generation’s 

capacity during times when both demand and the value of electric supply capacity are highest. 
46

Figure 9. Baseload renewables energy time-shift. 

3.6.1.4. Technical Considerations 

The discharge duration for this application is circumstance-specific. It depends mostly on 

expectations about electric energy prices and/or the terms of the energy purchase agreement, 

especially the price and timing of purchases. The standard value assumed in this guide for 

discharge duration is five hours. 

For intermittent renewable energy generation, another important criterion is the degree to which 

the renewable energy generation output coincides with times when the price for electric energy is 

high. 

PCUs used in conjunction with many, or even most, renewable energy systems do not have what 

is needed to facilitate use of storage. Consequently, PCUs used for renewables energy time-shift 

must have additional hardware and software to accomplish and to manage charging and 

discharging of the storage. 

3.6.1.5. Application Synergies 

Depending on the location, the timing of the discharge, storage discharge duration, storage ramp 

rate, and the owner’s flexibility to optimize storage dispatch, storage used to time-shift electric 

energy from renewables generation could also serve several other applications described in this 

report. 

Renewables energy time-shift is especially compatible with the renewables capacity firming and 

electric supply capacity applications. Centrally located storage used for this application could 

also be used for electric supply reserve capacity and area regulation. If the storage is deployed in 

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Storage Charging

Generation

Power

Generation

Power

RE Energy 

to Storage

Time-shifted 

Energy from 

Storage

Storage

Power
47

Note the important distinction 

between renewables capacity 

firming, and renewables energy 

time-shift. 

Capacity firming allows use of 

an intermittent electric supply 

resource as a nearly constant 

power source. Such use may 

reduce power-related charges 

(e.g., capacity payments or 

demand charges), or it may offset 

the need for equipment

(e.g., wires, transformers, and 

generation) which is an 

investment with a fixed cost. 

By contrast, energy time-shift

involves enhancing the value of 

energy to increase profits and/or 

reduce fuel, operation, variable 

operation, and maintenance costs 

which are expenses. 

In most circumstances, 

renewables capacity firming is 

likely to result in a combined 

benefit comprised of a benefit for 

renewables energy time-shift and 

one for the firm capacity. 

distributed mode, then the storage could serve most applications (other than area regulation), 

especially voltage support, transmission congestion relief, T&D upgrade deferral, electric service 

power quality, electric service reliability, TOU energy cost management, and demand charge 

management. 

3.6.2. Application #16 — Renewables Capacity Firming 

3.6.2.1. Application Overview 

Renewables capacity firming applies to circumstances involving renewable energy-fueled 

generation whose output is intermittent. The objective is to use storage to ‘fill in’ so that the 

combined output from renewable energy generation plus storage is somewhat-to-very constant. 

The resulting firmed capacity offsets the need to purchase 

or ‘rent’ additional dispatchable (capacity) electric supply 

resources. Depending on location, firmed renewable energy 

output may also offset the need for transmission and/or 

distribution equipment. Renewables capacity firming is 

especially valuable when peak demand occurs. 

For the purpose of renewables capacity firming, renewable 

energy generation’s output intermittency can be classified 

as ‘short-duration’ (i.e., occurring somewhat-to-very 

randomly over timescales ranging from seconds to minutes) 

and/or ‘diurnal’ (i.e., occurring in a regular and/or 

predictable way during a 24-hour period). 

One important challenge associated with intermittent 

renewable energy generation is that the generation’s power 

output can change rapidly over short periods of time. 

Photovoltaic (PV) output can drop quite quickly as clouds 

pass. Wind generation output can change rapidly during 

gusty conditions. 

These rapid changes (also known as ramping) can lead to 

the need for dispatchable power sources whose output can 

also change rapidly. Most new, non-renewable energy 

generation facilities are best operated at constant output. In 

some regions, however, there may not be enough 

dispatchable generation capacity to offset renewable energy 

generation’s ramping. Storage can have an important effect 

on the amount of dispatchable generation needed to meet 

the renewable energy generation ramping challenge. 

In broad terms, good opportunities for renewables capacity firming tend to involve renewable 

energy resources whose output is somewhat-to-very coincident with the peak demand and 

somewhat-to-very constant. Storage used to firm resources with these characteristics needs 

relatively modest discharge duration. Solar generation’s output tends to occur when demand for 

electricity is highest and varies somewhat modestly, albeit predictably. In some locations, wind-
48

fueled generation output sometimes coincides with peak load and is somewhat stable during peak 

load periods. 

Although, in most cases, wind generation output is not as coincident with peak demand as that 

from solar generation, non-trivial amounts of wind generation do occur during peak demand 

periods. Also, wind generation tends to be ramping down as load is increasing, making firming 

valuable as a way to reduce load following resources. Additionally, wind generation is somewhat 

to quite predictable. 

Given those premises, leading candidates for renewables capacity firming include those fueled 

with solar energy (especially PV) or with wind energy. Depending on local circumstances, ocean 

wave generation output could also be firmed with storage, though it is not considered in this 

report. 

3.6.2.2. PV Capacity Firming 

Although capacity firming applies somewhat equally to large ‘bulk’ solar generation facilities 

and to small systems, distributed PV systems are featured here as the solar-fueled generation 

because, in many circumstances, it is possible for storage to serve other valuable applications if 

the storage is distributed. And, distributed PV systems are more likely to have suboptimal 

orientation leading to output that is only somewhat coincident with peak demand periods. 

The PV systems are assumed to consist of flat-panel PV modules with a fixed orientation. Fixedorientation PV remains stationary as the sun’s position in the sky changes throughout the day. 

Output from fixed-orientation PV systems increases as the sun rises during the morning hours; 

stays somewhat constant (at the daily maximum) for one to two hours during mid-day; and 

declines as the sun moves across the sky in the afternoon. Consequently, output from PV with a 

fixed orientation is at a maximum during a portion of the peak load period in many locations. If 

fixed PV orientation is not optimal, it will produce a modest to significant portion of output 

before or after the utility’s peak demand period. 

3.6.2.3. Wind Generation Firming 

Large-scale ‘bulk’ wind generation is featured in this report because a significant portion of wind 

generation development will involve large wind farms, whereas it seems unlikely that a 

significant amount of distributed wind generation will be added, at least for the foreseeable 

future. Nonetheless, the capacity firming benefit could apply to distributed wind generation as 

well as to central/bulk wind farms. 

3.6.2.4. Short-duration Intermittency 

Solar Generation Short-duration Intermittency — Shading caused by terrestrial obstructions 

such as trees and buildings can cause relatively short-duration, location-specific intermittency. 

The most compelling cause of short-duration intermittency from solar generation, however, is 

clouds. As a cloud passes over solar collectors, power output from the affected solar generation 

system drops. When the cloud moves away from the collector, the output returns to previous 

levels. Importantly, when that happens, the rate of change (of output from the solar generation 

plant) can be quite rapid. The resulting ramping increases the need for highly dispatchable and 

fast-responding generation such as a simple cycle combustion turbine to fill in when clouds pass 

over the solar collector. 
49

Wind Generation Intermittency — Short-duration intermittency from wind generation is caused 

by variations of wind speed that occur throughout the day. Although such variations may not be 

significant during much of the year, it can be a ramping-related challenge if peak demand for 

electricity coincides with gusty wind conditions. Figure 10 shows a basic example of shortduration intermittency and the implications for storage needed for firming. In the figure, the oneminute average renewable energy output (for a 1-kW renewable energy plant) is plotted. Note 

the variation from one minute to the next. 

As shown in the figure, the power needed from storage to offset the short-duration intermittency 

is determined based on the maximum difference between the renewable energy plant rating and 

the reduced plant output due to short-duration intermittency. In the example, the largest 

(magnitude) short-duration drop-off of power from the renewable energy generation is about 

34% of the renewable energy’s plant rating. Consequently, the storage plant would need to have 

a power rating of at least 0.34 kW per kW of renewable energy generation. 

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from 

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Figure 10. Renewable-fueled generation, short-duration intermittency (example). 

3.6.2.5. Diurnal Intermittency 

Solar Generation Diurnal Intermittency — Diurnal intermittency of solar generation is mostly 

related to the change of insolation throughout the day as the sun rises in the morning and then 

descends in the evening. Shading (not related to clouds) can also add to solar-energy-fueled 

generation’s diurnal intermittency. Also, the solar energy-to-electricity conversion efficiency for 

some types of solar generation (especially flat-panel PV) drops as the equipment’s temperature 

increases. Thus, if ambient temperatures are high, then efficiency may drop, reducing output 

commensurately. 
50

The key source of diurnal intermittency from solar-energy-fueled generation is shown in Figure 

11. In that example, storage is discharged when solar generation production is less than the solar 

plant’s rated output. The figure also shows that the lowest output from the solar generation 

during peak demand hours (about 75% of rated capacity) occurs in the early afternoon as the sun 

continues to rise. The effects of short-duration intermittency, if any, are not shown. Based on the 

example (without regard to short-duration intermittency), firming of the PV’s output requires 

storage whose capacity (power) is equivalent to at least 0.25 kW per kW of the solar generation’s 

power rating. The storage must have enough energy to deliver 0.52 kWh per day, for each kW of 

the solar generation’s power rating. 

Figure 11. PV generation output variability during peak demand hours (example). 

Wind Generation Diurnal Intermittency — In most regions, wind tends to be stronger during 

certain parts of the day than during others. For example, in some regions wind speed is relatively 

high in the late afternoon and evening and relatively low in the morning and early afternoon. 

Such a scenario is shown in Figure 12. As shown in Figure 12, storage fills in when wind 

generation output is less than the wind turbine’s rated output. In the figure, the lowest level of 

output from the wind generation (about 35% of rated capacity) occurs at about 1:45 p.m. (13:45). 

The effects of short-duration intermittency are not shown. So, for the example described in 

Figure 12, the storage must provide capacity (power) equal to about 65% of the wind turbine’s 

rating. The storage must be able to deliver 2.36 kWh per kW of wind capacity for firming. 

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Energy from Storage

Energy from PV Generation

Max. Power 

from 

Storage

PV 

Plant 

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0.52 kWh

0.25 kW
51

Figure 12. Wind generation diurnal intermittency during peak demand hours. 

3.6.2.6. Technical Considerations 

Storage power and discharge duration (for renewables capacity firming) are quite circumstancespecific and resource-specific. At the lower end, it is assumed that one-half to as much as two 

hours of discharge duration is needed to firm solar generation, assuming that much of PV output 

coincides with peak demand. For the example: To firm wind generation, a somewhat longer 

discharge duration (two to three hours) is needed. 

Storage used for capacity firming should be quite reliable because the primary reason for 

capacity firming is to provide constant power. Also, the price paid for constant power 

(i.e., demand charges for retail electricity end users or market price for capacity for the wholesale 

part of the market) is usually accompanied by a significant financial penalty if power is not firm. 

Power conditioning equipment used for many renewable energy systems does not include the 

functionality needed for charging and discharging storage, which requires additional hardware 

and software. Nevertheless, the ability to accommodate storage can be added to the power 

conditioning equipment used for the renewable energy generation at a relatively low incremental 

cost.[26] 

3.6.2.7. Application Synergies 

Although possibilities are circumstance-specific, storage used for renewables capacity firming 

could also provide benefits related to several other applications. Renewables capacity firming is 

especially compatible with the renewables energy time-shift and electric supply reserve capacity 

applications. 

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52

For distributed renewable energy generation, depending on the location, capacity firming may 

also be compatible with several other applications including voltage support, transmission 

congestion relief, T&D upgrade deferral, TOU energy cost management, demand charge 

management, electric service reliability, and electric service power quality. Incidental benefits 

that could accrue are those for reduced T&D energy losses and reduced transmission access 

charges. 

One especially attractive synergy for distributed PV plus storage is improved electric service 

reliability and/or improved electric service power quality. The discharge duration required for 

reliability-related and quality-related needs varies considerably; it depends on the robustness of 

the electric grid, T&D quality, and the loads and end uses served. The discharge duration needed 

for reliability and power quality can range from seconds to hours. For this report, it is assumed 

that one-quarter to one-half hour of storage (discharge duration) would be added to the PV plus 

storage system to provide reliability and/or power quality-related benefits. 

3.6.3. Application #17 — Wind Generation Grid Integration 

3.6.3.1. Application Overview 

For all but modest wind generation penetration levels, wind generation is likely to have at least 

some undesirable impact on the grid. And wind generation does seem poised to be a key element 

of the global move toward increased use of renewable energy. In the U.S., growth of wind 

generation capacity will be driven, in part, by targets established under the auspices of the 

Renewables Portfolio Standard (RPS). (See Section 4.3.1.1 for details about RPS.) 

To the extent that emphasis on renewable energy does increase, wind generation is wellpositioned to provide a significant portion of electricity. Wind generation is especially attractive 

given the relatively low and dropping electricity production cost from wind generation and good 

or better wind resources in many geographic regions. 

As wind generation penetration increases, the electricity grid effects that are unique to wind 

generation will also increase. Storage could assist with orderly integration of wind generation 

(wind integration) by managing or mitigating the more challenging and less desirable effects 

from high wind generation penetration. 

The wind generation grid integration application includes six subtypes which are grouped into 

two categories: 1) short-duration (i.e., lasting for a few seconds to a few minutes) and 2) longduration (i.e., lasting for many minutes to a few hours). The six subtypes are shown in Table 7. 
53

Table 7. Wind Generation Grid Integration Categories and Subtypes 

Short-duration Applications 

Reduce Output Volatility 

Improve Power Quality 

Long-duration Applications 

Reduce Output Variability 

Transmission Congestion Relief 

Backup for Unexpected Wind Generation Shortfall 

Reduce Minimum Load Violations 

3.6.3.2. Reduce Output Volatility 

The reduce output volatility application subtype is related to the need to offset wind power 

output fluctuations caused by short-duration variation of wind generation output, lasting seconds 

to a few minutes. 

It is important to note that, in most cases, wind turbines’ geographical diversity smoothes the 

aggregate effect of output volatility considerably. If the wind generation is interconnected with a 

large, well-diversified, electric supply and grid system, then that system can accommodate 

significant wind generation output fluctuations.[27] Nevertheless, for large wind generation 

resources, even somewhat modest volatility in the aggregate output may drive a need for a nontrivial supplemental resources to supply capacity and energy. Smaller and/or less diverse wind 

generation resources may require even more storage capacity (per MW of wind generation 

capacity). 

Although requirements will be different for each location and area, for this report it is assumed 

that a well-diversified wind generation resource using storage rated at 2% to 3% of the wind 

generation capacity would reduce aggregate volatility and reduce the need for area regulation 

significantly.[28][29] That range (2% to 3% of wind generation capacity) applies to wind 

penetration levels of about 10% (of total generation capacity). Presumably, the capacity needed 

(per kW of wind generation capacity) will change as wind generation penetration increases. 

The benefit for this application is estimated based on avoided need for additional area regulation 

resources and service. Depending on the amount of output volatility, an alternate approach could 

involve that described for renewables capacity firming for short-duration intermittency as 

described in Section 3.6.2.4. 

3.6.3.3. Improve Power Quality 

The power quality application reflects a category of wind-generation-related challenges that are 

related to performance standards, interconnection requirements, effects from phenomena such as 

wind gusts, and changing electrical conditions in parts of the grid affected by and/or with an 

effect on wind generation operations.[30] 
54

Seven specifically power quality-related challenges are as follows: 

• Reactive power 

• Harmonics 

• Voltage flicker 

• Transmission line protection 

• Transient stability 

• Dynamic stability 

• System voltage stability 

In most cases, conventional non-storage options are available to address these power quality 

challenges. For example, capacitors may be used for some reactive-power-related needs. Also, 

newer wind turbines will, by design, have reduced power quality impacts.[31] 

3.6.3.4. Reduce Output Variability 

This application is related to the need to offset generation output variability caused by natural 

wind speed variability over durations of several minutes to a few hours. Increasing wind 

generation penetration seems likely to increase the need for load following resources beyond 

what would otherwise be needed for a more dispatchable electric supply mix. It is important to 

note, however, that large, well-diversified electric supply and transmission systems can 

accommodate a lot of wind generation variability, especially if the wind generation is 

geographically diverse and/or comprises a relatively small portion of the electric supply 

capacity.[32] 

This application is somewhat analogous to the ‘load following’ ancillary service application 

because of the time scales and operational profiles involved. In fact, at the grid level, system load 

following resources are used to compensate for such variations. Presumably, reducing aggregate 

wind generation variability will also reduce the need for central load following. 

In more than a few regions, normal wind speed patterns mean that wind generation output drops 

off just as load picks up (i.e., it decreases as people begin activities in the morning). Similarly, 

wind generation often increases as load drops off (i.e., generation output rises as people’s 

activity, and the associated electric load, decreases at night). In such a scenario, adding wind 

generation capacity may also increase the need for load following capacity. In the evening, the 

grid may need extra load following in the down direction to accommodate increasing wind 

generation output that occurs during times when load is decreasing. Because wind generation 

output drops in the morning just as load picks up, more load following in the up direction may be 

needed as new wind generation capacity is added. 

Wind generation variability (and the corresponding need for load following resources) may be an 

especially compelling challenge during times when load is light. This is because, in many 

regions, a relatively small amount of dispatchable generation is available at those times to 

accommodate wind generation fluctuations (i.e., the output of most generation online at those 

times tends to be coal-fired, nuclear, natural gas/steam, ‘must-take’ energy purchase contracts 

and some hydroelectric generation that cannot be reduced).[33] 
55

Although requirements will be different for each location and area, for this report, it is assumed 

that storage capacity whose power rating is 4% to 6% of wind generation capacity could offset 

the need for a similar amount of system load following resources (i.e., those load following 

resources would be needed to accommodate wind generation’s natural variability, without 

storage).[34] 

That range (4% to 6% of wind generation capacity for reducing output variability) applies to a 

geographically diverse wind resource with wind generation penetration levels of about 10% of 

total generation capacity. Presumably, the optimal amount of storage would change with wind 

generation penetrations above 10%. 

3.6.3.5. Transmission Congestion Relief 

This application reflects an important challenge posed by the installation of significant amounts 

of wind power capacity. At any given point in time, the transmission system may not have 

enough capacity to transfer the energy generated by all the wind turbines, causing ‘congestion’ 

on the grid (i.e., too much energy to be transferred through the available transmission capacity). 

Storage could be used in lieu of upgrading transmission to accommodate wind generation during 

times when congestion occurs: 

• Storage located upstream from the point of congestion could be charged when congestion 

occurs, so energy can be transmitted when there is no congestion. 

• Storage located downstream from the point of congestion would allow for transmission of 

energy for charging when there is no congestion. That energy can be used later when 

congestion occurs. 

3.6.3.6. Backup for Unexpected Wind Generation Shortfall 

The need for storage backup for unexpected wind generation shortfall materializes when regional 

wind velocity is considerably lower than predicted and wind generation is supplying a relatively 

large portion of total grid power. Although such events are rare, the effect on the grid may be 

significant. As wind generation penetration increases, the impact from such events may also 

increase. 

Consider one real-world example. On February 27, 2008, the state of Texas experienced an 

unexpected “drop in wind generation...coupled with colder than expected weather.” During the 

event, wind generation output reportedly dropped from about 1,700 MW to about 300 MW. Grid 

operators responded by asking grid customers with interruptible electric tariffs to reduce power 

use by about 1 GW for about 90 minutes.[35] Two key options when this occurs are 1) to call on 

end users with interruptible or curtailable electric service or 2) to dispatch reserve capacity. 

3.6.3.7. Reduce Minimum Load Violations 

In some cases, wind generation output occurs when must-run and/or non-dispatchable generation 

capacity online exceeds demand. In this report, that situation is referred to as a minimum load 

violation. Possible alternatives for addressing minimum load violations may include ‘dumping’ 

or ‘spilling’ unusable energy or curtailing wind generation output. Storage may be especially 

helpful to manage those situations, especially if the minimum load violation results in ‘negative 

prices’, meaning that energy users get paid to take the energy. 
56

3.6.3.8. Technical Considerations 

Storage for wind-generation-related transmission congestion relief and for backup does not have 

any unique technical requirements. Ramp rate is not especially important, and reliability is not 

especially important if there are a large number of storage units in service. 

Storage used to address wind output intermittency and power quality must have a rapid ramp 

rate. Storage used to address wind output intermittency will likely need to have a very high 

efficiency and low operation cost because that application involves many charge/discharge 

cycles per hour. 

If reactive power capability is needed for power quality, then the storage system’s PCU must 

have VAR support capability or must be able to produce reactive power. 

3.6.3.9. Application Synergies 

Generalizing application synergies for wind generation grid integration may not be especially 

helpful, as technical and operational needs for the six application subtypes vary so much. 

Nevertheless, there are many possible combinations, some of which may be attractive now or in 

the future. Especially notable are synergies with the renewables energy time-shift and 

renewables capacity firming applications; storage used with wind generation for those 

applications may also reduce grid effects from wind output variability incidentally. 

Reducing output volatility is probably not compatible with any other application subtype or with 

any of the other primary applications described in this report because storage used to manage 

output volatility is almost always in service. Storage designed for the improved power quality 

application subtype probably has a short duration and thus may not be compatible with use for 

other applications. 

Depending on the timing of storage output and the storage’s location, storage used for the 

transmission congestion relief, reduce output variability, reduce minimum load violations, and 

backup for unexpected wind generation shortfall application subtypes may be compatible with 

each other or with several other primary applications. 

If the storage is located at distributed locations (i.e., for small commercial or even residential 

wind turbines), then storage could also be used for T&D upgrade deferral, electric service 

reliability, electric service power quality, TOU energy cost management, and demand charge 

management. 

3.7. Distributed Energy Storage Applications 

Locating storage near loads opens up opportunities to use the same storage for many more 

applications than a larger ‘central’ or ‘bulk’ resource could address. Depending on the location, 

storage deployed as a distributed energy resource (DER) may be compatible with all applications 

listed in this report except for area regulation, transmission support, and some wind integrationrelated uses. 

3.7.1. Locational Distributed Storage Applications 

The applications in this subsection are those that are best served by distributed storage or cannot

be served unless the storage is deployed in distributed mode (i.e., the storage is located where 

needed, near to loads). These applications include voltage support, transmission congestion 
57

relief, T&D upgrade deferral, TOU energy cost management, demand charge management, 

electric service reliability, electric service power quality, renewables capacity firming, and wind 

generation grid integration 

For example, storage used to defer a T&D capacity upgrade must be located near loads served by 

the T&D equipment in question. More specifically, the storage must be located downstream 

(electrically) from the T&D node in question. Another example is storage used to improve 

localized power quality. That storage must be located where it actually provides the necessary 

effect(s) on power quality. 

3.7.1.1. Voltage Support 

For this report, distributed storage (i.e., storage located near loads that most heavily affect 

voltage) is a viable option for the voltage support application, whereas voltage support provided 

centrally is assumed to be from large generation facilities. Unless the grid is weak or poor, 

storage will be used very little, if at all, for this application. Given that consideration, almost any 

storage located at or near loads that contribute to cascading outages could provide voltage 

support if it has VAR support capabilities and a discharge duration of 30 minutes or more. 

3.7.1.2. Transmission Congestion Relief 

If distributed storage is located downstream from congested transmission, then it could be used 

to store energy when there is no congestion and/or to reduce demand downstream from 

congestion when the congestion occurs. For distributed storage, this application/benefit may be 

especially compatible with the following applications/benefits: demand charge management, 

TOU energy cost management, electric supply reserve capacity, voltage support, electric service 

reliability, and electric service power quality. 

3.7.1.3. T&D Upgrade Deferral 

T&D upgrade deferral is one of the richest possibilities for distributed storage because the 

benefit can be so high. Also, this application/benefit may be compatible with several other 

applications/benefits, especially the following: electric supply reserve capacity, voltage support, 

electric service reliability, electric service power quality, TOU energy cost management, demand 

charge management, and possibly even electric supply reserve capacity and load following. 

3.7.1.4. Time-of-use Energy Cost Management and Demand Charge 

Management 

Bill management includes two closely related applications: TOU energy cost management and 

demand charge management. These applications are notable because storage used for them could 

also be used for electric service reliability, electric service power quality, electric supply reserve 

capacity (when charging and when charged but not discharging) and load following (when 

charging). Storage installed in advantageous locations could also provide voltage support, T&D 

upgrade deferral, and transmission congestion relief. 

3.7.1.5. Electric Service Reliability and Electric Service Power Quality 

Electric service reliability and electric service power quality are especially notable applications 

because significant demand for storage already exists in the form of uninterruptible power 

supplies (UPSs). They are also notable because, in most cases, storage can provide significant 
58

benefit with limited charging/discharging and relatively short discharge durations. In many 

cases, storage used for several distributed storage applications could also provide backup energy 

for electric service reliability and could be used to condition power as needed to address power 

quality problems. 

3.7.1.6. Renewables Capacity Firming – Photovoltaics 

There are strong synergies when modest storage capacity is coupled with on-site PV. Although 

PV production may not coincide with capacity needs, most PV production occurs during times 

when most energy is used, and PV alone cannot provide emergency or backup power without 

sunlight. Distributed storage used to firm PV capacity may also be compatible with other 

applications, including demand charge management, TOU energy cost management, electric 

supply reserve capacity, voltage support, electric service reliability, and electric service power 

quality. 

3.7.1.7. Wind Generation Grid Integration 

New wind turbine concepts may lead to increasing use of distributed wind generation capacity. 

As noted in the discussion of the wind generation integration application (Section 3.6), storage 

may be important if there will be even modest penetration of wind generation capacity at the 

distribution level. Depending on the circumstances, wind generation’s energy could be sold to 

the grid at a profit or used to reduce TOU energy charges. Also depending on the circumstances, 

firming wind generation capacity with storage may provide capacity value if the utility has a 

need for the firm capacity and/or if the end user can use it to reduce demand charges. 

3.7.2. Non-locational Distributed Storage Applications 

For the following applications, distributed storage may be located anywhere that its operation 

does not cause operational or technical problems for the grid: electric energy time-shift, electric 

supply capacity, load following, area regulation, electric supply reserve capacity, and renewables 

energy time-shift. 

3.7.2.1. Electric Energy Time-shift 

Assuming that distributed storage is not subject to transmission congestion during charging, 

distributed storage could be used to store inexpensive off-peak electric energy from the grid so 

that the energy may be used or sold when value/price is high. 

3.7.2.2. Electric Supply Capacity 

As with electric energy time-shift, if distributed storage is not subject to transmission congestion 

when charging occurs, it can be used to store inexpensive off-peak electric energy from the grid 

so that the energy may be used for electric supply capacity firming when doing so is valuable. 

3.7.2.3. Load Following 

To the extent that distributed storage can respond to control signals from the ISO, it can be used 

for load following. Perhaps most interesting is the possibility of providing load following, 

incidentally, while charging. (See Section 3.3.1 for details.) 
59

3.7.2.4. Area Regulation 

Conceptually, area regulation could be provided anywhere within an area if the location does not 

have any transmission constraints. If the area regulation capacity is located downstream 

(electrically) from subtransmission or distribution equipment, there may be some back-feed 

constraints if the equipment cannot accommodate a significant amount of energy flow into the 

transmission system. If so, then perhaps the area regulation capacity could be matched to local 

area regulation needs. 

3.7.2.5. Electric Supply Reserve Capacity 

Distributed storage that is charging or that is in standby mode can provide reserve capacity. 

Notably, unless the electric supply system served is weak or poorly managed, storage will be 

used very little for reserve capacity. 

3.7.2.6. Renewables Energy Time-shift 

As the electricity marketplace evolves, there may be opportunities for using distributed energy 

storage to store energy generated by large renewable-fueled generation located upstream from 

transmission and/or distribution system bottlenecks. Key objectives include increasing 

renewables’ energy and capacity value and relieving grid system congestion. This seems 

especially valuable if distributed storage can be charged when minimum load conditions exist (or 

even when less severe mismatches between supply and load exist); and/or when charging can be 

used for load following; and when transmission congestion is not a challenge. 

3.7.3. Incidental Applications from Distributed Storage 

Distributed storage can serve some applications, incidentally, while charging – most notably load 

following and electric supply reserve capacity. If the distributed storage (which is charging) has 

enough stored energy then it can also discharge to provide additional electric supply reserve 

capacity for other applications including voltage support, electric service reliability, and electric 

service power quality. Note that reduced storage charging has the same effect as adding reserve 

capacity. If, after charging is stopped, that same storage then discharges into the grid or picks up 

load, then the storage essentially provides two times its capacity as reserve capacity. 

Similarly, distributed storage that is charged can serve several applications, incidentally, while in 

standby mode (i.e., while not being used for a primary application) including electric supply 

capacity, voltage support, electric service reliability, and electric service power quality. 

3.8. Applications Not Addressed in this Guide 

It is important to note that the approach used for this report – involving applications that are 

defined based on the corresponding electric utility-related benefit – may seem to exclude many 

possible uses of storage. Certainly, that was not the authors’ intention. Indeed, the framework 

developed for this report can be used to estimate the financial benefits associated with many uses 

of storage, including many not addressed explicitly, because the benefits described are intended 

to address the various revenues and avoided costs that accrue when storage is used. 

Consider three examples of storage use: 1) as a backup power source for telecommunications 

facilities, 2) as part of a rail system to address voltage sags and to recuperate energy using 
60

regenerative braking, and 3) for localized reactive power compensation (VAR support) by 

utilities. 

For the first example (backup for telecom facilities), the benefit is related to avoided outages. 

The magnitude of the benefit can be estimated using an approach similar to that described in this 

report for the electric service reliability benefit. Specifically, the benefit is either the cost avoided 

because a more expensive alternative (e.g., diesel engine generators) is not needed if storage is 

used, or the application-specific value of avoided unserved energy. 

The benefit for use of storage in the second example (rail system trackside storage) is some 

combination of reduced cost for other equipment needed to address the voltage sag challenge; 

reduced cost to purchase energy; and reduced peak demand charges. In many cases, the 

equipment purchases that are deferred or avoided are for additional circuits and/or transformers 

and/or power electronics. 

In the third example (utility use of storage for VAR support), the benefit is the avoided cost for 

equipment that would have to be installed without storage, normally capacitors. 
61

4. Maximum Market Potential Estimation 

This section describes a framework for making a high-level, ‘first-cut’ estimate of the market 

potential for storage for each of the applications characterized herein (see Figure 13). It entails a 

generic, three-step process. Estimates for steps one and two are provided in this guide. Taking 

the estimate to the final step is beyond the scope of this report, as making it requires detailed 

analysis involving, among other criteria and considerations, 1) a broad array of national and 

regional market conditions, drivers, and trends; 2) utility regulations and rules; 3) technology 

cost and performance, existing and trends; 4) the spectrum of benefits (values) for individual 

applications and for viable application combinations (value propositions); and 5) stakeholder 

biases and preferences. 

4.1. Market Potential Estimation Framework 

As indicated by the outer square in Figure 13, the first step required when estimating economic 

market potential is to ascertain the technical market potential. It is the maximum amount (MW) 

possible given technical constraints. As an upper bound, the technical potential is the peak 

electric demand. 

Next, the maximum market potential is established. As shown in Figure 13, maximum market 

potential is a portion of the technical potential. It is an estimate of the maximum possible 

demand given constraints that are practical or institutional in nature (e.g., utility regulations and 

practices). Maximum market potential is also established without regard to storage cost. 

Finally, an estimate would be made of the expected market potential (market estimate). As 

shown in Figure 13, the market estimate is some portion of the maximum market potential. The 

market estimate reflects the amount of storage that an analyst expects to be deployed, over a 

given period of time (10 years in this document), for the specified application or combination of 

applications. 

Maximum Market Potential

Technical Market Potential

Market Estimate

Figure 13. Market potential and estimate. 
62

Market estimates may be as detailed and precise as appropriate. At the very least, various levels 

of market potential can be tested for reasonableness using a combination of judgment, 

knowledge, and preliminary product cost estimates. Alternative bases for estimates could 

include, for example, sales trends and projections, surveys, analysis of utility capital budget 

plans, detailed product cost estimates, and/or market research or intelligence. 

4.1.1. Role of Aggregators 

For some applications, and for electricity end users that do not use a lot of energy, the hassle, 

learning curve, and transaction costs may make using storage and other modular or distributed 

options too expensive, despite attractive benefits. In a growing number of areas, there may be 

load and distributed resources aggregators that combine several or many smaller end users in a 

given area into what could be called power blocks. (See Section 6.5.4 for details.) 

4.2. Technical Potential: Peak Electric Load 

A key parameter that underlies the maximum possible market size is the total electric load (kW 

or MW) served by the grid. Market potential is some portion of that peak load. The values in 

Table 8 include projected peak load in the U.S. and California. The values for the U.S. are based 

on information from NERC.[36] Visit the NERC website (nerc.com) for details. Values for 

California are published by the CEC. Visit the CEC website (energy.ca.gov) for details. (Note 

that the CEC website refers to peak demand rather than peak load.) The 2008 peak load in 

California was approximately 62,946 MW, comprising 8% of the total U.S. peak load.[37][38] 

Table 8. U.S. and California Peak Load and Peak Load Growth 

California1 U.S.2

Peak Load, 2008 (MW) 62,946 796,479

Generation Capacity, 2008 (MW) 76,794 925,916

Reserve Margin (%) 22.0% 16.3%

Expected Peak Load Growth Rate (%/year) 1.37% 1.80%

Load Forecast, 2017 (MW) 72,235 920,850

Load Growth Estimate, 2008 to 2017 (MW) 9,289 124,371

1

Source: California Energy Comission (CEC)

2

Source: North American Electric Reliability Council (NERC).

4.3. Maximum Market Potential 

The maximum market potential for all applications in this guide is the upper bound to the market 

estimate. It is established by considering constraints (on market potential) that are practical and 

institutional. Maximum market potential is established without regard to storage cost. For 

example, given the premise that it is unlikely that storage will displace existing utility equipment, 

a simplifying assumption (for utility applications) is that the market for new storage to serve 

electric load is limited to some portion of the annual load growth. For specific applications, other 

practical or institutional limits on the maximum market potential apply. For example, if the 

application is for a commercial or industrial customer, then residential customers are not part of 

the maximum market potential. 
63

4.3.1. Maximum Market Potential Estimates 

Maximum market potential estimates for 17 electric-grid-related energy storage applications are 

shown in Table 9. Estimates for California and U.S. markets are provided, as are the key 

assumptions and the rationale used to establish those estimates. 

Table 9. Maximum Market Potential Estimates 

Maximum Market Potential (MW, 10 Years)

# Type CA U.S. Note

1 Electric Energy Time-shift 1,445 18,417 10% of peak load is assumed to be in-play, 

20% of that, maximum, served by storage.

2 Electric Supply Capacity 1,445 18,417 Same as above.

3 Load Following 2,889 36,834 Total load following = 20% of peak load, 

20% of that, maximum, served by storage.

4 Area Regulation 80 1,012 Per CEC/PIER study involving Beacon Power 

flywheel storage for regulation.

5 Electric Supply Reserve Capacity 636 5,986 20% of peak load is assumed to be in-play, 

20% of that, maximum, served by storage.

6 Voltage Support 722 9,209 5% of peak load is assumed to be in-play, 

20% of that, maximum, served by storage.

7 Transmission Support 1,084 13,813 1.5% of peak demand, per EPRI/DOE report.

8 Transmission Congestion Relief 2,889 36,834 20% of peak load is assumed to be in-play, 

20% of that, maximum, served by storage.

9.1 T&D Upgrade Deferral 50th percentile 386 4,986

9.2 T&D Upgrade Deferral 90th percentile 77 997

10 Substation On-site Power 20 250 2.5 kW per system

11 Time-of-use Energy Cost Management 5,038 64,228 67% of peak load is assumed to be in-play.

1%/yr storage adoption rate.

12 Demand Charge Management 2,519 32,111 33% of peak load is assumed to be in-play.

1%/yr storage adoption rate.

13 Electric Service Reliability 722 9,209 10% of peak load is assumed to be in-play, 

10% of that, maximum, served by storage.

14 Electric Service Power Quality 722 9,209 Same as above.

15 Renewables Energy Time-shift 2,889 36,834 20% of peak load is assumed to be in-play, 

20% of that, maximum, served by storage.

16 Renewables Capacity Firming 2,889 36,834 Same as above.

17.1 Wind Generation Grid Integration, 

Short Duration 181 2,302

10.0% of peak load is in play. Add storage 

equal to as much as 2.5% of that amount 

for intermittency.

17.2 Wind Generation Grid Integration, 

Long Duration 1,445 18,417 10% of peak load from wind gen., Add storage to a maximum of 20% of that.

T&D upgrade needed for 7.7% of peak load. 

Of that, a maximum of 50% of qualifying peak 

load is served by storage. Storage = 3.0% of 

peak load, on average.

The term "in-play" indicates the maximum portion of peak demand that is assumed to be addressable with storage 

w/o regard to market or technical constraints. Maximum market potential is some portion of that amount.
64

4.3.1.1. Caveats about Maximum Market Potential Estimates 

The rationale used to establish the above maximum market potential estimates was designed to 

be transparent (all assumptions used are presented). The values were developed based on a 

combination of the authors’ and supporting analysts’ experience and familiarity with the 

following: energy storage technology; utility loads and supply including costs and prices; utility 

biases, rules and regulations; electricity market-related business opportunities for energy storage 

and for modular and distributed resources; and market acceptance of new technologies in the 

electricity marketplace. Some estimates are based on a relatively high degree of speculation, due 

to both the dearth of information about the topic and the nascent nature of demand for storage for 

the applications covered herein. To the extent that analysts have superior and/or newer 

information, they are encouraged to update or modify these estimates as appropriate. 

4.3.2. Renewables Portfolio Standard 

Renewable energy seems poised to become a significant fuel source for electric generation. In 

the U.S., the Renewables Portfolio Standard (RPS) is expected to be a key driver of the trend 

toward renewables for electricity. Figure 14 indicates RPS-related targets, by state, as of 

2008.[39] In this guide, it is assumed that by 2017 15% of electric energy (MWh) in the U.S. will 

be generated using renewables, and two-thirds of that will be from wind generation. 

Source: Pew Center Website about Climate Change (as of 2008). http://www.pewclimate.org/ 

Figure 14. U.S. Renewables Portfolio Standard targets by state. 
65

4.4. Market Estimate 

The final step in the market estimation process is to consider the portion of the maximum market 

potential that will be realized during the target period. The market estimate should be as detailed 

and precise as appropriate. At the very least, various levels of market potential can be tested for 

reasonableness using plausible combinations of judgment, knowledge, or preliminary product 

cost estimates. Alternative bases for estimates could include, for example, sales trends and 

projections, surveys, analysis of utility capital budget plans, detailed product cost estimates, or 

market research or intelligence. Note that a market estimate is product-specific and organizationspecific, making generic market estimates unhelpful, so none are provided in this report. 

4.4.1. Important Considerations 

Important criteria affecting market estimates for storage systems include system cost (capital, 

installation, operation and maintenance, etc.), efficiency, marketing costs, market adoption rates, 

and other considerations discussed in more detail below. 

4.4.1.1. Price Signals or Risk and Reward Sharing Mechanisms Must Exist 

To include potential demand in the estimate, the region where the demand exists must have price 

signals or risk and reward sharing mechanisms in order for a given stakeholder to internalize the 

benefit(s) associated with the targeted value proposition. For example, if utility rules and 

regulations do not provide adequate incentive for a utility to defer a T&D upgrade, then the T&D 

deferral application does not apply in that region. Or, if a wind farm developer cannot get a 

credit for reducing electric service power quality impacts, then that application does not apply in 

the region. 

4.4.1.2. Utility Rules and Regulations Should Give Explicit Permission 

It is important to account for utility rules and regulations that forbid use of storage for a given 

application when making estimates. 

4.4.1.3. Storage Must Be Cost Effective 

One obvious driver of the market potential for storage systems (used for a given application or 

applications) is the value proposition to be demonstrated. Specifically, if the cost for storage is 

higher than the lifecycle benefits, then no storage systems will be sold. If benefits exceed cost by 

a large margin, then the amount of storage used could be significant. 

4.4.1.4. Storage Must Be Cost Competitive 

As described in Section 5, benefits associated with the use of energy storage are estimated 

irrespective of the specific solution being considered. It is important to note that the 

competitiveness of a given solution (storage or other acceptable substitutes) depends on whether 

there is a lower cost and/or another viable option. 

When establishing the maximum market potential estimate, it is important to account for the fact 

that solutions whose costs are not competitive are not attractive candidates. Specifically, storage 

systems whose cost exceeds the cost of another technically viable option are not financially 

competitive solutions. 
66

4.4.1.5. Changing Electricity Supply and Demand: Effect on On-peak 

versus Off-peak Electric Energy Price Differential 

Two important premises affect the prospects for utility-related use of storage: 

1. There are times when electric energy prices are low — because energy use is low and 

because efficient power plants are on the margin, usually at night. 

2. There are times when energy prices are high — because energy use is high and because 

inefficient generation is on the margin, usually during the day, especially midday, on 

weekdays. 

Consequently, there is a significant price difference (price delta) between the off-peak price and 

the on-peak price for electric energy. Nevertheless, there are electric energy supply and demand 

considerations that could lead to a modest to significant reduction in that price delta. Perhaps 

most important is the expected increase in the use of plug-in electric vehicles (PEVs) and plug-in 

hybrid electric vehicles (PHEVs). If a significant number of these vehicles are used, then 

presumably there would be downward pressure on the price delta because more electric energy 

will be needed during off-peak periods. Similarly, if a lot of energy storage is installed for the 

applications described in this guide, then additional upward pressure will be exerted on the offpeak price for electric energy. Other possibilities include the increased use of electric energy 

during off-peak periods to serve loads if, for example, increased economic activity leads to more 

business and manufacturing activities at night and upward pressure on price for generation fuel 

used off-peak. 

4.4.2. Market Estimates for Combined Applications and Benefits 

In many cases, storage may be used for more than one application. When making market 

estimates for these circumstances, it is important that estimates account for the fact that 

combining applications may increase storage system benefit ($/kW) while reducing the overall 

market potential. 

Four possible reasons that it may be inappropriate to add the entire market potential for one 

benefit to the entire market potential for another benefit are as follows: 

1. Some benefits accrue to separate stakeholders. 

2. Some applications/benefits are region- or location-specific. 

3. For most applications the value (magnitude of the benefit) varies among possible 

beneficiaries. 

4. Not all beneficiaries for one benefit ascribe value to the other benefit. 

Consider an example: A storage plant is used for the T&D upgrade deferral application. If 

storage benefits also accrue for electric service reliability, then the estimated market potential is 

based on the intersection between the market estimate for T&D upgrade deferral alone and the 

market estimate for electric service reliability alone. The resulting estimate indicates the market 

potential for customer load that is served by T&D equipment that is due to be upgraded and

that requires high electric service reliability. This concept of application/benefit intersection is 

illustrated in Figure 15. 
67

Market

Estimate

for Benefit #2

Market

Estimate

for Benefit #1

Figure 15. Market intersection. 

Consider another example: Utility customers will use energy storage for demand charge 

management, electric service reliability, and electric service power quality. Market estimates 

would account for the following: 

• Technical market potential encompasses all commercial and industrial electricity end 

users. 

• Only a portion of those end users pay demand charges. 

• For many commercial and industrial electricity end users that pay demand charges, the 

benefit associated with increased electric service reliability may be relatively low 

(depending on the value of the products and/or services involved). 

• Only a portion of customers that pay demand charges and that are concerned with electric 

service reliability will derive a financial benefit from improved power quality. 

Similarly, if storage is used for TOU energy cost management and for electric service reliability, 

then some electricity end users who need improved reliability may not pay based on TOU energy 

prices, and conversely, all end users who pay TOU energy prices may not need improved 

reliability. 
68
69

5. Storage Benefits 

5.1. Introduction 

This section discusses the calculation of application-specific financial benefits (benefits) 

associated with using storage for the 17 applications described in Section 3. Also characterized 

are nine incidental benefits that may accrue if storage is used for one or more of the 

17 applications. The 26 application-specific and incidental benefits are listed in Table 10. 

Table 10. Application-specific and Incidental Benefits of Using Energy Storage 

Application-specific Benefits 

1. Electric Energy Time-shift 

2. Electric Supply Capacity 

3. Load Following 

4. Area Regulation 

5. Electric Supply Reserve Capacity 

6. Voltage Support 

7. Transmission Support 

8. Transmission Congestion Relief 

9. Transmission and Distribution (T&D) Upgrade Deferral 

10. Substation On-site Power 

11. Time-of-use (TOU) Energy Cost Management 

12. Demand Charge Management 

13. Electric Service Reliability 

14. Electric Service Power Quality 

15. Renewables Energy Time-shift 

16. Renewables Capacity Firming 

17. Wind Generation Grid Integration 

Incidental Benefits 

18. Increased Asset Utilization 

19. Avoided Transmission and Distribution Energy Losses 

20. Avoided Transmission Access Charges 

21. Reduced Transmission and Distribution Investment Risk 

22. Dynamic Operating Benefits 

23. Power Factor Correction 

24. Reduced Generation Fossil Fuel Use 

25. Reduced Air Emissions from Generation 

26. Flexibility 
70

Readers should note that the emphasis in this document and this section is on the financial 

benefit of storage, with very limited regard to the cost associated with owning and operating 

storage systems. Nevertheless, the benefit estimate is intended as a general indication of the cost 

at which storage is competitive. 

5.1.1. Benefit Definition 

5.1.1.1. Benefit Basis 

In broad terms, benefits from storage can take two forms: 1) additional revenue received by the 

storage owner/operator or 2) cost that is avoided by the storage owner/operator (avoided cost). 

Examples of additional revenue include payments received for a) energy sales, b) capacity, and 

c) ancillary services. Examples of avoided cost associated with storage use include a) a utility’s 

reduced or avoided need (and cost) for generation or T&D capacity and b) a utility customer’s 

reduced cost for energy and demand charges. 

Avoided cost can have at least three forms. First, if storage is the only viable alternative, then 

avoided cost involves the negative outcomes associated with doing nothing. Second, if storage is 

used in lieu of a conventional/standard solution, then avoided cost is the total cost that would 

have been incurred for the conventional/standard solution is used (where total cost includes 

purchase, installation, operation, and removal and disposal). Third, if there are several viable 

alternatives, then the avoided cost is alternative with the lowest total cost (where total cost 

includes cost to purchase, install, operate, and remove for disposal). 

Avoided Cost for the Do Nothing Alternative 

In some cases, the leading alternative is to ‘do nothing.’ Do nothing is a common option for 

needs that are relatively unlikely to materialize and/or that are expensive. Consider the example 

of a distribution circuit that is heavily loaded. If there is only a one-in-ten chance that 

overloading will occur, then the do nothing alternative may be preferable to installing an 

upgrade, especially if the upgrade is expensive. 

Avoided Cost for the Conventional/Standard Solution 

In most cases, especially those involving utilities, the benefit for storage is established based on 

the cost for a conventional/standard alternative. That is, if storage is to be used in lieu of a 

standard/conventional alternative then the benefit (associated with storage use) is the (avoided) 

cost for the standard/conventional alternative. This concept is especially important for utilities 

for which the conventional/standard alternative is mandated by legislation and/or regulation. 

Consider the possibility that a utility would use storage to improve localized electric service 

reliability. The conventional/standard alternative competing with storage is whatever the utility 

would normally do to improve reliability. Those alternatives may range from adding equipment 

to manage the causes of outages to a full T&D upgrade, involving alternate circuits and 

transformers. Consider another example: Due to load growth, a utility needs to upgrade its T&D 

equipment; however, use of storage could defer or to avoid the need to make the upgrade. In that 

case, the storage-related benefit is the avoided cost associated with deferring or avoiding the 

need for the conventional/ standard alternative which is the T&D upgrade. 
71

Avoided Cost for the Lowest Cost Viable Alternative 

In some cases, the storage benefit could be based on the cost of the lowest cost alternative that is 

otherwise viable. Consider the possibility that a utility customer could add facility-scale storage 

for time-of use energy cost management and demand charge management plus electric service 

reliability. In that case, the lowest cost viable alternative could be energy efficiency measures 

plus under-desk UPSs and/or on-site backup generation. 

5.1.1.2. Gross versus Net Benefit 

For most benefit types, the gross benefit value is calculated. That is, benefits are estimated 

without regard to the cost. The benefit estimate is intended to provide a general indication of the 

price point required for storage to be financially viable. So, if storage can be owned and operated 

for an amount less than the estimated benefit, then the value proposition may be financially 

viable. 

The one notable exception is electric energy time-shift. For that application, the financial merits 

of each possible hourly ‘buy-low/sell-high’ transaction must be calculated before the transaction 

is made, based on the difference between the benefit for the energy that is discharged versus the 

marginal cost to get that energy. Storage marginal cost includes variable operating cost, charging 

energy cost, and the cost for energy losses. So, the estimated benefit for electric energy time-shift 

is net of storage marginal cost. 

5.1.1.3. Benefit Financials 

For this guide, the financial benefit is defined as the total lifecycle financial benefit associated 

with use of storage. Although, arguably, some benefits cannot be quantified, only benefits that 

can be expressed in financial terms are included. For this document, storage is assumed to be in 

use for 10 years, the assumed price escalation is 2.5%, and the discount rate is 10%. (See 

Section 1.6.1 for more details about the approach used to address storage financials.) 

5.1.2. Benefits Summary 

Table 11 summarizes the benefit values characterized later in this section. 
72

Table 11. Application-specific Benefit Estimates 

Benefit ($/kW)*

# Type Low High Note

1 Electric Energy Time-shift 400 700 Low: 80% efficiency, 2¢/kWh VOC, 4 hours.

High: 80% efficiency, 1¢/kWh VOC, 5.5 hours.

2 Electric Supply Capacity 359 710

Low: mid/peak duty cycle combustion turbine,

cost $50/kW-year.

High: combined cycle combustion turbine,

cost $99/kW-year.

3 Load Following 600 1,000

Low: simple cycle combustion turbine,

price $20/MW per service hour.

High: combined cycle combustion turbine,

price $50/MW per service hour.

4 Area Regulation 785 2,010

Low: $25/MW per hour, 50% capacity factor.

High $40/MW per hour, 80% capacity factor.

For up regulation and down regulation.

5 Electric Supply Reserve Capacity 57 225 Low: $3/MW per hour, 30% capacity factor.

High $6/MW per hour, 60% capacity factor.

6 Voltage Support 400 800

Low: prevent 1 outage lasting 1 hour over 10 years.

High: prevent 2 outages lasting 1 hour over 10 years.

Storage = 5% of load.

7 Transmission Support Based on DOE/EPRI storage report[14].

8 Transmission Congestion Relief 31 141 Based on CAISO congestion prices in 2007.

9.1 T&D Upgrade Deferral 50th percentile 481 687 Low: upgrade factor = 0.25.

High: upgrade factor = 0.33.

9.2 T&D Upgrade Deferral 90th percentile 759 1,079 Same as above.

10 Substation On-site Power 1,800 3,000 Based on cost for standard storage solution.

11 Time-of-use Energy Cost Management Based on PG&E's A6 time-of-use tariff.

Six hours of storage discharge duration.

12 Demand Charge Management Based on PG&E's A6 time-of-use tariff.

Six hours of storage discharge duration.

13 Electric Service Reliability 359 978

Low: $20/kWh * 2.5 hours/year of avoided outages 

for 10 years.

High: 10 Years of UPS Cost-of-ownership (present value).

14 Electric Service Power Quality 359 978 Low: avoided power quality related cost, 10 years. 

High: UPS cost-of-ownership, 10 years (present value).

15 Renewables Energy Time-shift 233 389 Low: bulk wind generation.

High: baseload RE generation.

16 Renewables Capacity Firming 709 915 Low: fixed orientation distributed PV. 

High: bulk wind generation.

17.1 Wind Generation Grid Integration, 

Short Duration 500 1,000

Though the estimated benefit is relatively high,

a modest amount of storage (<0.1 kW) is needed

per kW of wind generation. 

17.2 Wind Generation Grid Integration, 

Long Duration 100 782

Low: avoid 1 outage in 10 years from wind

generation shortfall.

High: high estimate of benefit for reduced

transmisison congestion.

192

1,226

582

 *Based on potential (kW, 10 years) times the average of low and high benefit estimates ($/kW, 10 years).
73

5.1.3. Economic Impact Summary 

Table 12 summarizes the estimated economic impact from storage used for specific applications, 

given the estimated application-specific benefit and maximum market potential. 

Table 12. Application-specific Potential Economic Impact Estimates 

Economic Potential ($Million)*

# Type CA U.S.

1 Electric Energy Time-shift 795 10,129

2 Electric Supply Capacity 772 9,838

3 Load Following 2,312 29,467

4 Area Regulation 112 1,415

5 Electric Supply Reserve Capacity 90 844

6 Voltage Support 433 5,525

7 Transmission Support 208 2,646

8 Transmission Congestion Relief 248 3,168

9.1 T&D Upgrade Deferral 50th percentile 226 2,912

9.2 T&D Upgrade Deferral 90th percentile 71 916

10 Substation On-site Power 47 600

11 Time-of-use Energy Cost Management 6,177 78,743

12 Demand Charge Management 1,466 18,695

13 Electric Service Reliability 483 6,154

14 Electric Service Power Quality 483 6,154

15 Renewables Energy Time-shift 899 11,455

16 Renewables Capacity Firming 2,346 29,909

17.1 Wind Generation Grid Integration, 

Short Duration 135 1,727

17.2 Wind Generation Grid Integration, 

Long Duration 637 8,122

 *Based on potential (kW, 10 years) times the average of low and high benefit 

estimates ($/kW, 10 years).
74

5.2. Application-specific Benefits 

5.2.1. Benefit #1 — Electric Energy Time-shift 

5.2.1.1. Description 

The annual financial benefit for electric energy time-shift (time-shift) is derived by using storage 

to make many electric energy buy-low/sell-high transactions. For a utility, the benefit may take 

the form of either lower energy cost or profit (if the energy is sold in the energy marketplace). 

For other stakeholders, the benefit is internalized as profit.[40] 

To estimate the time-shift benefit, a simple storage dispatch algorithm is used. The algorithm 

contains the logic needed to determine when to charge and when to discharge storage in order to 

optimize the financial benefit. Specifically, it determines when to buy and when to sell electric 

energy, based on price. In simplest terms, the dispatch algorithm evaluates a time series of prices 

to find all possible transactions in a given year that yield a net benefit (i.e., benefit exceeds cost). 

The algorithm keeps track of net benefits from all such transactions for the entire year to estimate 

an annual time-shift benefit. One key point regarding the approach used for this guide is worth 

noting: the results reflect ‘perfect knowledge’. That is, a predetermined series of projected prices 

was used. In effect, at any given hour in the year, the algorithm ‘knows’ what prices will be at 

any other hour of the year. 

Three data items are used in conjunction with the dispatch algorithm: 

• Chronological hourly price data for one year (8,760 hours) 

• Energy storage round-trip efficiency 

• Storage system discharge duration 

The chronological hourly price data used are the projected hourly electric energy prices in 

California for 2009.[41] Figure 16 shows prices for the entire year. Based on this data, there are 

about 900 hours per year when the price is above $100/MWh (10¢/kWh). During off-peak 

periods (when storage plants are charged), the price is frequently at about $50/MWh to 

$60/MWh (5¢/kWh to 6¢/kWh). (See Appendix F for more details about energy prices used.) 
75

0

100

200

300

400

500

600

700

800

0 876 1,752 2,628 3,504 4,380 5,256 6,132 7,008 7,884 8,760

Hour of the Year

$/MWh

Figure 16. Chronological electricity price data for California, 2009 (projected). 

Unlike the other benefits estimated in this report, the benefit for electric energy time-shift is 

expressed in terms of benefit net of variable cost. That is, before a decision is made to make any 

specific buy-low/sell-high transaction, the financial merits of that transaction are determined 

based on the cost (to purchase, store, and discharge the energy) versus the expected benefit 

(revenue or cost reduction). 

If the cost for wear on the storage system, plus the cost for charging energy, plus the cost to 

make up for storage losses exceeds the expected benefit, then the transaction is not made. For 

example, 3 ¢/kWh energy could be used to charge an 80% efficient storage plant whose variable 

operating cost is also about 3¢ for each kWh of storage output. After accounting for storage 

energy losses, the total cost to charge and then to discharge is about 6.6 ¢/kWh. So, if the energy 

is worth more than 6.6 ¢/kWh, then the transaction is a good one. 

One other consideration regarding the electric energy time-shift benefit is worth noting. The 

benefit for electric energy time-shift is based, in large part, on the differential between on-peak 

and off-peak energy prices. Even somewhat modest deployment of storage for PEVs or PHEVs 

and/or for utility applications could lead to a non-trivial decrease in that all-important difference 

between on-peak and off-peak energy prices. That would affect the potential benefit for energy 

time-shift. 

5.2.1.2. Estimate 

The storage dispatch algorithm is used to estimate the electric energy time-shift benefit for a 

given year. Figure 17 shows the estimated net electric energy time-shift benefit for storage 

systems. The three plots in that figure are for storage with the following (non-energy) variable 

operating costs (maintenance and replacement cost per kWhout): 1) nothing, 2) 1¢/kWhout, and 

3) 2¢/kWhout. Note that if that non-energy variable operating cost (VOC) exceeds 2¢/kWh, then 

the number of cost-effective transactions in a given year drops precipitously. 

The spread shown for each plot in Figure 17 reflects the net benefit for storage efficiencies 

ranging from 70% to 90% and for storage whose discharge duration ranges from one to eight 
76

hours. As the hours of storage discharge duration increase, initially the incremental benefit 

increases too, but the increase eventually levels off. That reflects the diminishing benefit per 

buy-low/sell-high transaction. The benefit decreases because storage with longer discharge 

duration requires charging during more hours per year. It also decreases because the additional 

energy used for charging is probably more expensive and the selling price is probably lower, 

yielding a diminishing benefit per kWh discharged. 

Figure 17. Annual and 10-year present worth time-shift benefit. 

To estimate the lifecycle benefit for storage that provides electric energy time-shift service for 

10 years, multiply the respective annual value by the 7.17 PW factor. The present worth of 

benefits is shown in Figure 17 on the second Y axis. The generic benefit estimate for electric 

energy time-shift ranges from $60/kW-year to $100/kW-year for lifecycle benefits ranging from 

approximately $400/kW to $700/kW. 

5.2.2. Benefit #2 — Electric Supply Capacity 

5.2.2.1. Description 

In areas where electric generation capacity is limited, energy storage could be used to offset the 

need to purchase and install new generation and/or to offset the need to ‘rent’ generation 

capacity in the wholesale electricity marketplace. The resulting cost reduction (or avoided cost) 

is the benefit associated with storage used for the electric supply capacity application. Another 

possibility for ascribing a financial value to this benefit is price-based, where price is set by the 

electricity marketplace or by a designated agency, probably at the wholesale level. If applicable, 

electric supply capacity prices could be used to estimate this benefit. 

5.2.2.2. Estimate 

It is important to note that, in many wholesale electricity markets, generation capacity cost is not 

separated from energy costs. In those regions, the generation capacity cost is embedded in the 

0

20

40

60

80

100

120

140

160

12345678

Hours of Storage

$/kW, $Year1

0

100

200

300

400

500

600

700

800

900

1,000

1,100

$/kW, $PW, 10 Years

70% to 90%, 0.0¢/kWh non-energy VOC

70% to 90%, 2.0¢/kWh non-energy VOC

70% to 90%, 1.0¢/kWh non-energy VOC

90%

70%
77

price per unit of energy purchased. In such cases, there is no explicit capacity cost or charge that 

can be avoided, nor is there a way to sell generation capacity. Nonetheless, there is a capacity 

cost which is borne by electricity end users, irrespective of how the cost is recouped. 

For many regions, the most likely type of new generation plant ‘on the margin’ is a clean, 

efficient natural-gas-fired combustion turbine-based power plant (state-of-the-art combined cycle 

or advanced simple cycle configuration) that operates for 2,000 to 6,000 hours per year. 

The generic installed cost assumed for this guide is $1,000/kW. A typical annual fixed operation 

and maintenance (O&M) cost for such as plant is assumed to be $10/kW-year ($2007).[42] 

Applying the standard value of 0.11 for the utility fixed charge rate yields an annual cost of 

ownership of 

$1,000/kW × 0.11 = $110/kW-year. 

After adding the $10/kW-year fixed O&M cost, the total annual cost for the generation capacity

is $120/kW-year. Applying the PW factor of 7.17, the lifecycle benefit (for a storage plant used 

for 10 years) is 

$120/kW-year × 7.17 = $860/kW. 

Arguably, $120/kW-year represents the maximum value for cases involving combustion-turbinebased generation, on the margin. A more conservative value would probably reflect either the 

cost to contract for or to own older, less efficient, higher maintenance generation – either steambased or simple cycle combustion-based. As a lower bound, it is assumed that low-cost electric 

supply capacity has an equipment cost of $50/kW-year plus $10/kW-year for fixed O&M, 

yielding a total cost of $60/kW-year. 

5.2.3. Benefit #3 — Load Following 

5.2.3.1. Description 

Ideally market based pricing exists for this service. For this guide, however, generic generation 

costs are used as proxies for market-based prices. Generation cost has two possible elements: 

1) marginal cost and 2) capacity cost, described below. 

Generation marginal cost consists mostly of cost for fuel and for variable maintenance. The 

marginal cost can be avoided if generation does not have to operate to provide load-following 

service (because storage is used instead). Generation marginal cost may be reduced if part load 

operation (of generation for load following) is reduced. (Avoiding part load operation is 

important because doing so reduces generation wear, fuel use and air emissions per kWh 

delivered.) 

Generation capacity-related cost involves cost incurred to add generation capacity The need for 

additional generation capacity for load following is quite region-specific and year-specific, 

ranging from no extra load following capacity needed to a need for relatively large increments. 

Similarly, the type of generation preferred for new load following capacity is region-specific. 

That preference depends on, among other factors, the mix of existing generation, load 

characteristics, and regional generation fuel preferences. The type of load following capacity 

added ranges from hydroelectric generation capacity to simple cycle and combined cycle 

generation capacity. 
78

5.2.3.2. Estimate 

At the low end, the unit price for load following service may be based on the marginal cost for 

low-cost hydroelectric generation. So, the assumed low value is $20/MW per service hour. At 

the high end, the unit price for load following service reflects the marginal cost for combined 

cycle generation. Therefore, the assumed high value is $50/MW per hour of service. 

The capacity-related benefit is estimated based on the generation capacity cost assumed for the 

electric supply capacity benefit (See Section 5.2.2). At the low end is a relatively clean, simple 

cycle combustion turbine costing $60/kW year to own or rent. At the high end of the spectrum is 

a new, combined cycle plant whose annual cost of $120/kW-year. 

Values in Table 13 show annual and 10-year lifecycle cost calculations for generation-based load 

following. The table includes service-related costs and capacity-related costs. Service costs 

reflect a low price of $20/MW per hour, a midrange price of $35/MW per hour of service, and a 

high price of $50/MW per hour. Annual capacity costs include a low value of $60/kW-year and a 

high value of $120/kW-year. Three scenarios shown include 500, 1,000, and 2,000 hours per 

year of load following service. 

Table 13. Load Following Benefit Calculations 

Annual

($/kW-yr)

Ten 

Year

($/kW)

Annual

($/kW-yr)

Ten 

Year

($/kW)

Annual

($/kW-yr)

Ten 

Year

($/kW)

$20.0/MW per hour 10.0 71.7 20.0 143.4 40.0 286.8

$35.0/MW per hour 17.5 125.5 35.0 251.0 70.0 501.9

$50.0/MW per hour 25.0 179.3 50.0 358.5 100.0 717.0

Annual

($/kW-yr)

Ten 

Year

($/kW)

$60/kW-year 60 430.2

$120/kW-year 120 860.4

500 Hrs./Year 2,000 Hrs./Year

Service

Capacity

1,000 Hrs./Year

Assuming 2,000 service hours per year and an average unit price of $30/MW per hour of service, 

the marginal cost is about $430/kW. Assuming that at least some capacity cost will also be 

incurred over 10 years, a generic load following benefit value of $800/kW is used in this guide. 

5.2.4. Benefit #4 — Area Regulation 

5.2.4.1. Description 

At minimum, and until regulation requirements change, the internalizable benefit from storage 

used for area regulation will be the same amount (per kW per hour of service) as conventional 

generation-based regulation, with the value reflecting the prevailing price paid for the service. 

That price is denominated in $/MW per hour of service. Nonetheless, as described in Section 

3.3.2 and in Appendix E, two important features may make storage the superior area regulation 

resource. 
79

First, most types of storage can respond somewhat-to-very rapidly (i.e., the rate of discharging 

and charging can change rapidly). Flywheels, capacitors, SMES, and many types of batteries 

have such a fast response. Even generation-like pumped hydroelectric storage and CAES can 

respond more quickly than many generation-based regulation resources. Because of this 

characteristic, regulation from such rapid-response storage may provide up to twice the benefit as 

regulation from generation.[43][44][45] 

Second, unlike generation used for area regulation, efficient 

storage can provide 2 kW of service for each 1 kW of rated 

output. Storage can do that because it can provide regulation 

while discharging and while charging, in a fashion similar to 

storage used for load following. 

Notably, if providing area regulation while charging, energy 

that is lost (as a function of storage efficiency) must be 

purchased at the prevailing price. Consider an example: 

10 MW of 90% efficient storage used for area regulation; 

during a specific hour when storage provides regulation, it 

absorbs 4 MWh to provide down regulation, and it injects 4 

MWh to provide up regulation. In that example, the energy 

losses for the hour are calculated as 

(1 – 0.9) × 4 MWh = 0.40 MWh. 

5.2.4.2. Estimate 

Revenue for providing up and down regulation services 

(regulation) for one year was estimated based on the 

California Independent System Operator’s (CAISO’s) 

published hourly prices for 2006. Those prices (in $/MW 

per hour of service) for up and for down regulation, are presented in Appendix E. 

In 2006, in California the combined price (for up and down regulation) averaged about 

$36.70/MW per service hour (based on an annual average of $21.48/MW per service hour for up 

regulation and $15.33/MW per service hour for down regulation). After escalating the value for 

two years (at 2.5%), the price assumed is an hourly average of $38.55/MW per service hour. 

Further, two storage operating scenarios for area regulation are evaluated: 1) operation 50% of 

the year and 2) operation 80% of the year. The single-year and 10-year lifecycle benefits for 

those prices and operating scenarios are shown in Table 14. The standard value for the area 

regulation benefit is $785/kW to $2,010/kW, for an average of $1,397/kW. 

As noted above, it is possible that storage with rapid response may provide area regulation 

service whose benefit is twice that of the slower, generation-based regulation. If so, the benefit 

would be roughly double the values in Table 14. 

The price for area regulation – 

denominated in $/MW per hour of 

service – is not the same as the 

price for energy which is 

denominated in $/MWh. Rather, 

the price for area regulation 

reflects payment for one hour of 

service for each MW, without 

regard to the amount of energy 

involved. 

Although unlikely, area regulation 

resources could be made 

available during a given hour to 

provide regulation service without 

actually being used to provide the 

service. In that case, area 

regulation providers would 

receive a payment for one hour of 

service, with no energy-related 

implications. 
80

Table 14. Area Regulation Annual and Lifecycle Benefit Summary 

Low High

Capacity Factor 0.50 0.80

Annual Service Hours 4,380 7,008

Regulation Price*

($/MW per service hour) 25.0 40.0 25.0 40.0

Annual Benefit ($/kW) 110 175 175 280

Lifecycle Value** ($/kW) 785 1,256 1,256 2,010

 * For up regulation plus down regulation.

** For ten years, assuming PW factor = 7.17

5.2.5. Benefit #5 — Electric Supply Reserve Capacity 

5.2.5.1. Description 

Storage serving as electric supply reserve capacity (reserves) reduces the need and cost for those 

reserves that are normally supplied by generation. In many cases, the price for reserves is 

market-based – typically prices are a result of ‘day-ahead’ and ‘hour-ahead’ bidding. 

The electric supply reserve capacity benefit is somewhat small – because generation-based 

reserves are inexpensive; nonetheless, it could be an important element of an attractive value 

proposition because providing reserves has low incremental cost. While charging, storage can 

provide two times its capacity as reserves (it can simultaneously cease charging and begin 

discharging). When charged storage can, in most cases, provide reserves merely by being ready 

to discharge (reserves are only used infrequently). 

5.2.5.2. Estimate 

The electric supply reserve capacity benefit estimate is based on the price paid for reserves and 

the number of hours per year during which storage provides reserves. Benefits are estimated 

assuming a low price of $3/MW per service hour and a high of $6/MW per service hour. Storage 

is assumed to provide 2,628 service hours per year at the low end and 5,256 service hours per 

year at the high end. The resulting annual benefit for those two scenarios is shown in Table 15. 
81

Table 15. Electric Supply Reserve Capacity Annual Benefit 

Low High

Capacity Factor 0.30 0.60

Annual Service Hours 2,628 5,256

Charge

($/MW per service hour) 3.0 6.0

Annual Value ($/kW-year) 7.9 31.5

Lifecycle Value* ($/kW) 57 226

*10 years, PW factor = 7.17

5.2.6. Benefit #6 — Voltage Support 

5.2.6.1. Description 

Voltage support provided by storage offsets the need to use large/central generation to provide 

reactive power to the grid when region-wide voltage emergencies occur. Competing alternatives 

(to storage) may include a) do nothing and endure the cost of additional outages or the risk 

associated with possible outages; b) buy insurance to cover possible liabilities; c) perform load 

management (primarily via curtailable/interruptible loads and possibly direct load control); 

d) incur a forced outage; and e) add central generation capacity to provide voltage support. 

5.2.6.2. Estimate 

Establishing a generic benefit estimate for the voltage support application requires use of 

generalizations and simplifying assumptions. In general, benefit estimates should account for the 

limited likelihood of such an outage that may occur in any given area and the degree to which 

storage contributes to avoiding such an event. Furthermore, unless the utility is financially 

responsible for outage-related costs, it has no significant direct incentive to pay for or even to 

coordinate distributed resources for voltage support. 

The approach used to estimate the voltage support benefit is similar to that used to estimate the 

benefit of storage for electric service reliability. The general concept involves segmenting the 

utility customer base into three groups: 1) those ascribing little or no value to avoiding outages, 

2) end users for whom outages are somewhat costly, and 3) end users for whom avoiding outages 

has a high value. That yields a composite value for avoiding an outage of 1 kW for one hour. 

The next step is to establish an assumption about how long outages may last. Finally, an 

assumption is needed about how many outages will be avoided over the 10-year life of the 

storage. These two criteria are not easy to generalize. 

For the benefit estimate in this report, it is assumed that at the low end the distributed voltage 

support resources (including storage) would prevent one outage lasting one hour over 10 years. 

At the high end, distributed voltage support resources (including storage) are assumed to prevent 

one outage lasting two hours during its 10-year life. 
82

The unit value assumed for this estimate is $20 per hour of unserved load. For an outage lasting 

one hour, that’s $20/kW lifecycle (without regard to time value of money) for each kW of system 

peak load. For an outage lasting two hours, that’s two hours at $20/kW or $40/kW, lifecycle 

(without regard to the time value of money). 

The standard assumption value for market potential is based on the premise that combined 

voltage support resources are distributed, are located where they can provide good support, and 

have an aggregate rating equal to 5% of peak load. Thus, by using distributed storage whose 

power is rated at 5% of peak load to avoid a 1-hour outage, the benefit is 

$20/kWload ÷ 0.05 = $400/kW of distributed storage. 

Avoiding a single 2-hour outage over 10 years is worth 

$40/kWload ÷ 0.05 = $800/kW of distributed storage. 

5.2.7. Benefit #7 — Transmission Support 

5.2.7.1. Description 

To the extent that storage increases the load carrying capacity of the transmission system, a nontrivial benefit may accrue if transmission outages are avoided. Such a benefit may also accrue if 

additional load carrying capacity defers the need to add more transmission capacity and/or 

additional T&D equipment, and/or if it is rented to participants in the wholesale electric 

marketplace (to transmit energy) for revenue. 

5.2.7.2. Estimate 

When evaluating the merits of using storage for transmission support, the upper bound of the 

benefit value is the cost for the standard utility solution. For example, if capacitors are the 

proposed standard solution, then energy storage would offset the need (and cost) for those 

capacitors. The avoided cost (of the capacitors) is the resulting storage benefit for the 

transmission support application.[46] 

The financial benefit values listed in Table 16 are estimated based on related research by EPRI. 

That research addressed SMES used for T&D support needs in Southern California during hot 

summer conditions when the need is greatest and when the benefits are highest. The estimates 

are based on conservative assumptions.[47][48] Based on those values, the standard lifecycle 

benefit value assumed for transmission support is $192/kW.[49][50][51] 
83

Table 16. Transmission Support Annual Financial Benefit 

Benefit Type

Annual Benefit

($/kW-year)

Lifecycle Benefit

($PV/kW)#

Transmission Enhancement 15.1 108

Voltage Control ($ capital*) n/a 29

Subsynchronous Resonance (SSR) 

Damping ($ capital*) n/a 16

Underfrequency load-shedding

(per occurrence) 12.8 38**

Total 192

#Based on a PV Factor of 7.17 and a ten year life.

Notes: 

1. All value are for Southern California, assuming hot summer 

 conditions, circumstances for which benefits are highest. 

2. Based on values established in 2003 and escalated at 

 2.5% for six years.

*The benefit is the cost of the most likely alternative (e.g., capacitors), that 

would have been incurred if storage was not deployed.

**$12.8/kW, per occurrence. Assume three occurrences over the (ten 

year) life of the unit. This value has not been adjusted to account for time 

value of money.

5.2.8. Benefit #8 — Transmission Congestion Relief 

5.2.8.1. Description 

Alternatives that may compete with storage for transmission congestion relief include 

a) dumping energy upstream from congestion, b) providing load management and energy 

efficiency downstream from congestion, c) paying congestion charges, and d) adding 

transmission capacity. Note that for this application, if the generation (upstream from 

congestion) is already installed, then the do nothing option is the same as the dump energy 

option. 

Given the possible shortfall of transmission capacity within and into many regions, congestion 

charges are possible if not likely. Currently, however, these charges cannot be generalized well – 

primarily because the marketplace within which transmission congestion charges will apply is in 

the formative stages and because congestion charges will be location-specific. 

Much, if not most, of the new congestion will probably occur as more renewables (deployed in 

response to Renewables Portfolio Standard [RPS] targets) compete for the existing transmission 

capacity. Furthermore, it is assumed that the do nothing and the dump energy options are not 

likely. So, for this application, the benefit is based on transmission congestion charges at the low 

end and the cost of a transmission upgrade at the high end. 
84

5.2.8.2. Estimate 

Transmission congestion charges are becoming more common. In the parts of California’s 

transmission system where it occurs, congestion is present for 10% to 17% of all hours during 

the year. Congestion charges in those areas range from about $5/MW per service hour to about 

$15/MW per service hour.[52] As shown in Table 17, that yields an annual benefit whose 

average value is on the order of $12/kW-year and a lifecycle benefit averaging about $86/kW. 

Although that is a small amount compared to the cost for storage, it could be an element of a 

value proposition that includes several benefits. 

Table 17. Congestion Charges in California, $2007 

Low High

Portion of Year 10% 15%

Hours Per Year 876 1,314

Transmission Access Charge 

($/MW per hour of service) 5 15

Annual Cost ($/kW-year) 4.38 19.71

Lifecycle Value* ($/kW) 31 141

*10 years, PW factor = 7.17

Source: derived based on data from CAISO. 

More compelling are transmission corridors requiring an upgrade due to congestion. In those 

cases, the benefit is the cost that can be avoided by deferring or avoiding the upgrade. The cost 

of a transmission upgrade varies significantly depending on distance, permitting and siting 

challenges, and the equipment’s rating. 

5.2.9. Benefit #9 — Transmission and Distribution Upgrade Deferral 

5.2.9.1. Description 

The single-year T&D upgrade deferral benefit (deferral benefit) is the financial value associated 

with deferring a utility T&D upgrade for one year. That value reflects the utility’s financial 

carrying charge for the new equipment involved in the upgrade. Carrying charges include the 

costs for financing, taxes, and insurance incurred for one year of ownership of the equipment 

used for the upgrade. For a utility, that amount is also known as the ‘revenue requirement.’ 

The carrying charge (revenue requirement) for one year is estimated by multiplying the utility 

fixed charge rate times the total installed cost for the upgrade. Consider, for example, a 

distribution upgrade costing $1 million to purchase and install. If the utility fixed charge rate is 

0.11, then the annual revenue requirement – and thus the single year deferral benefit – is 

$1 million × 0.11 = $110,000. 

Note that, for this guide, T&D operating cost avoided, if any, is assumed to be negligible. Also 

note that, by definition, reducing the utility revenue requirement reduces the utility’s total costof-service paid by all customers as a group. 
85

Storage power indicates the amount of storage needed for one year of deferral. It is expressed as 

a percentage of the existing T&D equipment nameplate rating (the equipment to be upgraded). 

An example: If T&D equipment to be upgraded is rated at 12 MVA, then 3% storage power is 

3% × 12 MVA = 0.36 MVA or 360 kVA. 

The assumed 3% storage power is intended to be representative. In practice, that value can fall 

within a range of as little as 1% to as much as 10%, depending on the actual peak load in the 

previous year plus load shape; expected load growth; load growth uncertainty; storage module 

sizes available; engineering philosophy and preferences, especially regarding storage oversizing 

to account for uncertainty; and possibly other criteria. 

For more details about storage sizing for T&D upgrade deferral, readers are encouraged to refer 

to a report published by Sandia National Laboratories entitled Estimating Electricity Storage 

Power Rating and Discharge Duration for Utility Transmission and Distribution Deferral, a 

Study for the DOE Energy Storage Program.[53] Also, refer to the discussion addressing use of 

modular storage for reducing T&D investment risk in Section 5.3. 

5.2.9.2. Estimate 

The starting point for estimating the T&D upgrade deferral benefit is to establish the cost of the 

T&D upgrade to be deferred. The data used as the basis for establishing that cost is expressed in 

dollars per kW added – the T&D marginal cost. In California, for 50% of all locations requiring 

an upgrade in any given year, the marginal cost is $420/kW or more (i.e., $420/kW added). For 

the most expensive locations requiring upgrades (90th percentile and above), the upgrade cost 

exceeds about $662 per kW of capacity added.[54][55] 

As an aside, a familiar criterion for T&D planners is $/kVA installed. To estimate that value 

based on the marginal cost, an upgrade factor is used. The upgrade factor is the ratio of the 

capacity added to the existing capacity. Consider an example: If 4 MVA of capacity is added to a 

12 MVA system, the upgrade factor is 0.34. Typical values for upgrade factor range from 0.25 to 

0.50. An upgrade factor of 0.33 is assumed for this guide. 

The T&D cost estimates used to estimate the T&D upgrade deferral benefit are summarized in 

the two tables below. Values in Table 18 indicate the single-year deferral benefit for locations 

whose cost is among the highest 50% of all costs for all upgrades needed. The value used, 

$684/kVA of storage for one year, reflects the 0.33 T&D upgrade factor, 0.11 fixed charge rate, 

and 3% storage power as described above. 
86

Table 18. T&D Upgrade Cost and Benefit Summary, 50th Percentile 

Upgrade 

Scenario 

Final 

Rating

(MVA)

Capacity

Added

(MVA)

Upgrade 

Factor $/kVA** $

Upgrade 

Annual 

Cost***

($)

Storage

1 Year 

Benefit#

($/kVA-year)

15 3 0.25 105.0 1,575,000 173,250 481

16 4 0.33 140.0 2,240,000 246,400 684

18 6 0.50 210.0 3,780,000 415,800 1,155

*If marginal cost per kVA of T&D capacity $/kVA added is $420/kVA.

**Per kVA installed .

*** $Upgrade Installed Cost * 0.110 Fixed Charge Rate

# $Upgrade Annual Cost ÷ 360 kVA. (Based on 3.0% storage power)

Upgrade

Installed 

Cost* 

The annual upgrade deferral value is $1,079/kVA of storage for one year for upgrades whose 

cost is among the highest 10% of upgrades needed, based on values shown in Table 19. 

Table 19. T&D Upgrade Cost and Benefit Summary, 90th Percentile 

Upgrade 

Scenario 

Final 

Rating

(MVA)

Capacity

Added

(MVA)

Upgrade 

Factor $/kVA** $

Upgrade 

Annual 

Cost***

($)

Storage

1 Year 

Benefit#

($/kVA-year)

15 3 0.25 165.5 2,482,500 273,075 759

16 4 0.33 220.7 3,530,667 388,373 1,079

18 6 0.50 331.0 5,958,000 655,380 1,821

*If marginal cost per kVA of T&D capacity $/kVA added is $662/kVA.

**Per kVA installed .

*** $Upgrade Installed Cost * 0.110 Fixed Charge Rate

# $Upgrade Annual Cost ÷ 360 kVA. (Based on 3.0% storage power)

Upgrade

Installed 

Cost* 

Consider this important note: The assessment described above must occur each year for a given 

deferral because, normally, the amount of load served by a given T&D node grows. So, in each 

year after a deferral, power engineers must reassess the merits of using storage for another year 

of deferral. Usually, load grows such that for each subsequent year the amount of storage needed 

to keep pace with load growth, and thus the amount needed to defer an upgrade for the next year, 

nearly doubles. In some cases, the discharge duration requirements increase too. 

5.2.10. Benefit #10 — Substation On-site Power 

5.2.10.1. Description 

Battery storage systems (mostly lead-acid batteries) provide power at electric utility substations 

for switching components and for substation communication and control equipment when the 

grid is not energized.[56] 
87

5.2.10.2. Estimate 

Establishing a benefit value for substation on-site power is challenging. Certainly, battery 

systems provide critical service because the grid would be much more vulnerable to outages, and 

perhaps even equipment damage without an on-site, non-grid power source for times when the 

grid is not operational. The benefit for this application is estimated based on the price for high 

quality UPS systems (like those shown in Table 24 of Section 5.2.13.4). 

The cost of such a state-of-the-art lead-acid battery-based system, with eight hours of discharge 

duration, is based on a price of $225/kW for power and $200/kWh of discharge.[57] Therefore, 

the presumed system (equipment) price is 

$225/kW + (8 hours × $200/kWh) 

= $225/kW + $1,600/kW 

= $1,825/kW. 

Similarly, the presumed price for a system with 16 hours of discharge duration is 

$225/kW + (16 hours × $200/kWh) 

= $225/kW + $3,200/kW 

= $3,425/kW. 

Given the limited discharge of these systems, variable operating costs are ignored. 

5.2.11. Benefit #11 — Time-of-use Energy Cost Management 

5.2.11.1. Description 

To reduce electricity end users’ time-of-use (TOU) energy cost, storage is charged with lowpriced energy so that the stored energy can be used later when energy prices are high. The 

resulting overall electric energy cost reduction is the benefit associated with use of storage for 

TOU energy cost management. 

TOU energy prices are specified by the applicable rate structure (tariff). Typically, those prices 

vary by time of day, day of the week, and season of the year. There may be two or more price 

points for specific days. The standard assumption value for this benefit is calculated based on 

PG&E’s A-6 Small General TOU Service tariff. Commercial and industrial (C&I) electricity end 

users whose power requirements are greater than 199 kW and less than or equal to 500 kW are 

eligible for the A-6 tariff. TOU electricity prices for the A-6 tariff are shown in Table 20. 

The summer billing period extends from May through October, and the winter billing period is 

November through April. Summer on-peak hours are 12:00 p.m. to 6:00 p.m. (Monday-Friday, 

except holidays); partial-peak hours are 8:30 a.m. to 12:00 p.m. and 6:00 p.m. to 9:30 p.m. 

(Monday-Friday, except holidays); and off-peak hours are 9:30 p.m. to 8:30 a.m. (MondayFriday; all day Saturday, Sunday, and holidays). There is no winter on-peak period. Partial peak 

hours are 8:30 a.m. to 9:30 p.m. (Monday-Friday, except holidays); and off-peak hours are 

9:30 p.m. to 8:30 a.m. (Monday-Friday; all day Saturday, Sunday, and holidays). PG&E tariffs 

are available at http://www.pge.com/tariffs. 
88

Table 20. PG&E A-6 Time-of-use Energy Price Tariff 

Period Total Generation % Distribution %

 Peak Summer $0.37 $0.21 57.0% $0.13 34.9%

 Part-Peak Summer $0.17 $0.09 53.0% $0.05 29.8%

 Off-Peak Summer $0.11 $0.06 49.9% $0.03 23.3%

 Part-Peak Winter $0.13 $0.06 46.0% $0.04 31.8%

 Off-Peak Winter $0.11 $0.05 47.4% $0.03 25.7%

Transmisison: $0.00913 for all hours.

5.2.11.2. Estimate 

The A-6 tariff’s on-peak energy price applies to 720 hours per year. Storage with a 6-hour 

discharge duration would allow the end user to avoid annual on-peak energy charges of 

37¢/kWh × 720 hours/year 

= $0.37/kWh × 720 hours/year 

= $266/kW-year. 

To charge an 80% efficient energy storage system, it is necessary to use 1.25 kWh of energy in 

to get one kWh out. Consider a 1-MW storage plant: To discharge for 720 hours (720MWh), the 

storage would have to be charged with 

720 × 1.25 = 900MWh. 

So, the charging energy cost using low-priced, off-peak energy priced at 11¢/kWh is 

$0.11/kWh × 900 hours/year = $99/kW-year. 

The cost reduction realized is 

$266/kW-year – $99/kW-year = $167/kW-year. 

To express that annual (cost reduction) benefit in units of $/kW lifecycle, the annual cost is 

multiplied by the PW factor of 7.17 

$167/kW-year × 7.17 = $1,198/kW. 

The storage plant could have a discharge duration that is less than the duration of the 6- hour, onpeak price period specified in the tariff. If, for example, two hours of backup are needed from a 

storage system with four hours of discharge, then the remaining two hours of discharge could be 

used for reducing energy cost. The lifecycle benefit is 

(2 hours ÷ 6 hours) × $1,198/kW-year 

= 0.33 × $1,198/kW-year 

= $395/kW. 

Note that the benefit estimate illustrated above does not account for variable maintenance costs 

incurred as the storage plant is used (e.g., overhauls and subsystem replacement, as applicable). 
89

5.2.12. Benefit #12 — Demand Charge Management 

5.2.12.1. Description 

Demand charge management involves storage used to reduce an electricity end user’s power

draw on the electric grid during times when electricity use is high (i.e., during peak electric 

demand periods). To reduce or avoid demand charges, storage is charged when low or no 

demand charges apply, presumably using low-priced energy. The storage is later discharged 

when demand charges apply. The benefit value is the overall reduction in cost due to reduced or 

avoided demand charges. 

To one extent or another, demand charges reflect the cost for utility equipment needed to 

generate, transmit, and distribute electric energy. So, demand charges are denominated in $/kW 

of power draw because that criterion defines the capacity that the electricity infrastructure must 

have to deliver service to the customer. In most cases, the demand charge is assessed each month 

based on the maximum power draw within the respective month. It is important to note that 

tariffs with demand charges also have separate prices for energy, denominated in ¢/kWh. 

Demand charges and, in most cases, energy prices are specified by the end user’s electricity rate 

structure (tariff). Typically, demand charges vary by day of the week and by season. Demand 

charges may also vary by time of day. 

Demand charges are assessed each month based on the maximum load that occurs during times 

when peak demand charges apply, normally 1) peak, 2) partial-peak, and 3) off-peak. Some 

tariffs with demand charges also include what could be called an ‘anytime’ demand charge. 

Known generically as a ‘facility’ demand charge, these charges are levied based on the peak 

demand no matter when it occurs (time or season). That is important for storage because most 

storage charging occurs at night when demand from utility customers’ non-storage loads tends to 

be low. In those circumstances, charging storage at night will increase the anytime or facility 

demand charges incurred. Note that off-peak demand charges have a similar effect though the 

charges are based on maximum off-peak demand during the respective month. 

The standard assumption value for this benefit is calculated based on PG&E’s E-19 Medium 

General Demand-Metered TOU Service tariff. That tariff applies to commercial and industrial 

(C&I) end users with peak demand that exceeds 500 kW. PG&E tariffs are available at 

http://www.pge.com/tariffs. 

The E-19 tariff has three monthly demand charges during six ‘summer’ months (May through 

October). Summer on-peak hours are 12:00 p.m. to 6:00 p.m. (Monday-Friday, except holidays); 

partial-peak hours are 8:30 a.m. to 12:00 p.m. and 6:00 p.m. to 9:30 p.m. (Monday-Friday, 

except holidays); and off-peak hours are 9:30 p.m. to 8:30 a.m. (Monday-Friday; all day 

Saturday, Sunday, and holidays). (Notably, the off-peak demand charges will apply during 

charging.) 

During the six ‘winter’ months (November through April), there are only two monthly demand 

periods: partial-peak and off-peak. Partial peak hours are 8:30 a.m. to 9:30 p.m. (Monday-Friday, 

except holidays); and off-peak hours are 9:30 p.m. to 8:30 a.m. (Monday-Friday; all day 

Saturday, Sunday, and holidays). (As with storage use during summer months, the off-peak 

demand charges will apply during charging.) 
90

Importantly, like most other tariffs with demand charges, the E-19 energy price (¢/kWh) paid by 

utility customers also depends on those time periods. 

5.2.12.2. Estimate 

The assumed electricity bill for a typical commercial end user using the E-19 tariff is shown in 

Table 21. The same end user’s electric bill, after considering 80% efficient storage with 6 hours 

of discharge duration to eliminate peak load, is shown in Table 22. The changes due to use of 

storage are summarized in Table 23. 

Table 21. Electricity Bill, E-19 Tariff, without Storage 

Summer

Hours

Per

Year*

Demand

Charge

($/kW-month)

Peak 

Load

Factor

Demand 

Charges 

($/kW-year)

Average 

Load 

Factor

Energy 

Use 

(kWh/year)

Energy 

Price

($/kWh)

Energy

Charges 

($/kW-year)

Total

Charges 

($/kW-year)

Peak 765 11.59 0.90 62.59 0.80 612 13.458 82.36 144.95

Partial-peak 893 2.65 0.80 12.72 0.60 536 9.257 49.57 62.29

Off-peak 2,723 6.89 0.60 24.80 0.55 1,497 7.541 112.92 137.72

Winter

Partial-Peak 1,658 1.00 0.80 4.80 0.70 1,160 8.256 95.79 100.59

Off-Peak 2,723 6.89 0.55 22.74 0.50 1,361 7.286 99.18 121.92

*Approximate values. Total 127.65 0.590 5,166 8.513 439.82 567.47

**Average peak load during all months of the season.

Table 22. Electricity Bill, E-19 Tariff, with Storage 

Summer

Hours

Per

Year*

Demand

Charge

($/kW-month)

Peak 

Load

Factor**

Demand 

Charges 

($/kW-year)

Average 

Load 

Factor

Energy 

Use 

(kWh/year)

Energy 

Price

(¢/kWh)

Energy

Charges 

($/kW-year)

Total

Charges 

($/kW-year)

Peak 765 11.59 13.458

Partial-peak 893 2.65 0.80 12.72 0.60 536 9.257 49.57 62.29

Off-peak 2,723 6.89 0.80 33.07 0.82 2,232 7.541 168.35 201.42

Winter

Partial-Peak 1,658 1.00 0.80 4.80 0.70 1,160 8.256 95.79 100.59

Off-Peak 2,723 6.89 0.55 22.74 0.50 1,361 7.286 99.18 121.92

*Approximate values. Total 73.33 0.604 5,289 7.806 412.89 486.22

**Average peak load during all months of the season.

1. Storage Efficiency: 80.0%.
91

Table 23. Electricity Bill Comparison, E-19 Tariff, with and without Storage 

Demand 

Charges 

($/kW-year)

Average 

Load 

Factor

Energy 

Use 

(kWh/year)

Energy 

Price

(¢/kWh)

Energy

Charges 

($/kW-year)

Total

Charges 

($/kW-year)

With Storage ($) 73.3 0.60 5,289 7.81 412.9 486.2

w/o Storage ($) 127.6 0.590 5,166 8.51 439.8 567.5

Change, w/Storage ($) -54.3 +0.014 +123* -0.71 -26.9 -81.2

(%) -42.6% 2.4% 2.4% -8.3% -6.1% -14.3%

*Increase due to storage losses.

As shown in Table 23, demand charges are reduced by nearly 43% ($54.30), energy charges are 

reduced by a more modest 6.1% ($26.90), and the total annual bill is reduced by $81.20 for a 

total reduction of 14.3%. 

5.2.13. Benefit #13 — Electric Service Reliability 

5.2.13.1. Description 

In simplest terms, the benefits associated with improved electric service reliability accrue if 

storage reduces financial losses associated with power outages. This benefit is highly end userspecific, and it applies to C&I customers, primarily those for whom power outages cause 

moderate to significant losses. If the utility has followed standard practices, it is usually the end 

user that is responsible for covering financial damages. In some cases, utilities are required to 

reimburse end users for financial losses due to outages. 

5.2.13.2. Estimating End-user Reliability Benefit – Value-of-service 

Approach 

For the value-of-service (VOS) approach, the benefit associated with increased electric service 

reliability is estimated using two criteria: 1) annual outage hours (i.e., the number of hours per 

year during which outages occur) and 2) the value of ‘unserved energy’ or VOS. VOS is 

measured in $/kWh. The standard assumption value for annual outage hours is 2.5 hours per 

year. A VOS of $20/kWh is recommended as a placeholder.[58] To calculate the annual 

reliability benefit, the standard assumption value for annual outage hours is multiplied by the 

VOS: 

$20/kWh × 2.5 hours per year = $50/kW-year. 

To calculate lifecycle benefits over 10 years, the annual reliability benefit of $50/kW-year is 

multiplied by the PW factor (7.17): 

$50/kW-year × 7.17 = $359/kW. 

5.2.13.3. Estimating End-user Reliability Benefit – Per Event Approach 

Reliability benefits may be estimated by ascribing a monetary cost to losses associated with 

power system events lasting one minute or more and that cause electric loads to go offline.[59] 

Reliability events considered are those whose effects can be avoided if storage is used. 

Based on a survey of existing research and known data related to electric service reliability, a 

generic value of $10 per event for each kW of end user peak load is used.[60][61][62] The 
92

generic assumption for the annual number of events is 5.[63] The result is that storage used in 

such a way that the end user can avoid 5 electric reliability events, each worth $10 for each kW 

of end user peak load, yields an annual value of $50/kW-year.[64] Finally, multiplying by the 

PW factor of 7.17 yields a lifecycle benefit of $359/kW. 

For additional information about financial considerations related to utility service reliability, 

please refer to a report produced by Lawrence Berkeley National Laboratory, Evaluating the 

Cost of Power Interruptions and Power Quality to U.S. Electricity Consumers.[65] 

5.2.13.4. Estimating End-user Reliability Benefit – UPS Price Approach 

One other possibly helpful proxy to use when estimating this benefit is the price paid for UPSs. 

Prices for a selection of commercially available UPSs are shown in Table 24. 
93

Table 24. Commercially Available UPS Ratings and Prices 

Specifications Price

Item

True

Power

(Watts)

Apparent 

Power

(Volt-Amps)

Power 

Factor

Discharge 

Duration* 

(Minutes)

Retail 

Price** $/kW $/kW-hour

APC Back-UPS ES 8 

Outlet 200 350 0.57 2.3 44 220 5,739

Tripp Lite 

SMART550USB 300 550 0.55 5.3 225 748 8,472

Tripp Lite 

SMART1200XLHG 750 1,000 0.75 6.0 562 749 7,493

APC Back-UPS RS 

1500VA 865 1,500 0.58 5.3 250 289 3,272

MGE Pulsar EX RT 

3200VA 2,080 3,200 0.65 6.0 1,164 560 5,596

Tripp Lite SmartOnLine 

SU7500RT3U 6,000 7,500 0.80 9.0 3,493 582 3,881

Tripp Lite SmartOnLine 

SU10KRT3UHV 8,000 10,000 0.80 4.0 4,017 502 7,531

MGE Galaxy 30kVA 24,000 30,000 0.80 11.0 17,010 709 3,866

APC - Smart-UPS VT 

30KVA 5 Batteries 24,000 30,000 0.80 13.7 19,410 809 3,542

Average Power Factor 0.699 Average 574.2 5,487.9

Note: Assuming 5 year life, a rough approximation of annual cost ($/kW-year) is total cost ÷ 5.

*At full rated output.

**Based on an informal survey of retail prices.

Additional Notes: 

1. Content in Table 24 does not constitute an endorsement or recommendation of the listed 

products or brands. 

2. Power ratings are in units of volt-Amps (VA). 

3. Typically 1.2 to 1.3 volt-Amps are required for each Watt of load. 

As shown in Table 25, a rough estimate of the 10-year lifecycle benefit is $978/kW. This 

estimate assumes a 5-year UPS life and one replacement of the UPS over 10 years. It is based on 

a 2.5%/year price escalation and 10% discount rate. 

Table 25. UPS Lifecycle Cost 

Year 1 2 3 4 5 6 7 8 9 10 Total

Escalator 1.00 1.03 1.05 1.08 1.10 1.13 1.16 1.19 1.22 1.25

Cost ($Year 1) 574.2 0 0 0 0 574.2 0 0 0 0 1,148

Escalated Cost ($Current) 574.2 0 0 0 0 649.7 0 0 0 0

Discount Factor 1.00 0.91 0.83 0.75 0.68 0.62 0.56 0.51 0.47 0.42

Present Value ($) 574.2 0 0 0 0 403.4 0 0 0 0 978
94

5.2.14. Benefit #14 — Electric Service Power Quality 

5.2.14.1. Description 

The electric service power quality benefit is highly end-user-specific and, as such, is difficult to 

generalize. It applies primarily to those C&I customers for whom power outages may cause 

moderate to significant losses. 

Though power quality-related technical details are not covered in depth here, they are 

summarized in Section 3.5.4. Specific types of poor power quality are well characterized in 

many other reports and documents.[66] 

In the most general terms, power-quality-related financial benefits accrue if energy storage 

reduces financial losses associated with power quality anomalies. Power quality anomalies of 

interest are those that cause loads to go offline and/or that damage electricity-using equipment 

and whose negative effects can be avoided if storage is used. 

As an upper bound, the power quality benefit cannot exceed the cost to add the conventional 

solution. An example: If the annual power quality benefit (avoided financial loss) associated with 

an energy storage system is $100/kW-year, and basic power conditioning equipment costing 

$30/kW-year would solve the same problem if installed, then the maximum benefit that could be 

ascribed to the energy storage plant for improved power quality is $30/kW-year. 

5.2.14.2. Estimate 

Power quality-related benefits may be estimated by assigning a monetary value to losses 

associated with power quality events that last less than one minute and cause electric loads to go 

offline.[67] Power quality events considered are those whose effects can be avoided if storage is 

used. 

Based on a survey of existing research and known data related to power quality, a generic value 

of $5 per event for each kW of end user peak load is the standard assumption value used in this 

guide. Based on that same information, the generic assumption for the annual number of events 

is 10.[68][69][70] The result is that storage used in such a way that the C&I electricity end user 

can avoid 10 power quality events per year, each worth $5 per kW of end user peak load, 

provides an annual benefit of $50/kW-year. After multiplying by the PW factor (7.17), the 

lifecycle electric service power quality benefit is $359/kW. Implicit in this approach is the 

assumption that the power quality benefit is the same for each of 10 years. 

For additional coverage of this topic, please refer to a report published by Lawrence Berkeley 

National Laboratory entitled Evaluating the Cost of Power Interruptions and Power Quality to 

U.S. Electricity Consumers.[71] 
95

5.2.15. Benefit #15 — Renewables Energy Time-shift 

5.2.15.1. Description 

For the renewables energy time-shift application, storage is 

charged with low-value electric energy generated using 

renewable energy. That energy is stored so that it may be 

used or sold at a later time when it is more valuable. 

Two cases considered in this guide are time-shift of energy 

from wind generation and generic baseload renewable 

energy generation. (See Section 3.6.1 for details.) 

5.2.15.2. End -user Time-of-use Energy Cost 

Reduction using Distributed 

Renewable Energy Generation 

The renewables energy time-shift benefit is related to 

wholesale or ‘spot market’ electric energy for electricity 

supply. That is, the energy time-shift benefit described 

above is related to the avoided cost of purchasing electric 

energy from the wholesale or spot market. 

An analogous opportunity exists for electricity end users to 

derive a renewables energy time-shift benefit. Specifically, 

if an end user’s electric service tariff includes TOU energy 

prices, then the end user could use storage to time-shift 

energy to reduce cost for electric energy. (See Section 3.5.1 

and Section 5.2.11 for more details.) 

5.2.15.3. Incremental Benefit and Cost for 

Adding Storage for Renewables 

Energy Time-shift 

Readers should note that the renewables energy time-shift 

benefit estimated in this guide accrues because it is added to 

renewable energy generation. That means that the benefit is 

incremental. Consequently, when evaluating the financial merits of adding storage to renewable 

energy generation, the incremental benefit is compared to incremental cost (to add storage); 

which means that the entire evaluation addresses the incremental benefit/cost relationship for 

storage. 

5.2.15.4. Estimate 

Although each region is different, forecast energy prices for California are used to estimate the 

renewables energy time-shift benefit. A summary of those prices are shown in Table 26. (See 

Appendix F for details about the electricity prices used.) 

To one extent or another, the fuelrelated cost for renewable energy 

is more predictable than fuel cost 

for conventional generation. In 

effect, renewable energy provides 

a ‘hedge’ against the possibility 

that fuel prices will be higher than 

expected. 

One simple way to quantify at 

least part of this effect is based on 

evaluations by the Lawrence 

Berkeley National Laboratory 

Electricity Market and Policy 

program. Based on recent work 

by that group, the ‘forward prices’ 

for fuel that reflect the terms of 

actual electricity purchase 

contracts are on the order of 10% 

or more higher than prices that 

are forecast. 

Indeed, a significant portion of 

electric energy from renewables is 

procured using firm prices, 

contracts, or power purchase 

agreements, rather than spot 

market prices. Consequently, the 

benefit estimated for renewables 

energy time-shift based on a 

forecast is likely to understate the 

energy-related benefit.[72] 
96

Table 26. Wholesale Spot Energy Price Differentials, On-peak and Off-peak, 

Weekdays, California Forecast for 2009 (in $/MWh) 

Although not used directly for the estimate in this guide, the range of typical variable costs for 

electric energy from fossil-fueled generation are shown in Figure 18. The figure is provided as 

context for the prices shown in Table 26. Values reflect a) fuel efficiencies ranging from 35% to 

55%, b) fuel prices ranging from $3/MMBtu to $9/MMBtu, and c) a generic value of 1 ¢/kWh 

for non fuel variable operation cost. 

2

3

4

5

6

7

8

9

10

3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0 8.5 9.0

Fuel Price ($/MMBtu)

Generation Variable Cost (¢/kWh) 

Fuel Efficiency 35.0%

Fuel Efficiency 45.0%

Fuel Efficiency 55.0%

Variable Operation Cost: 1.0¢/kWh

Figure 18. Generation variable cost, for various fuel prices and fuel efficiencies. 

Monthly Price "Bins"

Month=>

Hour 1 2 3 4 5 6 7 8 9 10 11 12

12:00 P.M. - 5:00 P.M. 85.1 74.5 77.6 94.6 100.3 118.0 148.2 163.1 142.5 99.1 104.5 105.9

1:00 A.M. - 6:00 A.M. -51.8 -44.4 -46.2 -61.2 -42.7 -35.2 -55.1 -69.7 -77.0 -61.3 -61.5 -72.9

Storage Losses* -10.4 -8.9 -9.2 -12.2 -8.5 -7.0 -11.0 -13.9 -15.4 -12.3 -12.3 -14.6

Net Time-shift Benefit 23.0 21.1 22.1 21.1 49.1 75.7 82.1 79.4 50.1 25.5 30.7 18.4

Seasonal Price "Bins" Annual

May - October November - April Hours Value**

12:00 P.M. - 5:00 P.M. 128.5 90.4 May - October 651.8 39,323

1:00 A.M. - 6:00 A.M. -56.8 -56.4 November - April 651.8 14,830

Storage Losses* -11.4 -11.3 Total 1,304 54,152

Net Time-shift Benefit 60.3 22.8 **Net time-shift benefit * hours/year.

*Storage Efficiency = 80.0%.

Note: Values expressed in units of $/MWh.
97

Importantly, to the extent that 

adding energy storage for energy 

time-shift increases output during 

times when peak demand occurs, 

a capacity credit may also apply. 

Based on the benefit estimate 

used for the electric supply 

capacity application, the 10-year 

capacity credit could range from 

nothing (if generation capacity is 

not needed) up to $864/kW 

($120/kW-year), if the need for a 

natural-gas-fueled combined 

cycle generation plant is avoided. 

Based on those values, the 

benefit for energy time-shift plus 

supply capacity from baseload

renewable energy generation 

ranges from $389/kW over 

10 years (in areas not needing 

additional generation capacity) 

up to $1,288/kW if the time-shift 

defers the need for combined 

cycle power plant capacity. 

Based on the range of variable costs shown in Figure 18, variable cost for generation ranges from 

about 4.8 ¢/kWh for a 45% efficient combined cycle plant assuming fuel price of about 

$5/MMBtu to about 7 ¢/kWh for a 35% efficient simple cycle combustion turbine plant using 

higher priced ‘on peak’ fuel costing $6/MMBtu. The primary driver of those generic variable 

cost values is fuel price, shown on the graph’s X-axis. The variable cost values in Figure 18 also 

reflect a generic, non-fuel-related variable operation and maintenance (O&M) cost of 1¢ /kWh. 

Note that the O&M cost for simple cycle combustion turbine generation is about 2.5 ¢/kWh and 

for combined cycle generation (a common type of new generation) is on the order of 

0.43 ¢/kWh.[73] 

5.2.15.5. Wind Energy Time-shift 

For the wind generation case, the energy time-shift benefit 

is estimated based on the assumed difference between the 

annual average wholesale/spot value for on-peak energy and 

off-peak energy, net of energy storage losses. Instead of 

selling off-peak energy in real-time (when generated), that 

energy is stored and used at a later time when energy prices 

are high. 

The off-peak versus on-peak price differential is estimated 

based on the price differential between weekday energy 

prices occurring during the periods of a) 12:00 p.m. to 

5:00 p.m. and b) 1:00 a.m. to 6:00 a.m., as shown in Table 

26. Also shown in Table 26: Time-shifting for 5 full hours 

per day (5 kWh per day per kW of wind generation), for all 

weekdays during the year, is worth about $54,152/MW-year 

or about $54.2/kW-year. Nevertheless, Figure 8 (in Section 

3.6.1.2) shows that at least some of the wind generation’s 

output occurs during the on-peak period when the energy is 

already most valuable. Consequently, the amount of energy 

from wind generation that is actually time-shifted is less 

than would be needed for 5 full hours of storage discharge 

(i.e., is less than 5 kWh per kW of wind generation). 

Depending on the applicable wind generation production 

profile(s), storage could be used to time-shift 2 to 4 kWh per 

day, per kW of wind generation. Assuming that storage can 

be used to time-shift 3 kWh per kW of wind generation 

during a 5-hour on-peak period, the energy time-shift benefit (based on the above values) is: 

(3 kWh ÷ 5 hrs) × $54.2/kW-year = $32.5/kW-year. 

When multiplied by the PW factor, the benefit over 10 years is 

$32.5/kW-year × 7.17 = $233.2/kW. 

Depending on the local and regional circumstances, there may be an electric supply capacityrelated benefit if the time-shift involves storage discharging as shown in Figure 8. (Also see the 

renewables capacity firming benefit characterization in Section 5.2.16.) 
98

5.2.15.6. Baseload Renewables Energy Time-shift 

The energy time-shift benefit for baseload renewable energy generation is based on the value 

achieved by storing low-value energy during off-peak periods and discharging the storage onpeak. As shown in Figure 9 (Section 3.6.1.3), the effect is to avoid using or selling the 

generator’s energy when that energy has a low value and to increase the amount of electric 

energy available during times when that energy is more valuable. Based on the differential 

between the price for off-peak energy and the price for on-peak energy (shown in Table 26), the 

value related to energy time-shift for baseload renewable energy generation is approximately 

$54.2/kW-year or about $389/kW over 10 years (7.17 × $54.2/kW-year). 

5.2.16. Benefit #16 — Renewables Capacity Firming 

5.2.16.1. Description 

The benefit for firming output from renewable energy generation is related to the cost that can be 

avoided for other electric supply capacity. If renewable energy generation output is constant 

during times when demand is high, then less conventional generation capacity is needed. In this 

guide, benefits are estimated for two cases: 1) distributed PV generation and 2) bulk wind 

generation. (See the benefit characterization in Section 3.6.2 for details.) 

5.2.16.2. Capacity Credit 

The value of a generator’s capacity (capacity credit) is based on the degree to which the 

generator’s capacity contributes to the reliability of the electric supply system, primarily during 

peak demand periods. It is also based on the cost for electric supply resources which may include 

local or regional generation plants, power purchases, or demand response. Capacity credit is an 

important criterion of merit used by power engineers to estimate the contribution that renewable 

energy-fueled generation makes toward the total amount of power required to serve load. 

Perhaps the most robust way to estimate an intermittent generator’s capacity credit is to calculate 

the effective load carrying capacity (ELCC). ELCC is a measure of a power plant’s contribution 

to the greater electric supply system’s capacity during times when the amount and reliability of 

capacity is important. ELCC is established using reliability and/or production cost models to 

estimate common reliability indices, such as loss of load probability, loss of load expectation, or 

expected unserved energy. 

All power plants, except for the benchmark (a fully dispatchable, very reliable combustion 

turbine-based generator), have an ELCC that is less than the generator’s rated capacity. For 

example, 100 MW of wind generation may have a capacity credit of 0.25; which means that the 

wind generation provides 0.25 × 100 MW = 25 MW of capacity to the electric supply system 

when demand is high. 

5.2.16.3. Generation Capacity Cost 

The cost assumed for generation capacity (which forms the basis for the capacity firming benefit) 

is the same as the generation cost for the electric supply capacity benefit, as described in 

Section 5.2.2. It is for a combustion-turbine-based generation plant whose annual cost is assumed 

to be $120/kW-year. 
99

5.2.16.4. On-peak Period and Storage Operation 

Renewables capacity firming is assumed to be most valuable during the hours of 12:00 p.m. to 

5:00 p.m., weekdays during the summer peak demand season (May through October). Because 

there is also some benefit associated with energy time-shift during the winter demand season 

(November through April), it is also assumed that the storage is used for energy time-shift during 

those months, for the same five hours per day on weekdays. 

5.2.16.5. Energy for Renewables Capacity Firming 

Readers should note that the renewables capacity firming benefit estimated does not include 

benefits related to the energy that is discharged when storage is being discharged to firm 

renewable energy generation output. If storage (used for renewables capacity firming) is 

discharged for a small portion of the year, then the energy-related benefit may be modest. 

Conversely, the energy-related benefit could be more significant if storage is discharged for a 

larger portion of the year. 

Although each circumstance is different, the total benefit for renewables capacity firming is often 

maximized by using low-priced, off-peak wholesale energy from the grid to charge storage. 

Furthermore, all energy output from the renewable energy generation is delivered directly to the 

grid without storage losses. Among other effects, storing low-priced energy from the grid and

directly from renewable energy generation means that there is more energy output from the 

renewable energy plus storage system than could be delivered if only energy from renewable 

energy generation is stored. 

For this report, the wholesale energy prices used to estimate energy benefits associated with 

renewables capacity firming are the same ones used for the electric energy time-shift benefit (See 

Section 5.2.1). Monthly and seasonal average price differentials for the prices used are 

summarized in Table 26 in the description of the renewables energy time-shift benefit (See 

Section 5.2.15). The price differential is the difference between on-peak energy and off-peak 

energy during weekdays. 

5.2.16.6. Distributed PV Capacity Firming 

In many parts of California, well-designed and well-operated solar generation provides a 

capacity credit of 0.80 or more, in part because of the good correlation between insolation and 

demand.[74] 

For the purpose of this guide, however, the solar generation that is firmed (i.e., distributed, flatpanel PV modules with a fixed orientation) is assumed to have a capacity credit of 0.40. That 

value is lower than the 0.80 capacity credit for a well-optimized, solar generation facility for 

several reasons. 

First, PV systems evaluated herein have a fixed orientation; however, generation with a high 

capacity credit uses ‘tracking’ to follow the sun, so the solar collector is pointed directly at the 

sun for a large portion of the day. The result is more power production during peak demand 

periods and more energy generation during the year than a similar plant that does not employ 

tracking, though tracking adds complexity and cost. 

Other reasons that distributed PV systems’ capacity credit may be relatively low include the 

following: the PV modules’ (fixed) orientation is suboptimal; regular dust accumulation on 
100

modules; shading of PV modules by trees, buildings, etc. during a portion of the peak demand 

period; high ambient temperatures that reduce PV’s efficiency and power during the peak 

demand period; and the level of cloudiness over the PV’s location. 

Storage is used to firm PV during the five peak demand price hours in the summer months. For 

this report, the generic peak demand period assumed is 12:00 p.m. to 5:00 p.m., weekdays, 

during the summer peak demand season (May through October). 

The generic storage discharge duration for storage plus PV systems ranges from 2 to 3 hours, 

though the discharge duration could be less in regions with good insolation and/or for well 

designed and maintained PV systems. 

The storage plus PV system is assumed to operate as follows for PV capacity firming: low-value 

(and low-priced) energy from the grid is stored, and that energy is discharged during utility peak 

demand hours. Because most or all energy generated by PV has high or relatively high real-time 

value, all PV energy is assumed to be used or sold to the grid as it is generated. 

For this analysis, adding storage to distributed fixed-orientation PV is assumed to increase the 

capacity credit from 0.40 to 1.0. Although a given storage plus PV system may not be reliable 

enough to warrant a capacity credit of 1.0, it is assumed that that unit diversity among many 

small storage plus PV systems leads to an effective aggregated electric supply capacity credit 

approaching 1.0. 

5.2.16.7. Bulk Wind Generation Firming 

Capacity firming could be applied to smaller distributed wind generation capacity; however, in 

this guide the wind generation that is firmed is assumed to be deployed in central/large-scale 

wind farms. The generic capacity credit assumed for wind generation is 0.25.[75] 

Note that most energy production from wind generation is assumed to occur when the energy has 

relatively low value (i.e., most energy produced is generated during evening, night, and early 

morning hours). 

Depending on the duration of the peak demand period and the degree to which wind coincides 

with peak load, storage used to firm wind generation capacity is assumed to have a discharge 

duration of 3 to 4 hours (3.5 hours is the generic value used.) 

After being firmed with storage, the wind generation is assumed to have a capacity credit 

approaching 1.0 (0.75 of which is attributable to the addition of storage). 

5.2.16.8. Distributed Renewables Capacity Firming for Demand Charge 

Reduction 

Note that the renewables capacity firming benefit is related to electric supply capacity. That is, 

the benefit described above is related to the avoided cost of owning a generation plant. In the 

previous example, the generation is a generic dispatchable resource. 

An important analog for electricity end users allows them to derive a benefit for capacity firming 

based on the applicable tariff for electric service. If the end user’s electric service tariff includes 

demand charges, then the end user could use storage to reduce those charges. Demand charges 

reflect the price charged by the utility for each kW of power draw (demand) by the end user. 

(See Section 3.5.2 and Section 5.2.12 for more details about demand charge reduction using 

storage.) 
101

5.2.16.9. Incremental Benefit and Cost for Adding Storage for Renewables 

Capacity Firming 

One point worth noting is that the renewables capacity firming benefit estimated in this report is 

for adding storage to renewable energy generation, so the benefit is incremental. Consequently, 

when evaluating the financial merits of adding storage to renewables generation, the incremental 

benefit is compared to incremental cost (to add storage). 

5.2.16.10. Estimate 

The renewables capacity firming benefit is based on the avoided cost for generation capacity of 

$120/kW-year and on the degree to which the renewable energy generation output is firmed. As 

an example: For PV, the assumed capacity credit before firming is 0.4, whereas the assumed 

capacity credit after firming is 1.0, for an increase of 

1.0 – 0.4 = 0.6 kW per kW of rated capacity. 

The resulting capacity firming benefit is 

0.6 × $120/kW-year = $72/kW-year. 

The energy-related benefit (for the energy discharged from storage) is summarized in Table 27. 

The total annual benefit, including the capacity-related benefit plus the energy-related benefit, is 

summarized in Table 28. 

Table 27. Energy Time-shift Benefit from Renewable Energy Generation 

During Operation for Capacity Firming 

Photovoltaics Wind Generation

Summer Winter Summer Winter

Net Unit Benefit ($/MWh)1 60.3 22.2 60.3 22.2

(¢/kWh) 6.03 2.22 6.03 2.22

Energy Time-shift (Hours/Day)2 2.5 2.5 3.5 3.5

Days/Year3 130 130 130 130

Hours/Year 326 326 456 456

Net Seasonal Benefit ($/kW-yr) 19.7 7.2 27.5 10.1

Net Annual Benefit ($/kW-yr) 26.9 37.6

1. On-peak energy price minus off-peak energy price minus cost for storage

 losses. Does not include consideration of storage VOC.

2. This criterion is based on the storage discharge duration.

3. This criterion is based on the definition of peak demand period.
102

Table 28. Total Annual Renewables Capacity Firming Benefit 

Storage

Energy

Renewables

Effective Capacity 1

Storage Incremental

Value ($/kW-yr)

Discharge 

Duration

w/o

Firimg Firmed Capacity2 Energy Total

PV 2.5 0.40 1.00 72.0 26.9 98.9

Wind 3.5 0.25 1.00 90.0 37.6 127.6

1. During peak demand periods.

2. Assuming $120 per kW-year for combustion turbine based generation.

The annual values are converted to 10-year lifecycle benefit by multiplying by the PW factor of 

7.17. The estimated 10-year net benefit associated with firming of PV output is 

$98.9/kW-year × 7.17 = $709/kW. 

The estimated 10-year net benefit from firming of wind generation is 

$127.6/kW-year × 7.17 = $915/kW. 

5.2.17. Benefit #17 — Wind Generation Grid Integration 

5.2.17.1. Description 

The wind generation grid integration (wind integration) application includes two categories and a 

total of six subtypes. The two categories are 1) short-duration (lasting for a few seconds to a few 

minutes) and 2) long-duration (lasting for many minutes to a few hours). The six subtypes are 

summarized in Table 29. 

Table 29. Wind Generation Grid Integration Application Subtypes 

Short-duration Applications 

1. Reduce Output Volatility (due to momentary wind fluctuations) 

2. Improve Power Quality 

Long-duration Applications 

3. Reduce Output Variability (lasting minutes to hours) 

4. Transmission Congestion Relief 

5. Backup for Unexpected Wind Generation Shortfall 

6. Reduce Minimum Load Violations 

The benefit associated with storage used for each subtype varies significantly. Even among the 

subtypes, the benefit varies from moment-to-moment, throughout the day, throughout the year 

and from year-to-year. 

Benefit values for wind generation grid integration in this guide provide a starting point for 

related analyses, rather than being definitive. The rationale used to establish each benefit value is 

described below. Readers are left to judge the merits of that rationale for a specific region, 

electric supply system, or wind generation resource. 
103

5.2.17.2. Estimate 

The methodology for estimating each of the six wind generation grid integration application 

subtypes varies. A brief discussion of each is provided below. 

Reduce Output Volatility 

The leading response to grid effects from wind output volatility (characterized by variations 

lasting a few seconds to a few minutes) is increased use of conventional area regulation 

resources. For this report, the benefit for reducing aggregate wind output volatility is the avoided 

cost for that additional area regulation service needed to accommodate the volatility. The area 

regulation service is described in Section 3.3.2 and the benefit is described in Section 5.2.4. 

(An alternate approach that could be used to estimate the benefit for short-duration intermittency 

is that used for the renewables capacity firming application in Section 5.2.16.) 

Area regulation capacity needed to accommodate wind generation additions is assumed to be 

required during the six most productive months for wind generation (which varies depending on 

region). Consequently, the benefit estimate is about half that for annual operation. If storage can 

provide rapid-response regulation, and if the benefit from that capability can be internalized by 

the storage owner, then the benefit can be as high as $1,000/kW for 10 years. If the rapidresponse capability does not have a specified value, then the 10-year benefit may be closer to 

$500/kW. In this guide, the estimated generic benefit is $750/kW for 10 years. 

Improve Power Quality 

The benefit for improved power quality is specific to the location, wind resource, and wind 

turbine type(s), and it varies from moment-to-moment, throughout a day, throughout the year, 

and among years. Also, newer wind turbines pose fewer and less significant power qualityrelated challenges than older turbines.[76] 

The first option for establishing the benefit for this application is to determine the cost of the 

most likely existing option for addressing the specific power quality challenge and, in some 

cases, the ‘do nothing’ option. Conventional options may include replacing components of older 

wind turbines; upgrading circuits and/or transformers; using capacitors, static VAR 

compensators, or power electronics; curtailing production from wind generation; and/or using 

on-site/local dispatchable (e.g., diesel-fueled) generation. Given the challenge of generalizing the 

circumstances and options for this application, estimating a generic benefit is probably not 

helpful, so no estimate is provided in this report. 

Reduce Output Variability 

Wind generation output variability involves changes that occur over periods lasting from minutes 

to hours. Wind variability (from minute-to-minute and throughout the day) adds to the need for 

load following resources that must make up the difference between load and generation that is 

already online. For this guide, the benefit of reducing aggregate wind output variability is the 

avoided cost for that additional load following service. 

It is also assumed that most additional load following capacity will probably be provided by 

combined cycle generation plants. Furthermore, the additional load following is assumed to be 

needed for six hours per day (three hours during the morning when load is increasing, and three 
104

hours as load decreases at night) which is assumed to occur during the six most productive wind 

generation months each year. 

Given that the service is provided by a combined cycle power plant, the assumed (marginal) cost 

for the additional service is $50/MW per service hour. As a result, the estimated annual benefit 

(in Year 1) for using storage with wind generation to reduce the need for additional load 

following resources is 

6 hours/day × 7 days/week × 26 weeks/year) × $50/MW per hour of service 

= 1,092 hours/year × $50/MW per hour of service 

= $54,600/MW per year of service ($54.6/kW-year). 

The generic lifecycle benefit is 

$54.6/kW-year × 7.17 = $391.5/kW. 

Transmission Congestion Relief 

The transmission congestion relief application subtype cannot be easily generalized. In some 

areas, there may be enough unused transmission capacity to accommodate all, or at least most, 

expected wind generation capacity additions. In other areas, any significant additions may 

overwhelm existing transmission capacity. In some cases, congestion is reflected in pricing for 

energy or for energy transfers. 

The cost to upgrade transmission to accommodate renewables in California probably reflects 

relatively high costs (for new transmission capacity); however, it may still be instructive to 

consider the circumstances. In California, cumulative wind generation capacity additions are 

assumed to be 5,200 MW by 2010 and 10,600 MW by 2020. The total installed cost for new 

transmission capacity needed to accommodate all renewables in California is an estimated 

$2.3 billion by 2010 and $6.3 billion by 2020.[77] For this report, it is assumed that about twothirds of the transmission cost for all renewables is attributable to wind generation additions 

(given that most new renewable generation capacity expected is wind generation). 

Based on those assumptions, the estimated lifecycle cost for transmission capacity needed to 

accommodate wind generation capacity additions is shown in Table 30. The approach used to 

make that estimate is described below. 
105

Table 30. Estimated Total Transmission Cost for Wind Capacity 

Additions in California 

Year 2010 2020

1 Wind Capacity Additions (MW cum.) 5,200 10,600

2 Transmission Total Installed Cost ($Million) 2,300 6,300

3 (Assumed) Portion of Transmission Attributable to Wind Gen. added 0.667 0.667

4 Transmission Cost Attributable to Wind Gen. added ($Million) 1,534 4,202

5 Transmission Annual Cost for Wind Gen. Added ($Million)* 168.8 462.2

6 Transmission Cost for Wind Gen. / Wind Gen. kW ($/kW of Wind gen.)** 295 396

7 Transmission Annual Cost for Wind Gen. / Wind Gen. kW ($/kW-year of Wind gen.) 32.5 43.6

8 Transmission Lifecycle Cost for Wind Gen.

($/kW of Wind gen. for 10 years)*** 232.7 312.7

9 (Assumed) kW storage per kW of Wind gen. 0.50 0.50

10 Lifecycle Benefit ($/kW storage, 10 years) 465.4 625.3

 * Attributable to wind generation. Based on Fixed Charge Rate = 0.11

** Transmission Annual Cost / Wind Capacity Additions

*** 10.0%/yr. discount rate, 2.5%/yr. escalation rate: PW factor = 7.17

The approach used to estimate the transmission congestion relief benefit involves assumptions 

about or estimates of 1) wind generation capacity to be added; 2) transmission capacity needs 

and the related total and annual cost attributable to increased wind generation capacity to be 

added (key premise: wind generation-related transmission congestion will occur if that 

transmission capacity is not added); 3) the value of a 10-year deferral of the upgrades needed; 

and 4) the lifecycle (10 year) benefit if storage is used in lieu of upgrades. 

The following ten-step process was used to develop the generic benefit estimate shown in Table 

30: 

1. Determine the total amount of wind generation to be added (Line 1 in Table 30). 

2. Use a current estimate of transmission total cost that will be incurred because all types of 

renewables generation will be added (Line 2 in Table 30). Total cost is defined as the 

installed cost, including land, site preparation, permits, equipment purchases, and 

installation. 

3. Estimate the portion of transmission total cost that is attributable to wind generation 

additions (line 3 in Table 30). For the example, wind generation is assumed to account 

for two-thirds of the transmission needed to accommodate all renewables. 

4. Calculate the value of transmission total cost that is attributable to wind generation 

additions. In the example, multiply the transmission total installed cost for renewables 

(Line 4 in Table 30) by two-thirds. For the example, an estimated $1.53 billion would be 

spent in 2010 and $4.2 billion would be spent in 2020. 

5. Calculate the annual (financial carrying) cost for the transmission attributable to wind 

generation additions by multiplying the transmission total cost that is attributable to wind 

generation additions (Line 4 in Table 30) by the fixed charge rate of 0.11. The result 

(Line 5 in Table 30) is approximately $169 million in 2010 and $462 million in 2020. 
106

6. Allocate transmission total cost attributable to wind generation additions to wind 

generation on a $/kW of wind generation basis. That is done by dividing the transmission 

cost attributable to wind generation added (Line 4 in Table 30) by the kW of wind 

generation to be added (Line 1 in Table 30). The result is $295/kW of transmission 

installed cost per kW of wind generation capacity added by 2010 and $396/kW of wind 

generation added by 2020 (Line 6 in Table 30). 

7. Allocate the annual cost for transmission needed to serve new wind generation, on a 

$/kW of wind generation basis. That is done by dividing the annual transmission cost 

attributable to wind generation additions (Line 5 in Table 30) by the kW of wind 

generation to be added (Line 1 in Table 30). In 2010, the resulting single-year 

transmission cost is about $186 Million ÷ 5,200 MW = $32.5 per kW-year of wind 

capacity. In 2020, the annual cost for transmission added (per kW of wind generation 

added) is $462 Million ÷ 10,600 MW = $43.6 per kW-year (Line 7 in Table 30). 

8. Estimate the lifecycle transmission cost attributable to wind generation additions by 

multiplying the annual transmission-related cost per kW of wind generation (Line 7 in 

Table 30) by the present worth factor of 7.17. That yields an estimated lifecycle cost for 

wind generation capacity added of $232.7/kW by 2010 and $312.7/kW by 2020 (Line 8 

in Table 30). 

9. Estimate the amount of storage needed (per kW of wind generation) to avoid the need for 

additional wind generation-related transmission. In the example, the assumption is that 

0.5 kW of storage (whose useful life is 10 years) is needed per kW of wind generation to 

offset transmission-related cost (Line 9 in Table 30). That is based on the simplifying 

assumption that in almost all cases wind generation output will not be more than 50% of 

its rated capacity during times when the transmission system is heavily loaded, 

overloaded, or congested. 

10. Calculate the 10-year lifecycle benefit associated with each kW of storage used to 

provide transmission congestion relief (based on deferring transmission upgrades for 

10 years). That value is derived by dividing lifecycle transmission cost attributable to 

wind generation additions (Line 8 in Table 30) by 0.5 (kW storage / kW wind 

generation). For the generic estimate, the benefit is $465.4/kW in 2010 and $625.3/kW in 

2020 (Line 10 in Table 30). 

This benefit estimate reflects the average cost for transmission. Presumably, there are some 

locations for which the cost to upgrade the transmission is higher. Furthermore, it is those 

locations for which storage may be the best alternative (given the relatively high cost). 

Consider another scenario: For the situation described above, 50% of all wind-related 

transmission upgrade costs are incurred to accommodate 20% of the wind capacity additions. 

Furthermore, those locations require 1 kW of storage per kW of wind generation to avoid the 

need to upgrade transmission equipment. The results of this scenario are shown in Table 31. 
107

Table 31. Transmission Cost for Wind Capacity 

Additions in California, High-value Locations 

Year 2010 2020

1 Wind Capacity Additions (MW cum.) 5,200 10,600

2 Applicable Portion* 0.2 0.2

3 Wind Capacity Affected (MW cum.) 1,040 2,120

4 Transmission Total (Installed) Cost ($Million) 2,300 6,300

5 (Assumed) Portion of Transmission Total Cost Attributable to Wind Gen. Added 0.667 0.667

6 Transmission Total Cost Attributable to Wind Gen. Added ($Million) 1,534 4,202

7 Portion (of cost for all transmission additions) In Play* 0.5 0.5

8 Transmission Cost Attributable to Wind gen. added ($Million) 767 2,101

9 Transmission Annual Cost for Wind Gen. Added ($Million)** 84.4 231.1

10 Transmission Total Cost for Wind Gen. / Wind Gen. Added kW ($/kW of Wind Gen.)** 738 991

11nsmission Annual Cost for Wind Gen. / Wind Gen. Added kW ($/kW-year of Wind Gen.) 81.1 109.0

12 Transmission Lifecycle Cost for Wind Gen. Added

($/kW of Wind gen. for 10 years)*** 582 782

13 (Assumed) kW storage per kW of Wind Gen. Added 1.00 1.00

14 Lifecycle Benefit ($/kW storage, 10 years) 582 782

 * 50% of all costs attributible to Wind gen. are incurred for 20% of Wind gen. additions.

 ** Attributable to wind generation. Based on Fixed Charge Rate = 0.11

*** 10% discount rate, 2.5% escalation rate: PW factor = 7.17

Based on the results shown in Table 31, the lifecycle benefit for storage used to offset need for 

the most expensive transmission upgrades (those needed to accommodate wind generation) 

would be $582/kW over 10 years in 2010 and $782/kW over 10 years in 2020 (Line 1 in Table 

31). 

Based on the results for the two scenarios shown in Table 30 and Table 31, the generic value 

assumed for the lifecycle benefit is $625/kW for 10 years. 

Backup for Unexpected Wind Generation Shortfall 

The value for this application is related to avoiding electric service outages that are caused by a 

sudden, unexpected drop in wind generation output. To the extent that storage allows grid 

operators to avoid such outages, the storage provides benefit. It is important to note that, in most 

cases, the ISO addresses a sudden reduction of wind generation output with one of several nonstorage options, especially out-of-area energy purchases; reserve capacity; interrupting or 

curtailing load to reduce demand; and increasingly automated load control. Storage provides 

another option. 

The values in Table 32 reflect a simple benefit estimate based on the value-of-service (VOS) 

metric described in Section 5.2.13. The assumed composite VOS for all customer classes is 

$10/kWh. That value reflects the cost incurred by end users per kWh of energy not delivered due 

to the outage. Furthermore, it reflects a composite of the value for all electricity end-user classes, 

ranging from residential end users at the low end, for whom the cost is close to nothing, to highvalue-added manufacturing customers whose VOS may exceed $100/kWh. As shown in the 

table, at the lower bound, one outage is avoided over 10 years for an estimated 10-year lifecycle 

benefit of $100/kW or an annual benefit of about $14/kW-year. At the high end, two outages are 
108

avoided over 10 years, yielding an estimated lifecycle benefit of $200/kW and an annual benefit 

of $28/kW-year. 

Table 32. Benefit for Avoided Service Outages Due 

to Sudden Drop of Wind Generation Output 

Low High

Wind-to-Peak Load Ratio 10.0% 10.0%

Outages Avoided

 (10 years) 1 2

Outage Duration (hours) 1 1

Value of Unserved Energy 

($/kWh) 10 10

Lifecycle Benefit 

($Year1 / kW-load ) 10 20

Lifecycle Benefit* 

($ Year 1 / kW wind gen. ) 100 200

Annual Benefit** 

($/kW-year) 14 28

 *Lifecycle Benefit per kW of Load / Wind/Peak Load Ratio.

**Assuming PW factor = 7.17

For the estimate above, it is assumed that there is 1 kW of storage per kW of wind generation. To 

the extent that wind resources are geographically diverse, less than 1 kW of storage per kW of 

wind generation is conceivable. If, for example, storage of 0.5 kW per kW of wind generation 

capacity would suffice for a geographically diversified wind generation resource, then the benefit 

values in Table 32 would double. 

Reduce Minimum Load Violations 

Minimum load violations occur when generation capacity exceeds demand. When that occurs, 

some of the energy generated may not be usable. The benefit for reducing minimum load 

violations is assumed to be related to the value of energy that cannot be used. The generic value 

is estimated based on forecasted energy prices in California in 2009. A summary of those values 

is shown in Table 33. 

Table 33. Low and High Values for Minimum Load Violations 

Item Name Low High

Portion of the Year 1.0% 4.0%

Hours Per Year 87.6 350.4

Energy Price ($/MWh) 56.5 56.5

Benefit ($/MW-year) 4,949 19,798

($/kW-year) 4.9 19.8
109

Based on the values shown in Table 33, the generic value for reduced minimum load violations 

ranges from about $5/kW-year on the low end to about $20/kW-year on the high end. The low 

value reflects minimum load violations that occur during 1% of the year, or about 57 hours per 

year. The high value reflects minimum load violations occurring during 4% of the year, or 

350 hours per year. Both values reflect an average energy price of $56.5/MWh during minimum 

load violations. 

5.2.17.3. Wind Integration Benefits Summary 

Table 34 summarizes the benefits estimated (and described above) for the wind integration 

application subtypes. 

Table 34. Wind Integration Benefits Summary 

Benefit Estimate ($/kW)*

Application Subtype Low High

Short Duration

1. Reduce Output Volatility (due to 

momentary wind fluctuations) 500 1,000

2. Improve Power Quality not estimated

Long Duration

3. Reduce Output Variability (lasting 

minutes to hours) 391

4. Transmission Congestion Relief 465 782

5. Backup for Unexpected Wind 

Generation Shortfall 100 200

6. Reduce Minimum Load Violations 5 20

* 10 years, 2.5% escalation rate, 10% discount rate: Present Worth factor = 7.17.

5.3. Incidental Benefits 

Some benefits are not specific to any one application, as they may accrue incidentally when 

storage is used for one or more applications. For example, dynamic operating benefits occur 

because the operation of the greater electric supply system is more optimal because storage is 

used. And, although avoiding transmission access charges is not an application, it may be that 

using storage allows stakeholders to reduce or avoid charges associated with transmitting energy 

through the transmission system. A discussion of nine meaningful incidental benefits which are 

explored in this guide is provided below. 

5.3.1. Benefit #18 — Increased Asset Utilization 

5.3.1.1. Description 

In many situations, use of energy storage will increase the amount of electricity that is generated, 

and/or transmitted, and/or distributed using existing utility assets. The effect is commonly 
110

referred to as increased asset utilization. Two important financial implications of increased asset 

utilization are 1) the cost to own the equipment is amortized across more (units of) energy which 

reduces the unit cost/price for that energy, and 2) the payback from the investment occurs 

sooner, which reduces investment risk. 

Consider an example: A utility installs distributed energy storage to address local electric service 

reliability needs and to defer an expensive T&D upgrade. Storage use increases generation asset 

utilization if the storage is charged using existing generation assets (presumably during times 

when demand is low). Similarly, transmission asset utilization increases assuming that existing

transmission capacity is used to transmit the storage charging energy (presumably the 

transmission occurs during times when transmission asset utilization is normally low). 

Depending on use patterns and location, distributed energy storage may also increase distribution 

asset utilization. 

The benefit of increased asset utilization is highly circumstance-specific. It is not estimated in 

this guide. 

5.3.2. Benefit #19 — Avoided Transmission and Distribution Energy 

Losses 

5.3.2.1. Description 

As with any process involving conversion or transfer of energy, energy losses occur during 

electric energy transmission and distribution. These T&D energy losses (sometimes referred to 

as I2R or ‘I squared R’ energy losses) tend to be lower at night and when loading is light and 

higher during the day and when loading is heavy. T&D energy losses increase as the amount of 

current flow in T&D equipment increases and as the ambient temperature increases. Thus, losses 

are greatest on days when T&D equipment is heavily loaded and the temperature is high. 

If storage is charged with grid energy, then the benefit is based on the difference between the 

cost for losses incurred to deliver energy for charging (off-peak) and the cost that would have 

been incurred if the energy was delivered in real-time (on-peak). If storage is charged with 

energy generated locally, then the losses avoided (and benefit) may be even higher because 

no/limited losses are incurred to get the energy to the storage for charging. 

5.3.2.2. Estimate 

The generic benefit values shown in Figure 19 reflect two energy price scenarios and two 

scenarios for on-peak versus off-peak losses. The first price scenario involves an average price 

difference (labeled as Price Δ in the figure) of 6 ¢/kWh between on-peak and off-peak energy 

prices. For the second scenario, the average difference between on-peak and off-peak energy 

prices is 8 ¢/kWh. The values in Figure 19 also reflect a T&D energy loss difference (labeled as 

Loss Δ in the figure) between on-peak and off-peak of 3% at the low end and 5% at the higher 

end. An example: If on-peak T&D losses are 8% and T&D losses off-peak are 5%, then the 

difference is 3%. The estimated generic benefit for avoided T&D I2

R energy losses is 

$8/kW-year (net) or about $57/kW over 10 years. 
111

Figure 19. Benefit for T&D I2R energy losses avoided. 

5.3.3. Benefit #20 — Avoided Transmission Access Charges 

5.3.3.1. Description 

Typically, utilities that transmit electricity across transmission facilities that are owned by 

another entity must pay the owners for transmission ‘service’. Similarly, utility customers must 

pay the cost incurred by the utility to own and to operate transmission needed to deliver the 

electricity. Related charges are often called transmission access charges. 

Consider municipal electric utilities (munis) and electric cooperatives (co-ops). Munis and coops may own some or all of the generation capacity needed. Almost all munis and co-ops own 

and operate their electricity distribution system. Many, however, do not own transmission 

capacity. Also, most utilities transmit some power through other utilities’ transmission lines. 

Utilities must pay transmission access charges to transmit power from their own generation 

plant(s) and/or from the wholesale electricity marketplace. 

The benefit for avoided transmission access charges depends on, among other factors, tariff 

terms and pricing, location, and increasingly, time of year and time of day. In some cases, 

transmission access is priced based on energy used ($/kWh delivered). In other cases, the 

transmission charge is assessed based on capacity used, like demand charges ($/kW). 

In many parts of the country, the marketplace for transmission capacity is just emerging. As the 

marketplace for electricity opens up, transmission access charges will be available from the 

various regional transmission organizations. The trend toward locational marginal pricing of 

energy will allow for increasingly precise, location-specific allocation of transmission costs. 

0

3

6

9

12

15

18

0 500 1000 1500 2000

Hours/Year

$/kW-year

Price Δ = 6.0 ¢/kWh, Loss Δ = 3.0%

Price Δ = 8.0 ¢/kWh, Loss Δ = 3.0%

Price Δ = 6.0 ¢/kWh, Loss Δ = 5.0%

Price Δ = 8.0 ¢/kWh, Loss Δ = 5.0%
112

5.3.3.2. Estimate 

At the lower end of the spectrum, transmission access charges are estimated based on annual 

average transmission charges for firm point-to-point transmission service in the Midwest ISO 

control area. Based on an informal survey of those transmission access charges, the annual 

amount is approximately $25/kW-year to $30/kW-year.[78] Furthermore, the Midwest ISO’s 

charges for off-peak transmission service are on the order of 30% less than the charge for service 

on-peak. 

At the high end of the spectrum, consider a California-specific indication of the retail charge for 

transmission: A transmission access charge of 0.913 ¢/kWh of energy delivered is assessed for 

transmission under terms of PG&E’s A-6 commercial TOU energy price electricity service tariff. 

If assuming annual energy use of 4,300 kWh per kW of peak load, the total transmission charges 

are about $40/kW-year.[79] 

Note that the value of $40/kW-year is assumed to indicate the utility ‘revenue requirement’ for 

transmission which is the amount that the utility must collect as revenue from customers to cover 

cost. Furthermore, if transmission is priced based on energy delivered, rather than being based on 

peak demand, then storage could actually increase transmission charges for end users because for 

each kWh discharged from storage, transmission charges are incurred for storage charging 

energy and for storage energy losses. Finally note that, in some cases, transmission charges are 

lower at night than during the day. 

The estimated generic benefit for avoided transmission access charges is $20/kW-year. After 

applying the 7.17 PW factor, the lifecycle benefit is $143.40/kW. 

5.3.4. Benefit #21 — Reduced Transmission and Distribution Investment 

Risk 

5.3.4.1. Description 

Although there is no specific accounting for or price ascribed to it, there is an undetermined 

amount of risk associated with investments in T&D upgrades or expansion, as there is with any

investment. While there is no formal way to account for that risk, it is an actual cost borne by 

electricity users.*

Consider a simple example: Utility power engineers decide that it is prudent to upgrade some 

T&D equipment. When the upgrade project is half finished, the utility receives news that a large 

customer load will be removed such that the in-process upgrade will not be needed for several 

years. Whether the project is completed or not, for several years no revenue is received to cover 

the cost incurred for the upgrade. As a result, utility customers at large must pay more to cover 

that unmet revenue requirement. The effect is the same if aggregate load growth is lower than 

expected. 

Uncertainty can lead to T&D project delays, the result of which may be service outages and 

damage to existing equipment. Some sources of uncertainty that can cause costly project delays 

include a) utility staff or funding shortages, b) institutional delays such as those for permits, 

c) unforeseen challenges encountered during construction, and d) weather. 

 

*

 Although not addressed in this report, storage could also be used to reduce generation fuel price risk. 
113

For most T&D upgrades, the investment risk is low to very low. A low-risk T&D investment 

tends to involve an upgrade that is routine, low cost, and whose cost is likely or very likely to be 

offset by revenues. 

Storage – or any other modular resource that can be located downstream (electrically) from the 

T&D upgrade – can be used to manage risk. For example, if there is uncertainty about whether 

an expected block load addition will occur or staffing shortages or permitting delays will affect 

the upgrade, modular storage could be used to defer the upgrade for one year – enabling the 

utility to delay a possibly risky T&D upgrade investment until there is less uncertainty. 

It is not possible to generalize this benefit given the wide range of possible circumstances that 

could be involved; therefore, an estimate is not provided in this guide. 

5.3.5. Benefit #22 — Dynamic Operating Benefits 

A dynamic operating benefit (DOB) is a generation operating cost that is reduced or avoided 

because storage is part of the electric supply system. Generation operating cost is reduced if 

generation equipment a) is used less frequently (i.e., has fewer startups), b) operates at a more 

constant output when it is used (avoided part load operation), and c) operates at its rated output 

level most/all of the time when in use.[80] 

DOBs include those for reduced generation equipment wear, reduced fuel use, and reduced 

emissions. Reducing equipment wear may reduce maintenance costs and/or extend equipment 

service life. Fuel use and emissions are reduced if a) generation output is more constant, 

b) generation output operates at its rated output, and c) generation is started less frequently. 

Some of the DOBs reflect expenses that would otherwise be incurred by utilities and that would 

be reflected in utility service prices. Other DOBs reduce societal costs. DOBs that reduce actual 

expenses include reduced fuel cost, reduced maintenance cost, and increased equipment life. The 

key societal benefits include lower cost-of-service, reduced resource (fuel) use, and reduced air 

emissions. 

This benefit is specific to the generation mix in a given region. It is not estimated in this guide. 

5.3.6. Benefit #23 — Power Factor Correction 

As described in Appendix C, utilities often need to compensate for reactance that causes 

unacceptably low power factor. The typical utility response – to improve a circuit’s power factor 

and effectiveness – is twofold: 1) include a (low) power factor charge for commercial electricity 

end users’ whose loads have an especially low power factor (e.g., below 0.85) and 2) use 

capacitors to offset the effects from inductive loads (i.e., to reduce the degree to which voltage 

and current are out of phase). 

Depending on circumstances, the utility solution may involve other more expensive alternatives 

such as static synchronous compensators (StatComs) and static VAR compensators. 

Depending on the type and characteristics of storage deployed, distributed storage could provide 

effective power factor correction. Battery or other storage systems whose storage media has 

direct current (DC) output and which include power conditioning to convert between AC and DC 

power are especially well-suited to power factor correction. Conventional motor-generator 

systems can also provide reactive power (VAR) needed for local power factor correction. 
114

Notably, power factor correcting capacitors (the most common approach used by utilities for 

power factor correction) are inexpensive relative to generation capacity. Typical installed costs 

range from $10 to $15 per kVAR, so the avoided cost (benefit) if storage is used would be low 

(relative to storage system cost). Nonetheless, that benefit may still be attractive if the 

incremental cost to add power factor correction capability to storage is low enough. 

5.3.7. Benefit #24 — Reduced Generation Fossil Fuel Use 

One incidental benefit that may accrue if storage is used is a reduction in the use of fossil fuels 

used for generation. Storage use can lead to reduced fossil fuel use in at least three ways. First 

stored energy from more efficient fossil fueled generation and/or renewables can offset use of 

less efficient intermediate duty or peaking generation (energy time-shift). Second, fuel use may 

be reduced due to dynamic operating benefits associated with storage use (Benefit #22). Third, 

fossil-fueled generation tends to be more efficient when ambient temperatures are low. 

Coincidentally, most storage charging occurs at night, when temperatures are lower. Finally, if 

energy is transmitted at night when ambient temperatures and T&D loading are relatively low, 

then T&D energy losses are reduced (Benefit #21). 

Importantly, the degree to which fuel use is reduced or increased (due to use of storage) depends 

on three key criteria: 1) the age and type of generation equipment and fuel used to generate 

electricity for charging storage, 2) the age and type of generation equipment and fuel that would 

have been used if storage is not deployed, and 3) storage efficiency (i.e., losses). 

Consider a simple example: Combined cycle combustion turbine generation (CC) whose fuel 

efficiency is 49% (requiring 6,965 Btu/kWh of fuel, often referred to as the generator’s ‘heat 

rate’) and simple cycle combustion turbine generation (CT) whose fuel efficiency is 33% (for a 

heat rate of 10,342 Btu/kWh of fuel). The fuel use difference between those two generators is 

 10,342 Btu/kWh on-peak – 6,965 Btu/kWh off-peak = 3,377 Btu/kWh 

 3,377 Btu/kWh difference ÷ 10,342 Btu/kWh on-peak = 32.7%. 

Then, if storage efficiency is 75%, then the net amount of fuel used to generate charging energy 

for storage is 

6,965 Btu/kWh off-peak ÷ 75% efficiency = 9,292 Btu/kWh. 

The result is a fuel use reduction of 

 10,342 Btu/kWh on-peak – 9,292 Btu/kWh charging = 1,055 Btu/kWh 

 1,055 Btu/kWh difference ÷ 10,342 Btu/kWh on-peak = 10.2%. 

The above example and another involving charging with electric energy from coal generation are 

summarized in Table 35. 
115

Table 35. Generation Fuel Use Implications of Energy Storage Use 

Off-peak/Charging On-peak/Avoided Difference

Scenario

Fuel1 

Efficiency

(%)

Heat 

Rate1 

(Btu/kWh)

Fuel1 

Efficiency

(%)

Heat 

Rate1 

(Btu/kWh)

Net

Fuel 

Use2, 3

(Btu/kWh)

Change of 

Fuel Use4

(Btu/kWh)

Charge: Combined Cycle

 Avoid: Simple Cycle C.T. 49.0% 6,965 33.0% 10,342 9,287 -1,055(-10.2%)

Charge: Advanced Coal

 Avoid: Simple Cycle C.T. 43.0% 7,937 33.0% 10,342 10,583 +241(+2.3%)

1. In this context "fuel" only includes fossil fuels.

2. Off-peak generation fuel used, including additional fuel needed to make up for storage losses.

3. Storage efficiency = 75.0%.

4. Fuel use by on-peak resource (avoided) minus net fuel use for electrc energy used for charging.

C.T. = Combustion Turbine.

Notably, although the total amount of fossil fuel used for generation may be reduced if storage is 

used, the financial benefit associated with that reduction depends on the type and price of fuel(s) 

involved. Generally, the price for coal is lower than that for natural gas and petroleum-based 

fuels. 

Given that this benefit is so circumstance-specific – being affected by on-peak and off-peak 

generation age and type, as well as on-peak and off-peak fuel type and price – it is not helpful to 

provide a generic value for fossil-fuel use reduction using storage, so no estimate is given. 

5.3.8. Benefit #25 — Reduced Air Emissions from Generation 

Reduction of air emissions from electricity generation is a potentially important incidental 

benefit of storage use. As with reduced fuel use (described above), there are at least four distinct 

ways that storage can reduce generation-related air emissions. The first involves using stored 

electric energy generated using relatively efficient and/or clean power plants (baseload and/or 

renewables) to offset the use of less efficient and/or dirtier on-peak generation (energy timeshift). 

The remaining three ways that storage use can lead to reduced air emissions involve reduced fuel 

use (which presumably leads to reduced air emissions): 1) dynamic operating benefits 

(Benefit #22); 2) increased generation operation at night, for storage charging, when fuel 

efficiency is higher; and 3) reduced T&D energy losses that accrue if more energy is transmitted 

at night when T&D equipment is not heavily loaded and when ambient temperatures are lower 

(Benefit #21). 

Importantly, storage-use-related air emission reductions are circumstance-specific. Specifically, 

the degree to which air emissions are reduced or increased (due to use of storage) depends on 

three key criteria: 1) the age and type of generation equipment and fuel used to generate 

electricity for charging storage, 2) the age and type of generation equipment and fuel that would 

have been used if storage is not deployed, and 3) storage efficiency (i.e., losses). 
116

Depending on the circumstances, storage could lead to reduced electricity generation-related 

emissions of carbon monoxide (CO2), oxides of nitrogen (NOx), oxides of sulfur (SOx), 

soot/particulate, carbon monoxide (CO) and volatile organic compounds. 

Consider generic emission levels shown in Table 36 for NOx and for CO2. Values in that table 

are meant to indicate two common scenarios: 1) charge storage using off-peak electricity from a 

natural-gas-fueled combined cycle combustion turbine to offset use of a natural-gas-fueled 

simple cycle combustion turbine on-peak and 2) charge storage using off-peak electricity from 

modern coal-fueled generation to offset use of a natural-gas-fueled simple cycle combustion 

turbine on-peak. (Not shown is use of renewable energy to charge storage, which would lead to a 

dramatic reduction or even total elimination of air emissions per kWh from storage.) Based on 

the values in the table, storage would lead to dramatically different results depending on the type 

of generation involved. 

Table 36. Generation CO2 and NOx Emissions Implications of Energy Storage Use 

Off-peak/Charging On-peak/Avoided Difference1

Scenario

CO2

(lbs/MWh)

NOx

(lbs/MWh)

CO2

(lbs/MWh)

NOx

(lbs/MWh)

CO2

(lbs/MWh)

NOx

(lbs/MWh)

Charge: Combined Cycle

 Avoid: Simple Cycle C.T. 922 0.260 1,131 0.320 +98.3

(+8.7%)

+0.027

(+8.3%)

Charge: Advanced Coal

 Avoid: Simple Cycle C.T. 2,222 3.620 1,131 0.320 +1,832(+162%)

+4.51

(+1,408%)

1. These values reflect additional fuel used for generation required to make up for energy 

 losses for storage whose efficiency = 75.0%

C.T. = Combustion Turbine.

Source: Hadley, S.W. VanDyke, J.W. Emissions Benefits of Distributed Generation in the Texas 

Market. Oak Ridge National Laboratory Report ORNL/TM-2003/100. April 2003.

Of course, it is necessary to ascribe a ‘price’ to (reduction of) a given type of air emission before 

the internalizable financial benefit can be estimated. That topic is beyond the scope of this study, 

so the financial benefit for emission reductions is not estimated. 

5.3.9. Benefit #26 — Flexibility 

In broad terms, flexibility can be defined as the degree to which and the rate at which adjustment 

to changing circumstances is possible. More specifically, flexibility may provide the means to 

respond adeptly to uncertainty. Flexibility allows decision makers to manage risk and even to 

take advantage of business opportunities involving risk (i.e., to use ‘real options’[81]). 

Although it is almost impossible to generalize, in some circumstances there may be a significant 

financial benefit associated with flexibility, especially in a changing business environment with 

significant uncertainty. The benefit accrues if the flexibility allows selection and use of more 

optimal solutions or response to business-related needs, challenges, and opportunities. For 

example, modular electric resources (including storage) can be used to provide electric supply 

and/or T&D capacity ‘on the margin,’ when and where needed. In some cases that alternative 

could comprise a more optimal (financially) response than is possible using conventional 
117

‘lumpy’ capacity additions. Indeed, depending on the circumstances, a more financially optimal 

solution can involve higher revenue, more profit, and/or lower cost per kW of load served. 

This benefit is highly circumstance-specific and it is not estimated. 

5.3.10. Incidental Energy Benefit 

In some energy storage applications, energy is discharged incidentally during operation. That 

energy almost certainly has some value (benefit). For example, it may offset the need for a utility 

and/or a utility customer to purchase energy. 

5.4. Benefits Not Addressed in This Report 

As characterized in Section 3.8, the approach used in this guide does not address many storage 

applications explicitly. Similarly, this report does not address some benefits explicitly, especially 

those that are not ‘utility-related’. 

Consider an example provided in Section 3.8 for an application involving storage for trackside 

support of electrified rail transportation systems. Two possible benefits for that application are 

a) increased revenue related to increased ridership and b) reduced equipment wear. Clearly, those 

benefits are not addressed explicitly in this guide, although they may actually exist and they may 

be important elements of an attractive value proposition. Also not addressed are possible taxrelated incentives, especially income tax credits, and to a lesser extent, income tax deductions. 

5.4.1. Utility Incentives, Special Tariffs and Pricing Approaches Not 

Addressed 

5.4.1.1. Utility Incentives Not Addressed in This Report 

Although not common practice, utilities may eventually provide incentives to customers to 

install storage. Those incentives could be similar to those used to encourage customers to install 

rooftop photovoltaics, to increase energy efficiency (of loads), and to participate in demand 

response, smart metering, and Smart Grid programs. Those incentives are an important element 

of storage value propositions. 

5.4.1.2. Special Electric Service Tariffs and Pricing 

In addition to the reduced time-of-use energy cost and reduced demand charges described in this 

report, there are at least three other possible ways that utility customers can use storage to reduce 

their overall electricity-related cost: 1) interruptible/ curtailable tariffs, 2) critical peak pricing, 

and 3) load management programs. 

Interruptible/curtailable tariffs provide a discount to participants who agree to allow the grid 

operator to ‘curtail’ or ‘interrupt’ electric service when there is a shortage of energy and/or 

capacity. Normally, the agreement specifies that maximum frequency and duration of 

curtailments/interruptions. Historically, curtailment and interruption are used during electric 

supply shortages, though in the future, they could also be used when there is transmission 

congestion and/or when localized T&D overloading occurs. 

Critical peak pricing involves energy prices that are significantly higher than normal and that 

apply when there is a shortage of energy and/or capacity. Normally, critical peak prices are 
118

invoked during electric supply shortages. In the future, they could also be used when 

transmission congestion exists and/or when localized T&D overloading occurs. 

Load management programs incorporate pricing and/or direct load control to ‘manage’ peak 

demand during electric supply energy and/or capacity shortfalls. The objective is to create 

‘dispatchable’ demand reduction (i.e., utility customer loads that can be remotely controlled by 

the ISO, when needed, to address energy or capacity shortfalls.) When needed, the power draw 

of the demand response ‘resource’ is reduced, thereby reducing the need for generation. 

5.4.1.3. Electric Service Pricing Approaches Not Addressed 

In addition to time-of-use energy prices that reflect predetermined price for energy used within a 

predetermined time period, there is a steady movement toward ‘dynamic’ pricing involving 

energy prices that reflect current conditions and that may change as frequently as several times 

per hour. Similarly, there is movement to location-specific electricity prices, commonly referred 

to as locational marginal pricing (LMP). No attempt was made to address those pricing 

approaches in this report. 
119

6. Storage Value Propositions 

6.1. Introduction 

This section provides an overview of the concept of storage value propositions, including 

coverage of important elements and considerations. 

A value proposition is characterized by 1) one or more (combined) applications plus 2) attractive 

financial returns (i.e., benefits that exceed costs by the ‘hurdle rate’ of return). In some cases, 

storage used for just one application may provide attractive returns. In other circumstances, it 

may be necessary to combine benefits from two or more applications so that total benefits exceed 

total cost. Hence, this report emphasizes the important concept of combining applications for 

benefits aggregation. 

Of course, applications must be compatible if they are to be combined. A combination of 

applications is technically compatible if the same storage system can be used for all of the 

applications. A combination of applications has operational compatibility if there are no 

operational conflicts among the applications. As a general indication, the synergies matrix shown 

in Table 37 provides an overview of the possible compatibility among the various applications 

characterized in this document. 
120
121

Table 37. Applications Synergies Matrix 

Application

Electric 

Energy 

Timeshift

Electric 

Supply 

Capacity

Load 

Following

Area 

Regulation

Electric 

Supply 

Reserve 

Capacity

Voltage 

Support1

Transmission 

Congestion 

Relief1

T&D 

Upgrade 

Deferral1

Time-ofUse 

Energy 

Cost 

Management1

Demand 

Charge 

Management1

Electric 

Service 

Reliability1

Electric 

Service 

Power 

Quality1

Electric Energy Timeshift z ~ }* ~ z z† z† 8 8 88

Electric Supply 

Capacity z ~* }* ~* z ~† z† 8 8 88 

Load Following ~ ~* }* ~* ~ }X ~X * }* ‡ }* ‡ 88

Area Regulation }* }* }* }* 8 }X * 8 8 8 88

Electric Supply 

Reserve Capacity ~ ~* ~* }* z }* ~* ~* ‡ ~* ‡ 8 8 

Voltage Support1 z z~8 z ~ z ~‡ ~‡ ~‡ ~‡ 

Transmission 

Congestion Relief1 z† ~† }X }X * }* ~ ~X † ~† ~† | 8 

T&D Upgrade 

Deferral1 z† z† ~X * 8 ~* z ~X † ~† ~† | 8 

Time-of-Use Energy 

Cost Management1 8 8 }* ‡ 8 ~* ‡ ~‡ ~† ~† z† z z 

Demand Charge 

Management1 8 8 }* ‡ 8 ~* ‡ ~‡ ~† ~† z† z z 

Electric Service 

Reliability1 8 888 8 ~‡ ||zz z 

Electric Service Power 

Quality1 8 888 8 ~‡ 8 8 z z z 

Renewables Energy 

Time-shift ~ }X * } | }* ~# ‡ ~# ~# ~# ~# ~# 8 

Renewables Capacity 

Firming ~ }X * 8 | }* ~# ‡ ~† ~† ~† # z† # ~# 8 

Wind Generation Grid 

Integration } 888 |* 8 8 8 8 8 88 

z Excellent ~ Good } Fair | Poor 8 Incompatible
122

Notesa. For Area Regulation: Assume that storage cannot be connected at the distribution level.b. For Voltage support: Assume that a) storage is distributed and b) the storage system includes reactive power capability.c. For Reserve Capacity: Must have stored energy for at least one hour of discharge (i.e., so can offer useof the storage as resed. For T&D Load Following: For load following up (mornings) or down (evenings) involving charging; must pay prevailing energy e. For T&D Deferral: Annual hours of discharge range from somewhat limited to none. So storage is available for other applicatif. For Time-of-use Energy Cost Management and Demand Charge Management: Assume discharge for 5 hrs./day (noon to 5:00 g. Transmission Support (not shown) is assumed to be mostly or entirely incompatible with other applications.Annotations1Requires distributed storage that is located where needed.x Somewhat to very circumstance-specific, especially regarding timing of operation and/or location.* Most storage cannot provide power for both applications simultaneously.† Presumably discharge is somewhat to very coincident for the two applications.# For distributed storage: charging energy a) from onsite renewable generation and/or or b) purchased from offsite renewable g‡ Requires utility dispatch of onsite storage.
123

6.2. Benefits Aggregation Challenges 

There are some notable challenges associated with benefits aggregation. One important theme in 

that regard is that much of the knowledge, perspective and experience needed for savvy and 

effective benefit aggregation are yet to be acquired because benefit aggregation is just becoming 

common practice. Given that premise, significant education and research are needed to provide 

important evidence to key stakeholders, especially utility regulators and utility engineers and 

financial decision-makers, about the merits and importance of benefits aggregation. 

The following (listed in no particular order) are some of the reasons that benefit aggregation is 

challenging and not common practice: 

• The potential for technical and/or operational conflicts. 

• Regulatory ‘permission’ does not exist. 

• Engineering standards and tools do not exist. 

• Weak or non-existent price signals make it difficult for some stakeholders to internalize 

some/many benefits. In other words, inefficient markets. 

• Prevailing utility technological and financial biases against any untested or unfamiliar 

solution, and consequently, the slow pace of change in the utility industry. 

• Some storage benefits have been demonstrated insufficiently or not at all. 

• The benefits that do exist tend to be difficult to aggregate in practice because, for 

example, different benefits accruing to several stakeholders must be coordinated for a 

given value proposition to be financially attractive and operationally viable. 

6.2.1. Technical Conflicts 

In some cases, storage systems do not have the features or performance characteristics needed to 

serve multiple applications. One example is storage that cannot tolerate many deep discharges. 

Such storage systems could be well-suited for T&D deferral because storage might be used 

infrequently for that application, but the same storage system is not suitable for energy timeshift, which requires a lot of charging and discharging. 

Another example is storage that cannot respond rapidly to changing conditions. Such systems 

may be suitable for energy time-shift or to reduce demand charges, but they may not be able to 

provide transmission support or end-user power quality benefits. 

Another important criterion affecting technical compatibility is the storage’s discharge duration. 

Storage whose discharge duration is optimized for some applications may not have enough 

discharge duration to serve other applications. Additionally, less reliable (though lower cost) 

storage systems may be suitable for energy time-shift or TOU energy cost reduction benefits; 

however, such systems could not be used for demand reduction, T&D support, or T&D deferral 

benefits because those applications require high reliability for the benefits to accrue. 

6.2.2. Operational Conflicts 

When estimating combined benefits for a value proposition, it is important to consider all 

potential operational conflicts between the applications being combined. Operational conflicts 
124

involve competing needs for a storage plant’s power output and/or stored energy. For example, 

when storage is providing power for distribution upgrade deferral it cannot be called upon to 

provide backup power for electric service reliability. Another example is storage that is being 

used for most types of ancillary services: That same storage cannot be used for most other 

applications (e.g., electric energy time-shift or transmission congestion relief) at the same time. 

6.2.3. Aggregating Benefits among Stakeholders 

One of the biggest challenges for many otherwise financially attractive value propositions is 

aggregating benefits that accrue to different stakeholders. Specifically, many of the benefits 

described in this report accrue to specific electricity end users, some to the ratepayers as a group, 

and others to utilities. Furthermore, various benefits accrue to different utility subsidiaries 

(e.g., electric supply, transmission, distribution, customer service and unregulated business 

activities) that do not necessarily have the same incentives or biases. 

Five ‘beneficiary stakeholders’ are worth noting because most benefits accrue to them: 

1) specific electricity end users (e.g., those who use storage to reduce electricity cost); 2) utility 

ratepayers at large; 3) the utility, especially T&D and electric supply business units; 

4) ‘merchant’ storage project owners (i.e., entities that use storage for profit only); and 5) society 

at large (e.g., for improved environmental quality). In addition to the beneficiary stakeholders, 

there may other stakeholders with which aggregators must coordinate including regulators, ISOs, 

permitting agencies, and affected localities/communities. 

Consider storage for T&D deferral. Utility ratepayers would be better off if the cost incurred per 

kWh of energy delivered is reduced, as would be the case with cost-effective T&D deferral. 

Nevertheless, in some circumstances ratepayers’ interest may be at odds with investor-owned 

utilities’ need to invest in equipment to generate dividends. (Recall that IOUs do not make any 

profit from mark-up on energy or fuel purchases, rather energy and fuel purchases are treated as 

‘pass-throughs’ meaning that the utility passes the cost for energy on to end users without any 

mark-up or profit.) 

Similarly, in some circumstances, specific electricity end users that install storage to reduce TOU 

energy cost and/or to reduce demand charges may actually reduce revenues needed to cover the 

utility’s carrying cost for investments in generation and/or T&D equipment. 

Consequently, when aggregating benefits into a value proposition, it is important to acknowledge 

and address the ‘cross-cutting’ nature of storage value propositions and the diversity of topics, 

stakeholders, motivators, and incentives that must be considered when developing or pursuing an 

actual project involving an electric utility-related energy storage value proposition. 

Section 7.1 provides some additional details about important stakeholders and Section 7.2 

provides an introduction to important challenges that may affect prospects for benefits 

aggregation. 

6.2.4. Effect on Market Potential 

As described in Section 4, it is important to consider the effect on market potential when 

combining applications. The market potential for specific combinations is almost certainly not 

the sum of the market potential for individual applications. 
125

6.3. Notable Application Synergies 

Each application characterization in Section 3 included a summary of notable synergies with 

other applications. A few application synergies in particular stand out within the context of 

developing attractive value propositions. 

6.3.1. Electric Energy Time-shift and Electric Supply Capacity 

Although it is important to maintain a crisp distinction between capacity-related and energyrelated applications (and benefits), there are important synergies between the two. Those 

synergies exist if use of energy and need for capacity occur concurrently (which is fairly 

common). For example, storage used by an end user to reduce TOU energy charges could also 

reduce the same end user’s demand charges; provide dispatchable load control as a system 

resource; or reduce loading on T&D capacity to reduce congestion or for T&D deferral. Another 

example is storage used for electric energy time-shift. It can provide electric supply capacity 

benefits because the times when energy has a high value coincide with high capacity value. 

6.3.2. Electric Supply Reserve Capacity 

Electric supply reserve capacity is especially compatible with other application/benefit 

combinations. (See Section 3.3.3 for details.) The most important reasons are 1) most times 

storage is used for reserves,so it may not have to discharge; 2) storage can provide two times its 

power as reserve capacity while charging; and 3) if there is an hour-ahead market for reserve 

capacity, then decisions can be made almost in real-time regarding the merits of discharging (if 

needed) versus saving the energy for later, for more benefit. 

6.3.3. Load Following 

Load following is somewhat compatible with storage used for other applications, primarily 

because storage can provide load following (up or down) while charging. (See Section 3.3 for 

details.) So, while storage is being charged (so that it can serve one ore more other applications), 

the same storage can provide load following. 

6.3.4. Transmission and Distribution Upgrade Deferral 

The T&D upgrade deferral application (and the closely related T&D life extension application), 

may be compatible with several applications. Probably the most important consideration is that 

storage used for T&D deferral or life extension is needed for just a few tens of hours to perhaps 

200 hours per year. Consequently, storage can be used for other applications for as much as 95% 

of the year. And, in most cases storage discharge for T&D deferral or life extension is likely to 

occur when the energy and the capacity are both valuable from an electric supply perspective. 

Similarly, depending on the location, the same storage could also be used for transmission 

congestion relief. 

6.3.5. Demand Charge Management and Time-of-use Energy Cost 

Management 

Storage used to manage TOU energy cost and/or demand charges could provide other important 

benefits. First, the same storage used for those purposes could also be used to improve on-site 

electric service reliability and/or power quality. Also, if the storage is located in a part of the 

T&D system that is heavily loaded during peak demand times, then the same storage could also 
126

provide benefits for T&D upgrade deferral or life extension. Similarly, the same storage could be 

used to reduce transmission congestion, if the storage is located downstream from congested 

parts of the transmission system. The same storage could also provide electric service reserve 

capacity during much of the year. 

6.3.6. Electric Service Reliability and Electric Service Power Quality 

Presumably, storage used to improve electric service reliability and/or electric service power 

quality would have a discharge duration of a few minutes to perhaps an hour. Consequently, 

storage used for those applications may not be suitable for many other applications. Storage 

deployed mainly for other applications, however, may be well-suited for improving reliability 

and/or power quality if a modest amount of storage is added to provide additional discharge 

duration relative to the discharge duration needed for the other application(s). 

6.4. Distributed Energy Storage 

Because distributed energy storage can be used for more applications than larger, central storage, 

distributed storage may be used for a broader spectrum of value propositions. 

It is important to distinguish between locational benefits and non-locational benefits. Locational 

benefits are those that can be realized only if distributed storage is deployed where needed. Nonlocational benefits can be realized regardless of distributed storage’s location. 

6.4.1. Locational Benefits 

Locational benefits include transmission congestion relief, T&D upgrade deferral, TOU energy 

cost management, demand charge management, electric service reliability, and electric service 

power quality. Additionally, the way voltage support is defined in this report, storage used for 

voltage support should be located close to inductive loads. Depending on the circumstances, 

benefits for renewables energy time-shift and renewables capacity firming also may be 

locational, if for example, the renewable energy generation is distributed (e.g., photovoltaics). 

6.4.2. Non-locational Benefits 

Non-locational benefits that can accrue if distributed storage is used include electric energy timeshift, electric supply capacity, load following, and electric supply reserve capacity. Depending on 

the circumstances, benefits for renewables energy time-shift and renewables capacity firming 

may be non-locational, if for example, the renewable energy generation is deployed in large wind 

farms or solar thermal generation that is remote to load centers. 

6.5. Storage Modularity 

As described in Section 2.14, to one extent or another, most storage technologies can be 

deployed as relatively small modules. Some storage technologies (especially batteries, capacitors 

and, to a lesser extent, flywheel storage) are inherently modular. Although normally considered 

to be suitable for large single-site storage projects, even above-ground CAES and small pumped 

hydroelectric storage could be modular (though above-ground CAES and pumped hydroelectric 

‘modules’ are probably larger than those of other modular storage technologies.) 

Use of modular electric resources (including electricity storage) could lead to a profoundly 

different electric utility capacity expansion philosophy than that which prevailed during the 
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previous century because smaller, modular resources offer more diverse, robust, and optimizable 

approaches versus the ‘limited and lumpy’ options used in the past. Furthermore, modular 

resources can be used for a wider array of applications than larger, less modular options. 

Importantly, smaller, more modular resources tend to be more expensive (per kW, and for 

storage, per unit of discharge duration). Further, in many cases, more modular resources are less 

energy efficient. 

The following notable considerations that are specific to modular distributed storage are 

described below: 

• Optimal Capacity Additions 

• T&D Planning Flexibility 

• Unit Diversity 

• Resource Aggregation 

• Transportability 

6.5.1. Optimal Capacity Additions 

One of the most attractive aspects of modularity is that capacity can be added incrementally, 

where and as needed (i.e., for ‘just-in-time’ capacity). Modularity may also enable cost-effective 

redeployment of storage capacity. For utilities, modularity (and redeployment) may reduce both 

the total cost of service for and the risk associated with larger, more ‘lumpy’ investments in 

infrastructure (e.g., T&D capacity additions). 

6.5.2. T&D Planning Flexibility 

One important feature of any modular resource, including storage, is that it allows for more 

flexible responses to challenges than are possible using the limited number of conventional 

utility solutions. (See Section 5.3.9 for more about flexibility.) 

6.5.3. Unit Diversity 

One reason to use modular electricity resources is that the aggregate capacity from those 

resources is probably more reliable than the aggregate capacity provided by larger, less modular 

resources because, at any time, only one module (or at most a few modules) is likely to be 

unavailable for service, so the resources’ aggregate capacity is only minimally affected. In 

contrast, the failure of a single or less diverse resource means that all or a significant portion of 

the resource’s capacity is unavailable to serve load. 

6.5.4. Resource Aggregation 

For value propositions involving residential or small-to-medium commercial end users, the effort 

required to investigate, analyze, design, purchase, install, and operate storage and other modular 

electricity resources (including demand response, distributed generation, and PHEVs) is a 

significant and possibly expensive challenge. In those circumstances, load aggregators – or more 

generally, electric resources aggregators – may be positioned to address many of the 

administrative, legal, and regulatory challenges on behalf of owners of many small individual 

resources. 
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6.5.5. Transportability 

Modular energy resources (including storage) that can be moved somewhat-to-very easily may 

be used in two (or more) locations at different times. This feature is especially attractive if the 

challenges addressed with the transportable resources tend to be transitory (i.e., lasting just one 

or a few years). Thus, transportable storage used to address a challenge at one location in a given 

year may be relocated to address a similar or different challenge at another location, in a 

subsequent year. In fact, transportable storage could even be used at two different locations in 

the same year if the locations’ challenges occur during different seasons. 

Consider a realistic example: Transportable storage used 1) at one location with a sharp, but 

infrequent, summer peak caused by residential air conditioning loads, and 2) at another location 

that has demand peaks during winter driven by heating loads. Transportability is also attractive 

for locations where capacity or energy needs change from one year to the next. 

6.6. Value Proposition Examples 

This section includes a characterization of possible value propositions involving combinations of 

technically and operationally compatible applications. Importantly, these are just a few of the 

possible combinations. Not included are value propositions that are technically incompatible 

(i.e., the application-specific storage needs are different). 

6.6.1. Electric Energy Time-shift Plus Transmission and Distribution 

Upgrade Deferral 

One notable application combination is electric energy time-shift plus T&D deferral. In many, 

(and perhaps most) cases, localized T&D peak demand coincides with ‘system’ (supply and 

transmission) peak demand periods. Consequently, it is likely that the energy discharged while 

storage is serving the T&D upgrade deferral application has a high value. Furthermore, in most 

cases, storage used for T&D upgrade deferral discharges for a very small portion of the year, if at 

all. So, storage used for T&D upgrade deferral during a small number of hours/days per year can 

also provide electric energy time-shift-related benefits during almost the entire year. Even if 

storage does not provide T&D upgrade deferral benefits in any given year, it can still be used for 

electric energy time-shift (and possibly other applications such as electric supply reserve 

capacity). 

6.6.2. Time-of-use Energy Cost Management Plus Demand Charge 

Management 

Many, and perhaps most, electricity end users who pay demand charges also pay TOU energy 

prices. Demand charges are most common for larger, non-residential end users, although that 

may be changing. An attractive scenario for this value proposition may be indicated by a 

combination of high on-peak demand charges, high on-peak energy prices, low or no off-peak or 

‘facility’ or ‘baseload’ demand charges, and low off-peak energy prices. 

6.6.3. Renewables Energy Time-shift Plus Electric Energy Time-shift 

It is often suggested that energy storage could be used to significantly increase the value of 

renewables’ intermittent output. In many cases, however, the incremental benefit may not be 

commensurate with the incremental cost of the storage plant. Another possibility is a project 
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involving use of storage to time-shift energy from intermittent renewables and to time-shift 

wholesale electric energy from the grid. The same storage could even be physically decoupled 

from the generation and located where other benefits may accrue as well. For example, storage 

used to time-shift energy from wind generation and to time-shift energy from the grid could 

provide transmission support or even, conceivably, a T&D upgrade deferral benefit, depending 

on the storage system’s location. 

6.6.4. Renewables Energy Time-shift Plus Electric Energy Time-shift 

Plus Electric Supply Reserve Capacity 

Depending on circumstances, the same storage used for the value proposition described above 

(renewables energy time-shift plus electric energy time-shift) could also be used for electric 

supply reserve capacity. When the storage is charged and idle, it could provide reserve capacity. 

When it is charging, the storage could provide 2× its rated power as reserve capacity. It is even 

conceivable that storage could provide load following and provide reserves while charging if 

charging occurs during times when load is picking up (usually in the morning) and/or when load 

is dropping off (usually in the evening). 

6.6.5. Transportable Storage for Transmission and Distribution Upgrade 

Deferral and Electric Service Power Quality/Reliability at Multiple 

Locations 

For this value proposition, transportable storage is used at ten different locations for either T&D 

upgrade deferral or to improve electric service power quality and/or electric service reliability. 

The benefit for T&D upgrade deferral is assumed to be $367/kW-year of storage, and the benefit 

assumed for electric service power quality/reliability is $75/kW-year of storage. 

Consider this hypothetical scenario: Transportable storage is used at five different locations for 

one year of T&D upgrade deferral at each location, in alternating years. In the other five years, 

when the storage is not used for T&D upgrade deferral, it provides a benefit related to improving 

local electric service power quality and/or electric service reliability. The benefits for that 

scenario are shown in Figure 20. As shown in the figure’s right-side Y-axis, the present worth of 

the annual benefit is nearly $1,700/kW of storage. So, if storage can be owned and operated for 

less than $1,700/kW, for 10 years, then it would be a financially attractive option. That value 

would provide a helpful target for lifecycle cost for modular electric energy storage (in this case, 

with a 10-year life). 
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0

50

100

150

200

250

300

350

400

1 2 3 4 5 6 7 8 9 10

Year

Annual Benefit ($PW / kW) 

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

 Cumulative Value $PW / kW

Single Year Reliability/PQ Value

Single Year Deferral Value

Cumulative Value ($PW)

Figure 20. Value proposition for transportable storage. 

6.6.6. Storage to Serve Small Air Conditioning Loads 

Using storage in conjunction with smaller air conditioning (A/C) units, especially residential and 

small commercial ‘package’ units, could be the basis for a compelling value position, for several 

reasons, most importantly 1) A/C loads comprise a significant portion of peak demand, 2) many 

A/C loads only operate for a few hundred hours per year, 3) small A/C motors pose an especially 

difficult challenge during grid-wide voltage emergencies that can exacerbate regional power 

outages, and 4) storage used to serve air conditioning loads could be available for most of the 

year for other benefits. 

In many regions, A/C comprises a significant portion of peak demand. While circumstances are 

different in each region, based on the values shown in Figure 21, A/C accounts for 30% of 

summer peak demand in California. Note also that about 53% of all A/C-related demand in 

California is for commercial electricity users and about 47% of A/C-related demand is for 

residences.[82] 

Given A/C’s significant contribution to peak demand, utilities may incur a substantial 

A/C-related capacity cost – for generation, transmission, and distribution equipment to serve A/C 

load, but most A/C – especially small residential and commercial units – is operated for 

relatively few hours per year. The primary effect is that the utility receives relatively little annual 

revenue per kW of small A/C load served when compared to other common load types. So, 

smaller A/C loads cost a lot to serve (per kW) because they require so much capacity 

(equipment) even though limited use of small A/C equipment leads to low revenues (per kW). 

The consequence is very poor asset utilization. 
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0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Commercial AC

Residential AC

Assembly Industry

Commercial Light

Residential Misc

Commercial Misc

Other Com Bldgs

Ag & Water Pumping

Process Industry

Residential Refrigerator

15% 14%

11% 11%

8%

7%

4% 4% 4% 4%

MW

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Commercial AC

Residential AC

Assembly Industry

Commercial Light

Residential Misc

Commercial Misc

Other Com Bldgs

Ag & Water Pumping

Process Industry

Residential Refrigerator

15% 14%

11% 11%

8%

7%

4% 4% 4% 4%

MW

 Source: California Energy Commission.[83] 

Figure 21. Components of peak electric demand in California. 

6.6.6.1. Storage for Air Conditioning: Increased Utility Asset Utilization 

The concept of poor asset utilization is illustrated graphically by the load duration curve (LDC) 

in Figure 22 and Figure 23. An LDC is a plot of hourly demand values, usually for one year, 

arranged in order of magnitude, irrespective of which hour during the year the demand occurs. 

Values to the left represent the highest levels of demand during the year, and values to the right 

represent the lowest demand values during the year. 

The LDC in Figure 22 represents hourly load on a part of a distribution system during a specific 

year. Figure 23 includes only the highest 2% of demand values from those shown in Figure 22. 

The LDC shown, though real, represents a relatively extreme case (i.e., the ratio of peak demand 

to average demand is unusually large). It was chosen because it illustrates well the concept of 

poor asset utilization. Specifically, as shown in Figure 23, 10% of the annual maximum demand 

occurs during about 0.4% of the year. Importantly, a significant portion of that demand is from 

A/C loads. 

Storage use could increase asset utilization by reducing or eliminating the need for capacity, on 

the margin, and by providing charging energy for the storage during off-peak hours when 

generation, transmission, and distributions assets are usually underutilized. 

Depending on the location and circumstances, storage serving smaller A/C loads could reduce 

the need for generation and T&D capacity and could lead to increased utilization of existing 

equipment (assets). It is likely that an energy time-shift benefit will also accrue incidentally. 
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0.0

0.8

1.6

2.4

3.2

4.0

4.8

5.6

6.4

7.2

8.0

0 876 1,752 2,628 3,504 4,380 5,256 6,132 7,008 7,884 8,760

Hours

MVA

Figure 22. Load duration curve for an electricity distribution node. 

6.0

6.2

6.4

6.6

6.8

7.0

7.2

7.4

7.6

7.8

8.0

0.00% 0.25% 0.50% 0.75% 1.00% 1.25% 1.50% 1.75% 2.00%

Percent of All Annual Hours

MVA

Figure 23. Portion of load duration curve with highest values. 
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6.6.6.2. Storage for Air Conditioning: Voltage Support 

The voltage support benefit is notable because, as described in Section 3.3.4, small A/C motors 

pose a considerable challenge during grid emergencies by drawing additional current as voltage 

drops. This can pose a relatively significant challenge as the grid is re-energized after outages. 

Additionally, conventional capacitors used to manage localized voltage drops (due to reactance) 

under normal circumstances do not perform well as voltage support resources. 

Consider one operational scenario: Distributed storage is used to serve small A/C equipment 

under normal grid conditions. If there is an ‘electric supply emergency,’ then the storage 

responds like other demand response resources by turning off the A/C equipment and providing 

power to the grid. If the storage’s PCU has reactive power capability then the storage system 

could also provide reactive power as described in Appendix C. 

Assuming that storage is located at or near A/C loads, the storage could provide several other 

important benefits, including at least two non-locational benefits: electric supply reserve 

capacity and load following. Additionally, locational benefits could include transmission 

congestion relief; improved electric service reliability and/or localized electric service power 

quality; and localized voltage support. Storage for smaller A/C loads could also be an important 

element of a robust Smart Grid and/or demand response implementation. The storage could also 

be used for wholesale or renewables energy time-shift on days that it is not needed for A/C loads. 

One technical challenge is the amount of in-rush current needed for A/C compressor motor 

startup. Storage system PCUs may not be capable of providing the in-rush current needed. One 

way to address that issue is by using a hybrid storage system with two types of storage: one type 

that can provide high power for short durations, such as capacitors, and another that provides 

nominal power for long durations. Another possibility is to use the grid to provide some or all of 

the current during compressor motor startup (only during normal operating conditions for the 

grid). Given the diversity of compressor motor startups, presumably, providing in-rush current 

would not have an adverse affect on the grid. 

Note that utility thermal energy storage incentives and programs are justified based on some of 

the same benefits described above primarily reduced demand for generation capacity and 

reduced cost for on-peak energy and, possibly, for reduced need for transmission capacity. 

6.6.7. Distributed Storage in lieu of New Transmission Capacity 

Distributed energy storage could be one important response to expected transmission capacity 

shortfalls. The need for new transmission capacity is driven by increasing peak demand and onpeak electric energy use; increasing interconnectedness of the grid and use of interregional 

generation resources; and increased deployment of renewable energy generation. Storage could 

help if it is located near load centers and charged during off-peak times, usually at night, when 

transmission systems are not heavily loaded; T&D I2R energy losses are relatively low; and 

energy price tends to be low. 

During on-peak times storage is used to serve load, reducing the amount of power used during 

peak demand periods, thus reducing loading on the transmission equipment. Four primary 

benefits of such use are 1) reduced need and cost for transmission capacity, 2) increased 

transmission asset utilization, 3) reduced T&D energy losses, and 4) energy time-shift. Of 

course, because the storage is distributed it could also be used for other locational benefits. 
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6.6.8. Distributed Storage for Bilateral Contracts with Wind Generators 

In many areas, a significant portion of wind energy is produced at night when the energy’s value 

is relatively low. Additionally, at some times of the year the supply of electric energy being 

generated exceeds demand for energy. One possible way to make better use of that energy is to 

use it to charge distributed storage. 

Although several possible transactional frameworks could be used, one involves a bilateral 

contract between wind energy vendors and storage owners. Of course, either of those parties 

could use agents such as aggregators. Several benefits are possible using such a framework. The 

storage owner could use the storage to manage energy and demand charges or to enhance electric 

service reliability and/or power quality. Depending on the circumstances, distributed storage 

could reduce congestion of existing transmission capacity or delay or reduce need for new

transmission capacity. 

6.7. The Societal Storage Value Proposition 

Although many benefits can be partially or totally internalized by the storage owner/user; an 

important factor that affects prospects for increased storage use is that some notable benefits 

accrue – in part or in whole – to utility customers as a group and/or to society at large. That leads 

to the compelling concept of a societal value proposition for storage. 

The storage-related societal value proposition may include, but is not limited to, the following 

benefits (presented in no particular order): 

• Reduced need for equipment and land for on-peak generation and transmission capacity. 

• Increased asset utilization of existing utility generation, transmission, and distribution. 

• Enabling superior operation of the existing generation fleet (i.e., dynamic operating 

benefits) and transmission capacity. 

• Reduced reliance on fossil fuel and increase energy security. 

• Reduced air emissions. 

• Reduced transmission and distribution energy losses. 

• Enabling superior renewables integration to optimize benefits and to reduce integration 

cost and challenges. 

• Enabling superior value from Smart Grid. 

• Reduced cost-of-service (e.g., by energy time-shift). 

• Improved business productivity due to improved electric service reliability and power 

quality. 

• Reduced need and cost for and extraction and refining of key commodities that would be 

needed to build conventional electric utility capacity; primarily, steel, aluminum, and 

copper. 

The societal value proposition is an important consideration given the significant role that 

storage could and should play in the electricity marketplace of the future. Stakeholders that may 

need to understand and to consider the societal value for storage include existing and prospective 
135

storage beneficiaries, such as electric utilities and their customers; electric utility regulators; 

energy and electricity policymakers and policy analysts; and storage advocates. 

Robust consideration of the societal value proposition for storage is important for reasons similar 

to those that drive the need to consider the societal value proposition for energy efficiency, 

demand response, distributed resources, and renewables. Perhaps the most important reason is 

that although the cost for storage may exceed the internalizable benefits, the cost may be lower 

than the combined value of internalizable benefits plus societal benefits. (See Section 1.4.2 

which addresses the concept of internalizable benefits.) 

It is important for lawmakers, regulators, and policymakers to be inclusive as they develop, 

consider, and promulgate regulations and policies whose outcomes/results could be improved if 

storage is used. For example, relevant decision-makers should consider the ways that storage 

could improve prospects for success regarding environment, energy, and electricity-related 

policy objectives such as increased use of renewables and reduced need for transmission 

infrastructure. 

Similarly, it is important to consider incidental/unintended negative effects that laws, regulations, 

and policies may have on prospects for increased storage deployment. Consider an example: 

Many utilities do not have ‘regulatory permission’ to own distributed/modular resources 

(especially storage and generation) even though those alternatives may afford a superior means 

to serve load on the margin, vis-à-vis conventional ‘lumpy’ capacity additions, especially T&D 

capacity. (See Section 3.4.3 for more details.) 

Finally, the societal value proposition may overlap with, and may be somewhat or even very 

coincidental to, an owner/user storage value proposition that involves direct/internalizable 

benefits. Consider a storage owner that uses storage to reduce on-peak TOU energy cost and 

peak demand charges. In that example, some societal benefits could include reduced land use 

impacts associated with reduced construction of new generation and transmission capacity; 

improved utility asset utilization; reduced air emissions; and improved business cost 

competitiveness. 
136
137

7. Electricity Storage Opportunity Stakeholders, Challenges, 

and Drivers 

This section presents potentially important topics and factors to consider when evaluating 

prospects for storage. Included are lists of the following: possibly important stakeholders, 

important challenges facing prospective storage users and developers, and notable storage 

opportunity drivers. Also included are brief characterizations of several important developments 

that could be significant drivers of many attractive electric utility-related storage opportunities: 

• Increasing recognition by lawmakers, regulators, and policymakers of the important role 

that storage should play in the electricity marketplace of the future 

• Increasing sophistication and savvy of load and distributed resource aggregators 

• Increasingly rich price signals for electric utility-related services 

• Tax and regulatory incentives 

• Growing transmission capacity constraints 

• Expected proliferation of PEVs and PHEVs 

• Increased use of intermittent renewables 

• Increasing focus on distributed resources 

• Need to reduce generation fuel use and air emissions 

• Innovation that drives improvements to storage technology and storage 

subsystem technologies 

• An increasingly ‘smart’ grid that enables effective integration of some renewables and 

integration and dispatch of distributed resources including demand response, generation 

and storage 

7.1. Stakeholders 

There is a wide range of possible stakeholders in the electric-utility-related electricity storage 

opportunity. Of course, not all possible storage uses or projects must accommodate all of the 

stakeholders. The importance of particular stakeholders varies depending on factors such as the 

application(s), storage size and type, region, the utility or utilities involved. So, it is important to 

be familiar with the spectrum of possible stakeholders when formulating or evaluating value 

propositions. 

Key ‘beneficiary stakeholders’ (i.e., parties that derive benefit from storage) include the 

following: 

• Specific ratepayers that use storage to reduce electricity cost 

• Utility ratepayers at large (if storage reduces the utility’s overall cost-of-service which 

leads to reduced electricity price) 

• Utilities 
138

• ‘Merchant’ storage project owners (entities that use storage for profit only) 

• Aggregators 

• Storage equipment and services providers 

• Society (e.g., for improved environmental quality and economy) 

Several important institutional or ‘gatekeeper’ stakeholders include the following: 

• Engineering and standards community (e.g., the American Society of Mechanical 

Engineers, the IEEE, the National Electrical Code, etc.) 

• Federal and state energy/utility regulatory agencies 

• Regional ISOs 

• Local safety, siting, planning, and land use agencies 

• Host communities 

Other possibly important stakeholders include the following (presented in no particular order): 

• Bill payers (often end users and bill payers are not the same people/entity) 

• Utility functional entities (e.g., electric supply, transmission, distribution, customer 

services, unregulated subsidiaries) 

• Storage system integrators, project developers, architecture and engineering firms 

• Politicians 

• Electricity and environmental regulators 

• Electricity, energy, and environment policymakers 

• Electricity, energy, and environment researchers and research programs 

• Smart Grid 

• Independent power and energy services providers 

• City and community planners and zoning officials 

• Permitting agencies (e.g., fire and health and safety) 

• Landlords and property managers 

• Storage advocates and advocacy organizations (e.g., the Electricity Storage Association) 

• Ratepayer and energy user advocacy groups 

• Trade groups for specific industries and/or large commercial energy users 

7.2. Challenges 

To be sure, there are challenges that will affect efforts to site or deploy storage for many 

potentially attractive value propositions. Readers should be aware of those challenges when 

considering prospects for storage to be used for specific value propositions. 
139

What follows is a summary list including some of the most important challenges that could face 

storage users and project developers as the storage opportunity unfolds. (See Appendix G for a 

more detailed list.) 

• Storage’s relatively high cost per kW installed 

• Lack of storage-related regulatory rules and ‘permission,’ especially regarding distributed 

storage 

• Prevailing electric energy and services pricing that are not economically efficient (though 

this is changing) 

• Limited risk/reward sharing mechanisms 

• Permitting and siting rules and regulations 

• Limited familiarity, knowledge, and experience base (for storage) 

• Existing utility technology biases 

• Limited storage-related engineering standards and evaluation methodologies and tools 

• Financing of any ‘new’ technology is challenging 

• Investor-owned utility preference for investments in equipment and aversion to expensebased alternatives 

• Inadequate infrastructure features and ‘hooks’ needed to accommodate or to optimize 

benefits from storage, especially distributed storage 

• Competition among many technologies, concepts, and programs (e.g., demand response, 

Smart Grid, distributed generation, renewables, etc.) 

• Coordinating among numerous stakeholders, for ‘permission’ to use grid-connected 

storage and./or to aggregate benefits 

7.3. Opportunity Drivers 

The following is a list of possibly important drivers of the energy storage opportunity in the 

emerging electricity marketplace. Note that some of these drivers are also included in the list of 

challenges. The opportunity drivers identified by the authors include the following (in no 

particular order): 

• Increasing interest in storage by politicians, regulators, and policymakers: 

) Battery development that is driven by automotive/transportation 

o For renewables integration 

o For transmission congestion relief and to reduce need for new transmission 

• The emerging electricity marketplace: 

o Competition 

o Richer electricity-related price signals: 

 A general trend toward disaggregation of prices for energy and services 
140

 Locational prices 

 TOU prices 

o A broad range of new electric, control, and information technologies 

• Increasing emphasis on intermittent renewable energy-fueled generation 

• Generation and transmission capacity constraints and transmission congestion 

• Existing and prospective incentives to install storage: 

o Tax-related issues 

o Regulatory/utility issues 

) Storage provides similar or even superior benefits to non-storage resources that 

are currently eligible for incentives (e.g., end-use efficiency, demand response 

and distributed generation). 

• Surging interest in electric vehicles, PEVs, and PHEVs: 

) Will affect grid cost and operations 

) Key impetus for battery technology improvements 

• Growing use of demand response: 

o Especially in lieu of upgrading generation and transmission capacity 

o When energy is too expensive or not available 

• Smart Grid 

• Load aggregation 

• The important role of independent power providers and energy services providers 

• Growing emphasis on modular DER: 

o Distributed generation 

o Geographically targeted demand response and energy efficiency 

o Distributed energy storage 

• Increasing emphasis on reducing air emissions from the electric supply 

• NIMBY (not in my backyard) and BANANA (build absolutely nothing anywhere 

near the area): 

o Large-scale generation (conventional and renewables) 

o Transmission issues 

• Growing preference for reduced fuel use 

• Accelerating energy storage technology innovation (especially batteries, and to a lesser 

extent, capacitors and CAES) 
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7.4. Notable Developments Affecting Prospects for Storage 

This section includes brief characterizations of ten important developments – mostly in the 

electricity marketplace – that could be especially important drivers of many attractive electricutility-related opportunities for storage. 

7.4.1. Smart Grid and Electricity Storage 

In broad terms, the vision for the Smart Grid is to increase operational efficiencies; improve 

electric service reliability; increase utility customer retention; and optimize capacity expansion 

(generation, transmission, and distribution) asset utilization. 

Smart Grid acts as a controlling mechanism for the Advanced Metering Infrastructure (AMI) and 

smart meters. AMI and smart meters, in turn, enable two-way communication between a utility 

and its customers. Consider one concrete example: Smart Grid is expected to reduce energy use 

and peak demand by providing rich price signals using real-time data about energy cost and 

generation, transmission, and distribution capacity constraints. 

Among other characteristics, Smart Grid is expected to be ‘continuously upgradeable’. Also, 

Smart Grid will be an important element of a ‘self-healing’ electricity T&D network. It will add 

flexibility as utilities accommodate load and energy use growth. Smart Grid will also provide 

improved means to manage electricity transmission and distribution. Smart Grid could also be 

used for reactive power compensation and voltage control which, among other benefits, increases 

the throughput of T&D equipment. In 2008, the U.S. Department of Energy Smart Grid Task 

Force established the following seven ‘characteristics of Smart Grid’: 

1. Enable active participation by consumers. 

2. Accommodate all generation and storage options. 

3. Enable new products, services, and markets. 

4. Provide power quality for the range of needs in a digital economy. 

5. Optimize asset utilization and operating efficiency. 

6. Anticipate and respond to system disturbances in a self-healing manner. 

7. Operate resiliently against physical and cyber attacks and natural disasters. 

In the future, distributed energy storage deployed as part of, or in coordination with, Smart Grid 

should enable many rich value propositions that could include a wide array of benefits, possibly 

including the following: 

• Aggregation, integration, optimization and coordination of all types of DER 

• Electricity price hedging 

• Ancillary services (e.g., electric supply capacity reserves, voltage support provided 

locally, load following, area regulation) 

• Reduced transmission congestion 

• T&D upgrade deferral and equipment life extension 

• Electric supply fleet performance and operation optimization (i.e., DOBs) 
142

Learn more about Smart Grid by visiting the U.S. DOE’s Smart Grid website: 

http://www.oe.energy.gov/smartgrid.htm. 

7.4.2. Increasing use of Demand Response Resources 

Demand response is becoming an important resource, especially as an alternative to adding peak 

generation capacity and, to a lesser extent, to reduce need for or congestion of transmission 

systems. A summary of the value of demand response from the Peak Load Management Alliance 

includes the following primary elements: 

• Reducing supplier and customer risk in the market 

• Providing better reliability for the electricity system 

• Reducing the costs associated with generation, transmission, and distribution 

• Creating efficient markets 

• Reducing environmental impact by reducing or delaying new power plant developments 

7.4.3. Load Aggregators 

The CAISO defines load aggregators as “..., a municipality or other governmental entity, an 

energy services provider, a scheduling coordinator, a utility distribution company, or any other 

entity representing single or multiple loads for the purpose of providing demand reduction 

service to the ISO.”[84] 

So, a load aggregator is any entity that combines loads into what is, in effect, a ‘block’ that can 

be controlled in response to requests by the ISO. Specifically, the ISO can rely on those blocks 

almost as if they are dispatchable generation capacity. That is, when there is not enough electric 

supply capacity available to serve all demand or to provide all necessary ancillary services, the 

ISO can request that the demand associated with load blocks be reduced or turned off. 

A few points are worth considering. First, presumably, the scope of load aggregation could 

increase to include distributed generation and distributed storage. Although load aggregation 

tends to be done in response to electric-supply-related challenges, it seems likely that load 

aggregation could also be used to address more location-specific challenges such as overloaded 

T&D equipment or power-quality-related needs. It also seems likely that there could be some or 

perhaps significant convergence of Smart Grid, demand response, and load aggregation. Some of 

the advantages load aggregators have relative to individual end users, or perhaps even energy 

storage project developers, include the following (in no particular order): 

• General business savvy regarding electricity value, pricing and markets 

• Existing infrastructure 

• Market familiarity 

• Unit diversity 

• The means to finance storage 

• Opportunities to internalize more benefits 
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7.4.4. Increasingly Rich Electricity Price Signals 

Another important development is the use of price signals for an increasing array of electric 

capacity, energy, and services that provide storage owners with the means to internalize more 

benefits. At least three important conventional pricing programs have existed for many years. As 

described in Section 3.5.1, some residential and many commercial electricity end users are 

eligible or even required to pay TOU-based prices for electric energy. Also, as described in 

Section 3.5.2, some electricity end users with somewhat large demand (>50 kW to 100 kW) 

often pay demand charges based on peak load and TOU charges for energy. 

Many end users with medium demand or higher (>100 kW) are eligible for interruptible or 

curtailable rates. Under those rates, participating end users pay a discounted price for energy, and 

in return, the utility or the ISO may interrupt or curtail service, during grid emergencies, for a 

specified number of times, for specified durations. The interruptible or curtailable load is usually 

treated and used like reserve capacity for the electric supply system. 

A more recent development is the establishment of critical peak pricing (CPP) for retail end 

users. Under terms of critical-peak-pricing tariffs, the utility can charge ‘very high’ prices for 

each kWh of energy used during critical peak periods. CPP tariffs allow the utility to impose the 

high prices a specified maximum number of times per year and for specified durations. In the 

U.S., the ISOs have implemented open markets for several ancillary services, including public 

posting of prices. 

An emerging trend is the use of locational pricing or locational marginal pricing to better reflect 

the cost associated with delivery to specific parts of the grid. Among other factors, locational 

marginal prices could reflect area-specific energy cost/price, transmission capacity cost or 

charges, transmission congestion charges, and transmission I2

R energy losses. Importantly, load 

aggregators, Smart Grid, and demand response programs could be important enablers of a 

significant market for storage benefits when coupled with rich price signals. 

7.4.5. Tax and Regulatory Incentives for Storage 

One possibly important development for prospective energy storage purchasers and users is 

increased interest in providing related tax and regulatory/utility incentives. Tax incentives are 

most likely to include accelerated depreciation and possibly tax credits. Regulatory/utility 

(regulatory) incentives are most likely to include rebates that offset a portion of the purchase 

price. Although the analogy is not perfect, there is a lot of emphasis on providing tax and 

regulatory incentives for energy conservation and efficiency, peak demand reduction, and 

renewable energy systems. 

Such incentives are currently offered for the following: purchasing and installing equipment for 

thermal energy storage; A/C efficiency improvements and/or downsizing; improving commercial 

lighting efficiency; installing distributed generation (e.g., the Self-Generation Incentive Program 

in California); and/or installing renewable energy generation. 

All of these programs are deemed to be important, at least in part, because they reduce peak 

demand, which reduces the need for electricity supply and T&D infrastructure. They also reduce 

on-peak energy use, which reduces fuel and operation cost for inefficient and expensive-to-run 

generation. It seems logical to at least consider incentives for using energy storage to the extent 

that it provides similar benefits. 
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7.4.6. Transmission Capacity Constraints 

The need for additional transmission capacity is driven by several factors, including increasing 

deployment of bulk renewables generation that is located away from load centers; increasing the 

interconnectedness of the grid; increasing the use of non-utility-owned generation; increasing the 

use of generation located away from load centers, including increasing reliance on inter-regional 

energy transactions; increasing peak demand for electricity; and a heavily loaded and aging 

transmission infrastructure. 

Importantly, storage could be used to reduce or to avoid the need for new, high-voltage, bulk 

transmission upgrades. That is important because one of the emerging challenges facing the new 

utility marketplace is the need for additional transmission capacity. Not only is existing 

transmission capacity getting older and less adequate, but siting new transmission is increasingly 

contentious. 

While not addressed explicitly in this report, an approach similar to the ones used to estimate the 

T&D upgrade deferral benefit or T&D congestion relief benefit could also be used to estimate 

the benefit associated with avoided need for transmission. In simple terms, the benefit is related 

to the avoided cost for constructing new transmission capacity and/or upgrading existing 

equipment or regional transmission congestion charges. 

7.4.7. Expected Proliferation of Electric Vehicles 

Although the implications for energy storage generally are somewhat unclear, the expected 

proliferation of plug-in electric vehicles (PEVs) and plug-in hybrid electric vehicles (PHEVs) 

could have a significant impact on the potential for utility-related storage.[85] One possibility is 

that purchases of off-peak energy to charge storage will increase off-peak energy prices enough 

to reduce the benefit for some uses of utility-related storage, especially energy time-shift and 

TOU energy cost reduction. 

Consider also that PEVs and PHEVs could provide some or perhaps most of the benefits that 

utility-related storage provides. Specifically, it may be cost-effective to charge electric vehicles 

when demand and energy prices are low or relatively low and then to dispatch aggregated power 

from those vehicles (using stored energy and/or the hybrid’s fuel-driven power plant) to support 

the grid, especially during grid emergencies. 

On the positive side, the proliferation of PEVs and PHEVs could lead to economies of scale and 

lower prices for advanced batteries and battery systems, including system management and grid 

integration (interconnection, control, and communications). 

7.4.8. Increasing Use of Intermittent Renewables 

Storage seems poised to be important as a complement to the expected increase of intermittent 

renewables. If nothing else, some output from intermittent renewables occurs when energy is not 

valuable and/or can change rapidly, making grid operations challenging and reducing the 

renewables’ capacity credit. Three key facets of renewables-storage value propositions are 

notable: 1) capacity firming, 2) energy time-shift, and 3) grid integration. 

7.4.9. Increasing Use of Modular Distributed Energy Resources 

An emerging theme in the electricity marketplace is the use of modular electricity resources that 

are located near loads and downstream from overloaded T&D facilities. Distributed energy 
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resources (DER) include generation, storage, and geographically-targeted load management and 

conservation. 

On important reason for the increased interest in DER is that resources located near loads can 

provide more benefits than more remote resources. Other key drivers of interest in modular 

distributed resources include increasing congestion of regional transmission systems; challenges 

associated with paying for and siting large generation and transmission infrastructure; 

improvements in DER technologies; Smart Grid, and proliferating of rooftop/distributed 

photovoltaics. 

7.4.10. Reducing Generation Fuel Use and Air Emissions 

It is important to consider the fuel-use-related and air-emissions-related implications of storage 

because of trends toward reducing resource extraction, transportation and use, and policies that 

emphasize reducing air emissions due to generation. Depending on the circumstances, storage 

may be an important element of an overall strategy to reduce generation-related fuel use and air 

emissions. 

As summarized in Section 5.3.7 and Section 5.3.8, storage can lead to reduced fuel use and air 

emissions in at least three ways: 1) time-shift energy from relatively efficient and/or clean 

baseload generation (e.g., combined cycle, geothermal or wind generation) to offset use of less 

efficient, dirtier on-peak generation (e.g., older, simple cycle combustion turbines), 2) reduce I2R 

energy losses if energy is transmitted during off-peak times, and 3) dynamic operating benefits. 

7.4.11. Storage Technology Innovation 

Innovation by storage technology and storage system developers is accelerating, especially 

regarding batteries and, to a lesser extent, capacitors and CAES. Key drivers seem to be 

transportation-related uses, the expected increased use of intermittent renewables and a growing 

need for operational flexibility for the electricity grid. 
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147

8. Conclusions, Observations, and Next Steps 

8.1. Summary Conclusions and Observations 

8.1.1. The Storage Opportunity 

Electric energy storage is poised to become an important element of the electricity grid and 

marketplace of the future. Storage has unique features and characteristics that make it useful for 

significant existing and emerging electric-utility-related opportunities and challenges. 

Notable opportunities and challenges that storage can address include, but are not limited to, the 

following (presented in no particular order): 

• Storage offsets the need for additional peaking generation capacity. 

• Storage enables more optimal operation of the existing generation fleet, thereby reducing 

generation ramping and part load operation which, in turn, reduces equipment wear, fuel 

use, and air emissions. 

• Storage is well-positioned to enable effective, optimal integration of intermittent 

renewables and possibly baseload renewables. 

• Storage is well-suited to provide ancillary services, especially load following, area 

regulation, and electric supply reserve capacity. Distributed storage would be especially 

valuable for voltage support. 

• Properly located storage can reduce congestion of existing transmission, reduce the need 

for additional transmission capacity, and defer the need for expensive subtransmission and 

distribution upgrades. Similarly, storage use can increase utilization of existing T&D 

assets, and in some cases it could be used to extend the life of existing T&D equipment – 

especially aging underground cables. 

• Distributed storage will probably become a crucial element of the Smart Grid, and it can 

facilitate/enable increasingly important ‘demand response’ resources. 

• Modular storage provides utility planners and engineers with flexible, reliable, and 

possibly less-risky alternatives to investments in conventional, inflexible, ‘lumpy’ T&D 

capacity additions. 

• Distributed storage is well-suited to addressing growing electric service power quality and 

electric service reliability challenges, possibly by enabling utilities to provide 

differentiated electric service with higher quality and/or reliability (for a premium price). 

• Utility customer-owned storage can be used to manage increasing electricity-related costs 

by time-shifting low-priced energy and by using storage to provide grid ‘services’, 

probably in conjunction with electric resources aggregators. 
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8.1.2. Storage Opportunity Drivers 

Several current and emerging storage opportunity drivers have been recognized. The following 

are especially notable (presented in no particular order): 

• Increasing recognition by lawmakers, regulators, and policymakers of the important role 

that storage should play in the electricity marketplace of the future. 

• Increasing sophistication and savvy of load and distributed resource aggregators. 

• Increasingly rich electricity price signals (i.e., for energy, capacity, and ancillary 

services). 

• Tax and regulatory incentives for storage. 

• Expected proliferation of plug-in electric vehicles and plug-in hybrid electric vehicles. 

• Increasing use of modular distributed energy resources for on-peak electric supply, 

ancillary services, and transmission congestion relief. 

• Increasing use of intermittent renewables. 

• Growing need for improved electric service power quality and reliability. 

• Storage technology innovation, including improved subsystems (especially power 

conditioning) and storage system integration; battery innovation will accelerate, perhaps 

dramatically, due to development related to electric vehicles. 

• An increasingly ‘smart’ electricity grid will enable effective integration of some 

renewables and integration and dispatch of distributed resources, including demand 

response, generation, and storage. 

8.1.3. Notable Stakeholders 

The storage opportunity involves numerous stakeholders. Understanding stakeholder interests 

and relationships is crucial for several reasons. Perhaps the most important reason is that not all 

benefits accrue to the same stakeholder. In fact, some benefits may involve conflicting interests. 

Consider a utility customer that uses storage to reduce its electricity-related costs. To the utility, 

the resulting ‘revenue loss’ increases the average price that customers at large must pay (because 

the utility receives less revenue without a commensurate reduction of fixed cost.) 

Also, the existence of numerous stakeholders is important in that storage value propositions and 

storage projects may require a significant amount of coordination and cooperation among diverse 

stakeholders, possibly with conflicting interests. 

Below are eight notable ‘beneficiary stakeholders’ (i.e., parties that derive benefit from storage): 

• Specific electricity end users who use storage to reduce electricity cost 

• Utility ratepayers at large 

• Utilities 

• ‘Merchant’ storage project owners (entities that use storage for profit only) 

• Aggregators 
149

• Storage equipment and services providers 

• Society at large (e.g., for improved environmental quality and economy) 

Several ‘institutional stakeholders’ or ‘gatekeeper stakeholders’ are also notable: 

• Legislators and policymakers 

• Utility engineers and capacity planners 

• Engineering standards organizations 

• Federal and state energy/utility regulatory agencies 

• Regional independent system operators 

• Local safety, siting, planning and land use agencies 

• ‘Host’ communities 

8.1.4. Notable Challenges 

The storage opportunity involves some important challenges. It is prudent to be familiar with 

those challenges when evaluating prospects for storage in general, and for specific storagerelated applications/benefits, value propositions, projects, locations, and regions/jurisdictions. 

Several notable challenges include the following (in no particular order): 

• Storage’s relatively high cost per kW installed, compared to the benefit associated with 

most technically viable value propositions 

• Lack of storage-related regulatory rules and ‘permission,’ especially regarding distributed 

storage 

• Prevailing electric energy and services pricing that are not economically efficient 

(though, this is changing) 

• Limited risk/reward sharing mechanisms (especially between utilities and customers 

and/or aggregators) 

• Permitting and siting rules and regulations are not well-established for storage 

• Limited familiarity with, knowledge about, and experience with storage 

• Limited storage-related engineering standards and evaluation methodologies and tools 

• Investor-owned utilities’ ‘rate-based’ (or revenue requirement) financials that lead to a 

strong preference for investments in equipment and aversion to expense-based 

alternatives 

• Storage must compete with many technologies, concepts, and programs (e.g., demand 

response, Smart Grid, distributed generation, and renewables) for its place in the 

electricity marketplace of the future 

• Coordinating among numerous stakeholders for ‘permission’ to use grid-connected 

storage and./or to aggregate benefits 

See Appendix G for a more detailed list of challenges. 
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8.1.5. The Importance of Benefits Aggregation 

The most important topic addressed in this guide is the aggregation of benefits into attractive 

value propositions (i.e., a value proposition for which the total benefit exceeds the total cost by 

an amount that yields an acceptable-or-better return on investment). That theme is so important 

because in many situations two or more benefits will be required so the total benefit exceeds the 

total cost. 

The primary purpose for this guide is to provide analysts with a framework for evaluating 

storage prospects for specific value propositions, including guidance about identifying and 

ascribing value to specific benefits that serve as building blocks for value propositions. Ideally, 

this framework will provide the foundation, and possibly the mindset, needed to recognize and 

characterize attractive value propositions. 

As an aside: Given the emphasis on benefits, an important theme in this report is the need to 

maintain a crisp distinction between storage applications and the benefits that accrue if storage is 

used for a given application. (Applications are ways that storage is used, whereas benefits are 

primarily financial, including increased revenue and/or reduced or avoided cost.) 

8.1.6. Multi-faceted Nature of the Storage Opportunity 

Given the foregoing, clearly the storage opportunity is multi-faceted. A robust understanding of 

the storage opportunity requires at least some familiarity with several of those facets. Consider 

just a few: 

• Many possible application/benefit combinations 

• Numerous beneficiary stakeholders and institutional/gatekeeper stakeholders, some with 

conflicting interests 

• Myriad rules, regulations, and permitting requirements 

• Applicable market rules, tariffs, and pricing significantly affect the attractiveness of 

storage in specific regions and locations 

• Role of storage relative to the electric supply generation fleet, renewables, demand 

response, Smart Grid, PEVs, and PHEVs 

• Most existing storage technologies continue to improve, and advances involving 

emerging storage technologies are accelerating 

8.2. Next Steps – Research Needs and Opportunities 

Although utility-related storage opportunities are receiving increasing emphasis, more extensive 

research, development, and demonstration are needed. The elements of a robust storage-related 

research and development agenda are briefly characterized in this section. 

8.2.1. Establish Consensus about Priorities and Actions 

A key challenge for storage is the combination of diverse benefits and diverse stakeholders. 

Although that situation seems likely to persist, an important next step is to work toward a 

common understanding among stakeholders about several key topics, including the following: 

a) existence and magnitude of benefits; b) important value propositions, including the societal 
151

value proposition; c) key challenges and solutions; d) standards and rules needed 

(interconnection, permitting, etc.); e) market potential; f) the role of storage relative to and/or in 

conjunction with Smart Grid and demand response programs; g) storage technology and system 

cost and performance criteria, including definitions and values; and h) storage technology and 

value proposition demonstrations. 

8.2.2. Identify and Characterize Attractive Value Propositions 

This guide emphasizes the concept of value propositions and includes a few examples of 

possibly attractive value propositions. A helpful next step would be to establish a menu of 

model/generic value propositions that are a) generally accepted/recognized, b) financially 

attractive, and c) technically viable. Furthermore, value propositions targeted should be those 

involving somewhat-to-very significant market potential. Those value propositions would be 

used by storage advocates, project developers, technology and systems developers, regulators, 

policymakers, researchers, and prospective end users to focus their respective efforts. 

8.2.3. Identify and Characterize Important Challenges and Possible 

Solutions 

A crucial initial step towards consensus-building is to identify the most important challenges that 

could significantly delay and/or limit deployment of storage. First, the challenges should be 

characterized and then prioritized. Possible criteria to use in establishing priorities could include 

1) potential showstoppers, especially those that are most likely to occur; 2) challenges whose 

solutions require a long lead time; 3) challenges that affect early adopters and/or users which 

could purchase significant amounts of storage in the near term; and 4) challenges that are most 

likely to create or to reinforce unhelpful misperceptions. After priorities are established, the next 

step would be to identify and develop an approach to address those challenges. 

8.2.4. Identify, Characterize and Develop Financial and Engineering 

Standards, Models, and Tools 

If storage is to reach its potential, one key priority is to identify, characterize, and develop the 

engineering and financial/accounting standards needed to evaluate important technical and 

financial criteria. Once those standards are established, analysts will need models and tools to 

apply them. Presently, those standards, tools, and models are largely undeveloped and/or they 

require adaptation and evolution of existing tools. 

8.2.5. Ensure Robust Integration of Distributed/Modular Storage with 

Smart Grid and Demand Response Programs 

Smart Grid and demand response programs are poised to be important elements and enablers of 

the modern electricity grid and the electricity marketplace of the future. It seems likely that 

storage will be an important part of Smart Grid and demand response programs. 

It is important to ensure robust and appropriate consideration of storage’s roles and benefits as 

Smart Grid infrastructure and demand response, protocols, functionality, hardware, 

communications, and controls are developed, and as the Smart Grid and demand response 

programs are deployed. 
152

8.2.6. Develop More Refined Market Potential Estimates 

While the transparent, auditable, simplistic, maximum market potential estimates provided in this 

guide may provide a helpful point of departure, more robust methods are needed to refine those 

estimates. Such estimates are important metrics for politicians, policymakers, regulators, storage 

advocates, potential storage users, and storage vendors as they seek to gauge the potential 

implications and attractiveness of storage. 

8.2.7. Develop Model Risk and Reward Sharing Mechanisms 

As mentioned elsewhere in this guide, important discontinuities between some key stakeholders’ 

interests – especially between utilities and customers – make risk and reward sharing difficult or 

impossible. Nevertheless, many otherwise attractive value propositions are not possible without 

risk and reward sharing, especially value propositions involving locational benefits and 

distributed/modular storage. 

Perhaps the best example is the benefit for T&D upgrade deferral or T&D equipment life 

extension. Consider the example of a T&D upgrade deferral or life extension that would reduce 

the utility’s total cost-of-service (an avoided cost) by $100,000 for one year. 

Ideally, the utility would have the flexibility to share the avoided cost with customers that are 

willing and able reduce load, when needed, to enable the deferral. When called upon to reduce 

load, those customers could turn off loads (demand response) and/or use on-site generation 

and/or on-site storage. Peak load reduction could also be accomplished using energy efficiency. 

Unfortunately, most utilities do not have the regulatory ‘permission’ or the transactional 

framework for such risk and reward sharing. If nothing else, the utility should be allowed to 

concentrate conventional demand response and energy efficiency incentives toward the part of 

the grid where T&D upgrade deferral or life extension is needed. 

8.2.8. Develop Model Rules for Utility Ownership of Distributed/Modular 

Storage 

For a variety of reasons, most utilities do not have regulatory permission to use storage in lieu of 

T&D equipment. One of the more important near terms objectives for the storage community is 

to advocate for utility permission to own and operate distributed/modular storage, just like any 

other equipment. Model rules for such utility ownership could spur the development of 

formalized rules at the state level. 

8.2.9. Characterize, Understand, and Communicate the Societal Value 

Proposition for Storage 

It is important to characterize, understand, and communicate the societal value proposition for 

storage (as described in Section 6.7) for at least two key reasons. First, society at large has a 

significant stake in the storage opportunity because some of the key benefits accrue, in part or in 

whole, to society at large (e.g., reduced air emissions and reduced land use impacts from reduced 

need for new infrastructure). Second, some significant storage benefits may accrue to more than 

one stakeholder, including utility ratepayers as a group and/or to society as a whole, making 

‘stakeholder integration’ and risk and reward sharing mechanisms especially important for 

societal benefits. 
153

8.2.10. Storage Technology and Value Proposition Demonstrations 

New storage technologies, subsystems, and storage system configurations must establish a record 

and reputation as a reliable, cost effective alternative before wide-scale acceptance. That same 

challenge applies to undemonstrated storage benefits and value propositions. 

Establishing a track record and reputation often requires several demonstrations. Therefore, 

numerous demonstrations may be necessary (especially for modular/distributed storage) before 

wide-scale deployment of additional storage will occur. 
154
155

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157

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158

[48] Electric Power Research Institute. Reassessment of Superconducting Magnetic Energy 

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[49] ibid. [46]. 

[50] ibid. [48]. 

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Energy Storage for San Diego Gas and Electric. Electric Power Research Institute 

Report #106286 2572-14. August 1997. 

[52] Annual Report on Market Issues and Performance, Section 5. Inter-Zonal Congestion 

Management Market. California Independent System Operator, Department of Market 

Monitoring. April 2007. 

[53] ibid. [4]. 

[54] Pupp, Roger. Distributed Utility Penetration Study. Pacific Gas and Electric Company and 

the Electric Power Research Institute. 1991. 

[55] Pupp, Roger. Distribution Cost Percentiles. Communication by e-mail message with Jim 

Eyer, Distributed Utility Associates. March 24, 2003. 

[56] ibid. [2]. 

[57] ibid. [3]. 

[58] ibid. [3]. 

[59] ibid. [12]. 

[60] Eto, Joseph, et al. Lawrence Berkeley National Laboratory. Scoping Study on Trends in the 

Economic Value of Electricity Reliability to the U.S. Economy. Prepared for the Electric Power 

Research Institute and the U.S. Department of Energy. Coordinated by the Consortium for 

Electric Reliability Technology Solutions. Lawrence Berkeley National Laboratory Report 

#47911. June 2001; Private communications between Joseph Eto and Joseph Iannucci, 

Distributed Utility Associates. March and April 2003. 

[61] Sullivan, Michael J., Vardell, Terry, Johnson, Mark. Power Interruption Costs to Industrial 

and Commercial Consumers of Electricity. IEEE Transactions on Industry Applications. 

November/December 1997. 

[62] Sullivan, Michael J., Vardell, Terry. Suddeth, Noland B. Vojdani, Ali. Interruption Costs, 

Customer Satisfaction and Expectations for Service Reliability. IEEE Transactions on Power 

Systems. Vol. 11, No. 2. May 1996. 

[63] ibid. [12]. 

[64] ibid. [60]. 

[65] LaCommare, Kristina Hamachi. Eto, Joseph H. Evaluating the Cost of Power Interruptions 

and Power Quality to U.S. Electricity Consumers. Lawrence Berkeley National Laboratory. 

Energy Storage Program, Office of Electric Transmission and Distribution and Office of 

Planning, Budget, and Analysis, Assistant Secretary for Energy Efficiency and Renewable 
159

Energy, U.S. Department of Energy. Lawrence Berkeley National Laboratory Report 

#LBNL-55718. September 2004. 

[66] American Public Power Association. Power Quality Reference Guide – U.S. Edition. 1991. 

[67] ibid. [60]. 

[68] ibid. [60]. 

[69] ibid. [61]. 

[70] ibid. [62]. 

[71] ibid. [65]. 

[72] Wiser, Ryan H. Managing Natural Gas Price Volatility and Escalation: The Value of 

Renewable Energy. Lawrence Berkeley National Laboratory. Proceedings of the NEMS/AEO 

2004 Conference. Washington, D.C. March 23, 2004. 

Available at: http://www.eia.doe.gov/oiaf/archive/aeo04/conf/pdf/wiser.pdf. 

[73] ibid. [42]. 

[74] California Renewables Portfolio Standard, Renewable Generation Integration Cost 

Analysis: Multi-Year Analysis Results and Recommendations Final Results. California Energy 

Commission Report #CEC-500-2006-064. June 2006. 

[75] ibid. [74]. 

[76] ibid. [30]. 

[77] Porter, Kevin. The California Energy Commission’s Intermittency Analysis Project Team. 

Intermittency Analysis Project: Final Report. Prepared for the California Energy Commission 

Public Interest Energy Research Program. California Energy Commission Report 

#CEC-500-2007-081. July 2007. 

[78] Midwest Regional Transmission Organization Transmission Access and Ancillary Services 

Charges. Available at http://oasis.midwestiso.org/documents/miso/historical_pricing.html. 

[79] Region-specific prices are available from the respective regional transmission organization 

or possibly the Federal Energy Regulatory Commission at http://www.ferc.gov.ibid. 

[80] Fancher, R.B., et al. Dynamic Operating Benefits of Energy Storage. Decision Focus, Inc. 

Electric Power Research Institute Report #EPRI AP-4875. October 1986. 

[81] Banerjee, Prithviraj. deWeck, Olivier L. Flexibility Strategy – Valuing Flexible Product 

Options. Massachusetts Institute of Technology. September 2004. 

[82] California’s Electricity Situation: Summer 2005. Presentation prepared by the staff of the 

California Energy Commission, California Public Utilities Commission, and California 

Independent System Operator. February 22, 2005. 

[83] ibid. [82]. 

[84] California Independent System Operator. Process for Participating Load Program 

(Ancillary Services / Supplemental Energy). 2008. 

Available at: http://caiso.com/17e5/17e5997039720.pdf. 
160

[85] Wall, Edward. Program Manager, Vehicle Technologies Program, U. S. Department of 

Energy. Presentation to the Clean Energy Outlook Meeting of the Association of State Energy 

Research and Technology Transfer Institutions. Washington, D.C. February 2008. 
A-1 

Appendix A – Ancillary Services Overview 

In broad terms, ancillary services are necessary services that must be provided in the generation 

and delivery of electricity. As defined by the Federal Energy Regulatory Commission (FERC), 

they include: coordination and scheduling services (load following, energy imbalance service, 

control of transmission congestion); automatic generation control (load frequency control and the 

economic dispatch of plants); contractual agreements (loss compensation service); and support of 

system integrity and security (reactive power, or spinning and operating reserves). 

Introduction 

The two primary functions of the electricity grid are 1) providing a supply of electric energy, 

primarily using generation that converts fuel to electricity in real-time and 2) delivering that 

energy to customers via the transmission and distribution (T&D) system. In addition to resources 

that provide the electric energy; additional resources – collectively known as ancillary services – 

support the overall operation of the grid. Ancillary services are defined by FERC as those 

services necessary to support the delivery of electricity from seller to purchaser while 

maintaining the integrity and reliability of the interconnected transmission system (‘the 

network’). The specific definitions used by FERC for various ancillary services are listed in 

Table A-1. 

To one extent or another, energy storage can provide many of those ancillary services. Storage 

used to provide some of the ancillary services may also be used for other applications, including 

power quality, reliability, and others. 

Regulation versus Load Following 

Two ancillary services – regulation and load following – are somewhat similar; however, to 

understand implications for storage value propositions, it is important to distinguish between 

them: 

Together, regulation and load following address the temporal variations in 

load (and generation that does not accurately follow control signals). The 

key distinction between load following and regulation is the time period 

over which these fluctuations occur. Regulation responds to rapid load 

fluctuations (on the order of one minute) and load following responds to 

slower changes (on the order of five to thirty minutes). Load following is 

defined as the 30-minute rolling average of system load; regulation is then 

the difference between actual load for each 30-second interval and the 

rolling average. Hourly load following is defined as the difference 

between the highest and lowest values of the rolling average within the 

hour. Regulation is defined as the standard deviation of the 120 regulation 

values for the hour. Finally, the implications of the current blockscheduling conventions on load following and regulation are discussed, as 

is the need for a new scheduling convention.[A1] 
A-2 

Table A-1. Ancillary Services and Their Common Definitions 

System Control Scheduling generation and transactions ahead of time, and controlling 

some generation in real time to maintain generation/load balance. 

Reactive Supply 

& Voltage Control 

The generation or absorption of reactive power from generators to 

maintain transmission system voltages within required ranges. 

Regulation Minute-by-minute generation/load balance within a control area to meet 

NERC standards. 

Spinning Reserve Generation capacity that is online but unloaded and that can respond 

within 10 minutes to compensate for generation or transmission outages. 

‘Frequency-responsive’ spinning reserve responds within 10 seconds to 

maintain system frequency. 

Supplemental Reserve Generation capacity that may be offline or curtailable load that can 

respond within 10 minutes to compensate for generation or transmission 

outages. 

Energy Imbalance Correcting for mismatches between actual and scheduled transactions on 

an hourly basis. 

Load Following Meeting hour-to-hour and daily load variations. 

Backup Supply Generation available within an hour for backing up reserves or for 

commercial transactions. 

Real Power Loss 

Replacement 

Generation that compensates for losses in the T&D system. 

Dynamic Scheduling Real-time control to electronically transfer either a generator’s output or a 

customer’s load from one control area to another. 

Black Start Ability to energize part of a grid without outside assistance after a blackout 

occurs. 

Network Stability Real-time response to system disturbances to maintain system stability or 

security. 

Please see Appendix D for more about storage for Load Following and Appendix E for more 

about storage for Area Regulation. 

Reference 

[A1] Hirst, Eric. Kirby, Brendan. Separating and Measuring the Regulation and Load Following 

Ancillary Services. Oak Ridge National Laboratory. March 1999. 
B-1 

Appendix B – Storage Replacement Cost Estimation Worksh

The worksheet shown below is an example of a simple methodology that can be used to estimate the cost incurred d

due to battery wear (i.e., damage). It spreads the damage-related cost across each unit of energy discharged to establ

represents the cost for battery replacement that is incurred per unit of energy output from the battery. 

Life 10

Annual Capacity Factor 0.07 Annual Operation Hours

Discount Rate 10.0%

Annual Use Cycles 250 Operation Hours Per Use Cycle 2.45

Standard Refurbishment

Use Cycles Per Refurbishment 1,000 Years per Replacement 4.00

Replacement Frequency 1.50

Refurbishment Cost ($/kWh $Year 1) 300 Total Refurbishment Cost ($/kW, $Year 1)

Refurbishment Cost Escalation 2.5% Annual Refurbishment Charge ($/kW, $Year 1) 45

$Year 1 $Current $PW

Refurbishment Cost ($/kW)

(¢/kWh)

Year =>

Total 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 

Refurbishment Annual Cost

($/kW, $Year 1) 450 45 45 45 45 45 45 45 45 45 45 0 0 0 0 0 

($Current) 504 45 46 47 48 50 51 52 53 55 56 0 0 0 0 0 

($PW) 321 45 42 38 35 33 30 28 26 24 22 0 0 0 0 0 

Refurbishment Unit Cost (¢/kWh) 7.3 7.3 7.3 7.3 7.3 7.3 7.3 7.3 7.3 7.3 7.3 0.0 0.0 0.0 0.0 0.0 

($PW) 5.2 7.3 6.8 6.2 5.8 5.3 4.9 4.5 4.2 3.8 3.6 0.0 0.0 0.0 0.0 0.0 

5.2

613450

450 504 321

7.3 8.2

Caveats1. Treats refurbishment like an expense, no2. ...but does not include tax deduction for 3. Includes fractional refurbishments if "RepFrequency" is not an integer.4. This is a somewhat simplistic treatment cost annualization. It allocates all refurbishform of the annual average) across all years allocated in the years before/until the last rannual allocations in those years would be cost escalation is applied to the annual avecould be allocated only in years when alloc
B-2 
C-1 

Appendix C – Distributed Energy Storage for Voltage Support 

and Reactive Power 

Introduction to Reactance in AC Circuits 

An important technical challenge for electric grid operators is managing the effects from a 

phenomenon called reactance in an alternating current (AC) electrical circuit.* Reactance is 

caused by elements within an AC circuit (i.e., inductors and capacitors). The effects from 

reactance are related to an accumulation of electric or magnetic fields in the circuit elements 

when current is flowing. The electric and magnetic fields, in turn, produce an opposing 

electromotive force that is proportional to either the rate of change (time derivative) or 

accumulation (time integral) of the current. 

Perhaps the most important manifestation of reactance in an AC circuit is that capacitors and 

inductors cause voltage and current to be ‘out of phase’ (i.e., to not be synchronized). 

Specifically, rather than the ideal situation involving voltage and current which are synchronized, 

capacitors cause current to lead the voltage and inductors cause current to lag the voltage. Figure 

C-1 provides a graphical representation of the phenomenon. 

Inductance Capacitance

Figure C-1. Leading and lagging current due to inductance 

and capacitance (reactance) in an AC circuit. 

In the left graph of Figure C-1, the two plots of voltage and current show capacitive reactance 

(current leads voltage). The two plots in the graph on the right show effects from inductive 

reactance (current lags voltage). The degree to which current leads or lags depends on the 

alternating current circuit’s operating frequency (e.g., electric grids operate at 50 or 60 Hz) and 

the capacitance and inductance in the circuit. 

 

*

 AC power involves current flow (and voltage) that varies between a positive and a negative level. Electricity power 

systems use AC power that oscillates between negative and positive values 60 times per second (i.e., 60 Hertz AC). 

Among other advantages, AC power enables transmission over longer distances than systems using direct current 

(DC) power (power that has a constant current and a constant voltage). 
C-2 

Importantly, to the extent that current leads or lags voltage, the effective voltage is reduced, in 

turn reducing the amount of usable power that can be delivered (i.e., reactance reduces the 

effective load carrying capacity of the grid). Note that, normally, reactance in the electricity grid 

is dominated by reactance from inductive loads (causing current to lag the voltage), especially 

motors. 

Power Factor 

The power factor of an AC electric system is defined as the ratio of real power to apparent 

power. 

Real power (also known as ‘true power’) can be defined as the amount of usable power that can 

be delivered to loads in an AC circuit. More specifically, real power indicates the amount of 

work that can be accomplished over a given amount of time based on the rate at which the circuit 

can deliver electric energy. Real power could also be thought of as the ‘effective’ power or the 

useable power. The most common units used to express real power are watts (W) or kilowatts 

(kW). 

Apparent power is simply the product of the voltage and current within a circuit, irrespective of 

whether voltage and current are synchronized and how much work can be accomplished using 

the electric energy that the circuit can deliver to loads. The most common unit of apparent power 

is volt-Ampere (volt-Amp). Note that most power equipment – such as power supplies, wires and 

transformers – are rated based on their apparent power (volt-Amps). 

In any given circuit, the apparent power can be somewhat or significantly greater than the real 

power because 1) during each alternating current cycle, energy is stored within loads and then 

returned to the circuit; and/or 2) ‘non-linear’ loads distort the current’s (sine) wave form within 

the circuit. Common non-linear loads include most electronic equipment, which have non-linear 

power supplies, and electronic ballasts used for lighting. 

Of particular interest are effects from reactive loads that lead to the presence of reactive power in 

the circuit. Units of reactive power are volt-Amps reactive (VAR). VAR reduces real power 

because the associated reactance changes the temporal relationship between voltage and current 

in the AC circuit as described above. (Note that apparent power is the combination of real power 

and reactive power.) 

The concept of power factor is important in part because – to the extent that the real (useable) 

power is less than apparent power – the amount of power that can be delivered to loads by a 

circuit with power factor that is less than one (unity) circuit is reduced. Consider the example of 

a circuit rated to deliver 10 MVA (apparent power) with a power factor of 0.9. That circuit could 

serve 

0.9 × 10 MVA = 9 MW of load. 

One implication is that a larger circuit (capacity) is needed to deliver a given amount of useful 

energy. Because more current flows within the circuit (for a given amount of energy delivered), 

there are more I2

R energy losses within the circuit. 

(For more detail about true, reactive, and apparent power, readers could refer to the All About 

Circuits website: http://www.allaboutcircuits.com/.) 
C-3 

Utility Responses, Overview 

Utilities use two important means to compensate for the presence of reactance (i.e., to restore 

voltage to and/or to maintain voltage at the desired level). Generic terms for managing effects 

from VAR are ‘VAR support’ and ‘VAR compensation’. 

One such technique – involving an ancillary service known as ‘voltage support’ – is to produce 

reactive power (power that has lagging or leading current). The reactive power is meant to cancel 

out the effects of reactance in the power system. 

Another more localized approach – called ‘power factor correction’ – involves using equipment 

within the T&D system to offset effects from localized reactance. In most cases, power factor 

correction involves use of power factor correcting capacitors that offset effects from localized 

inductance. 

Distributed Storage for Voltage Support 

The balance of this appendix is section is based largely on the research of scientists at Oak Ridge 

National Laboratory (ORNL). Their objective was to evaluate the potential for distributed 

generation as a resource for VAR compensation. In most cases, storage systems can or could be 

designed to provide the same service. The ORNL work tested the hypothesis that “[distributed 

generation] can play a larger and more significant role than at present in relieving voltage 

stability problems due to both a) suboptimal dispatch of reactive power supplies and b) reactive 

power supply shortages.”[C1] 

Reactive power for voltage compensation is compelling for several reasons. Among the reasons 

given by authors of the ORNL report, “past power blackouts have been attributed to problems 

with reactive power transport to load centers.”[C2] Although reactive power for voltage 

compensation is a relatively small portion of total cost to generate and transmit electricity, it 

does account for billions of dollars in total cost. Another compelling reason is that most central 

generation technologies, especially newer ones, are not well-suited to reactive power generation 

because generation is usually optimized for real (i.e., true) power generation at a constant output. 

Importantly, unlike real power, reactive power cannot be transmitted over long distances. 

Consequently, central generation may not be the best source of reactive power. Conversely, a 

growing array of smaller, modular power technologies (e.g., any type of power system with an 

inverter that has VAR support capability, distributed generation, energy storage, and possibly 

even demand response) could provide other sources of VAR support, and provide such support 

closer to the loads that pose the biggest challenges. 

Voltage Support using Reactive Power 

In simple terms, voltage control for an AC power system is accomplished primarily by managing 

reactive power. This is done by injecting and/or absorbing reactive power, when needed, as close 

as possible to the location where reactance is a problem. The amount of reactive power needed 

normally varies as a function of the transmission line loading. Heavily loaded lines require more 

reactive power than lightly loaded lines. As reactive power needs in the transmission system 

vary, the Independent System Operator (ISO) and regional transmission organizations (RTOs) 

adjust the supply of reactive power. 
C-4 

The Federal Energy Regulatory Commission (FERC) separates voltage control into two 

categories: generation-based and transmission-based. 

Generation-based voltage control is an ancillary service, and transmission-based voltage control 

is included as an element of transmission service agreements or tariffs. Generation-based VAR 

support is needed to operate regional power systems and electricity markets. (Other common 

ancillary services include spinning reserve, contingency, emergency, or supplemental reserve, 

and regulation.) According to authors of the ORNL report, “It is variously estimated that 

providing this bundle of ancillary services costs the equivalent of 10-20% of the delivered cost of 

electric energy.”[C3][C4] 

The process of managing reactive power in transmission systems is well understood technically. 

The three primary objectives of reactive power management are as follows: 1) maintain adequate 

voltages throughout the transmission system under normal and contingency conditions, 

2) minimize congestion that affects flow of real power, and 3) minimize real-power losses. 

Voltage control is usually centralized because coordinated control is needed among the various 

entities and equipment in the electric grid to ensure effective operation of the system (i.e., to 

keep voltage levels within necessary parameters). System operators and planners use 

sophisticated computer models to design and operate the power system reliably and 

economically. These functions are not readily distributed to individual sub-regions or to separate 

market participants. 

An important responsibility of power system planners is to address what is generically called 

‘grid security’. It involves planning whose goal is to ensure adequate operation of the power 

system (generation and transmission) during a range of conditions and contingencies. It involves, 

in part, modeling the electric grid system under a broad range of conditions to ensure that the 

electric grid has adequate reserves when transmission lines or generators fail, as well as during 

peak demand periods. (Normally, power systems maintain sufficient reserves to serve load 

should a major generation plant or transmission line fail, commonly called an N-1 contingency). 

Reactive power resource technologies differ significantly with respect to the amount of reactive 

power that can be produced under given conditions, response speed, and capital cost. Reactive 

power sources can be categorized as either static or dynamic. 

Common static reactive power sources include transmission and distribution (T&D) equipment 

such as substation capacitors. Notably, these T&D-based options are considered to be part of the 

utility’s capital investment portfolio (of infrastructure equipment). The equipment cost is added 

to the utility ‘revenue requirement’ – the amount of revenue required, from users, to cover all 

costs. 

Dynamic reactive power sources include generation facilities, which are capable of producing 

both real and reactive power, and synchronous condensers, which produce only reactive power. 

Generation equipment may be owned either by utilities or independent entities. Often, reactive 

power is bought and sold so that the cost is covered by market-based or market-like prices. 

Providing Reactive Power Locally 

A key difference between VAR support (or reactive power supply) and other ancillary services is 

that reactive power cannot be transmitted over long distances. Reactive power needs occur in 
C-5 

direct proportion to the distribution of load across a system and the proximity between generators 

and load centers. 

Reactive power from distributed energy resources (DER), including distributed generation and 

distributed energy storage, could provide distributed dynamic voltage control in response to 

variations of reactive power needs within distribution systems. To serve as a reactive power 

resource, the DER must be able to inject and absorb reactive power. Conversely, distributed 

generation and distributed energy storage that do not have the ability to generate or absorb 

reactive power can degrade voltage. Notably, many DER are connected to loads and/or to the 

grid via equipment that incorporates solid-state power electronics that may be designed to 

provide reactive power compensation.

The implications and possibilities for reactive power compensation using DER capacity are not 

well understood. Nevertheless, reactive power is currently provided, in part, by what could be 

called modular/distributed sources (e.g., static VAR compensators and capacitor banks). So, 

intuitively, it seems likely that there are exploitable synergies between the localized need for 

reactive power (usually near loads) and increasing emphasis on DER. Perhaps more importantly, 

aggregated DER capacity (if dispatched in a coordinated way) could be part of a robust approach 

to region-wide grid stability during major power interruptions involving declining area-wide or 

system-wide voltage. 

As previously noted, reactive power needed to stabilize voltage cannot be transmitted very far. 

So, in general, local sources of VAR support are most helpful, especially if interruptions involve 

transmission corridors. Additionally, many DER types can respond rapidly to reduce the chances 

of a total loss of power. 

Storage may be best suited to this application if rapid response is important. Some storage types 

reach their full discharge rate within seconds to just a few milliseconds, these include capacitors, 

flywheels, and superconducting magnetic energy storage. (Note that, although conventional 

capacitors are good for managing reactance under normal operating conditions, they do not 

perform well as a voltage support resource because they draw more current as voltage drops, 

possibly adding to cascading overloads.) In contrast, most types of generation take a few to many 

minutes to respond fully (e.g., pumped hydroelectric and compressed air energy storage). 

Aggregated modular storage deployed at or near loads, for reasons other than voltage support, 

could provide very helpful voltage support when and where needed. Finally, by picking up or 

turning off specific types of load when grid anomalies occur, DER can reduce voltage 

degradation, thereby reducing the possibility of cascading outages. 

The most challenging loads during such an event include small motors, especially those used in 

smaller air conditioning equipment to operate the compressor. Figure C-2 shows that, in 

California, such loads account for a significant portion of peak demand. Those motors pose such 

a significant challenge because as grid voltage drops during local or region-wide grid 

emergencies, the motors draw more current to maintain power which exacerbates the voltage 

problem. The same motors can also pose a relatively significant challenge as the grid is reenergized after outages. 
C-6 

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Commercial AC

Residential AC

Assembly Industry

Commercial Light

Residential Misc

Commercial Misc

Other Com Bldgs

Ag & Water Pumping

Process Industry

Residential Refrigerator

15% 14%

11% 11%

8%

7%

4% 4% 4% 4%

MW

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Commercial AC

Residential AC

Assembly Industry

Commercial Light

Residential Misc

Commercial Misc

Other Com Bldgs

Ag & Water Pumping

Process Industry

Residential Refrigerator

15% 14%

11% 11%

8%

7%

4% 4% 4% 4%

MW

 Source: California Energy Commission.[C5] 

Figure C-2. Peak demand (in MW) by end use in California. 

References 

[C1] Li, F. Fran. Kueck, John. Rizy, Tom. King, Tom. Evaluation of Distributed Energy 

Resources for Reactive Power Supply, First Quarterly Report for Fiscal Year 2006. Prepared for 

the U.S. Department of Energy by Oak Ridge National Laboratory and Energetics Incorporated. 

November 2005. 

[C2] ibid. [C1]. 

[C3] ibid. [C1]. 

[C4] Kirby, Brendan. Hirst, Eric. Ancillary Service Details: Voltage Control. Oak Ridge 

National Laboratory, Energy Division. Sponsored by The National Regulatory Research 

Institute. Oak Ridge National Laboratory Report #ORNL/CON-453. December 1997. 

[C5] California’s Electricity Situation: Summer 2005. Presentation prepared by the staff of the 

California Energy Commission, California Public Utilities Commission, and California 

Independent System Operator. February 22, 2005 

.
D-1 

Appendix D – Storage for Load Following 

Storage can provide load following up by increasing the rate of discharge and/or decreasing the 

rate of charging, as described below. 

Consider the example depicted in Figure D-1 which shows how charged storage with one hour of 

discharge duration can provide two hours of load following up by discharging. 

0

25

50

75

100

125

150

175

200

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

5 minute interval

MW

Load Following

Generation Output

Storage Output

Load 

Following 

Up

Figure D-1. Two hours of load following up with one hour of storage discharge. 

In Figure D-1, the time-specific aggregated load following capacity needed is indicated by the 

blue bars labeled Load Following. The rate of storage discharge increases as load increases 

(shown by the yellow bars labeled Storage Output). After the first hour of load following with 

storage, a full 100-MW block of generation is dispatched (shown by the red bars) while storage 

discharge is curtailed (at interval #13). Throughout the second hour of load following, the 

storage output is increased every five minutes (as it was during the first hour) as load increases. 

At the beginning of the next hour (not shown), another 100-MW block of generation is 

dispatched and storage output is halted. 

Storage charging can also be used to provide load following up by reducing the rate of charging 

throughout an hour, commensurate with increasing load. Consider the example shown inFigure 

D-2. At the beginning of the first hour of load following, a 100-MW generator is dispatched to 

full output (see the red bars labeled Generation Output). At the same time, storage begins 

charging at a rate equal to the 100-MW rating of the generator that was just dispatched. Every 

five minutes, the rate of storage charging is reduced to the extent that load has increased (note 

the yellow bars labeled Storage Charging). The resulting load following up is shown by the blue 

bars. At the beginning of the second hour of load following, the second 100 MW of generation is 
D-2 

dispatched (at full output), and storage charging commences again at a rate (100 MW) equal to 

the output of the second generator. Finally, at the beginning of the next hour (not shown), more 

generation is dispatched (ideally, at full output) as storage operation (in this case, charging) 

ceases. 

-225

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-75

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0

25

50

75

100

125

150

175

200

225

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

5 minute interval

MW

Load Following

Generation Output

Storage Charging

Load 

Following 

Up

Figure D-2. Two hours of load following up with one hour of storage charging. 

Storage provides load following down by decreasing the rate of discharge and/or by increasing 

the rate of charging, as described below. 

For load following down involving decreasing storage discharge, the storage is cycled from full 

output to very low (or no) output twice in a two-hour period, providing two service hours of load 

following down as shown in Figure D-3. In that figure, at the end of the previous hour (not 

shown), a 100-MW generator is taken offline as 100 MW of storage comes online (as shown by 

the yellow bars labeled Storage Discharge). Another 100 MW of generation is still online (shown 

by the red bars labeled Generation Output). The rate of storage discharge is reduced every five 

minutes during the first hour as load drops. The resulting load following capacity is shown by the 

blue bars labeled Load Following. At the beginning of the next hour, the 100-MW generator is 

taken offline and the storage begins discharging again at 100 MW. Storage discharging decreases 

throughout the second hour as load decreases until discharging ceases at the end of the second 

hour. 
D-3 

0

25

50

75

100

125

150

175

200

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

5 minute interval

MW

Load Following

Generation Output

Storage Output

Load 

Following 

Down

Figure D-3. Two hours of load following down with one hour of storage discharge. 

Figure D-4 shows how storage can be used to provide load following down while charging. The 

example shown in Figure D-4 involves storage with one hour of discharge duration that is used 

to provide two hours of load following down. 

-225

-200

-175

-150

-125

-100

-75

-50

-25

0

25

50

75

100

125

150

175

200

225

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

5 minute interval

MW

Load Following

Generation Output

Storage Charging

Load 

Following 

Down

Figure D-4. Two hours of load following down with one hour of storage charging. 
D-4 

At the beginning of the hour, two 100-MW generators are on line for a total of 200 MW (shown 

by the red bars labeled Generation Output). As load decreases, there is a commensurate increase 

of storage charging (shown by the yellow bars labeled Storage Charging). The resulting load 

following capacity is shown by the blue bars labeled Load Following. At the beginning of the 

second hour, 100 MW of generation is taken offline, and storage charging begins again at low 

power. As load continues to diminish, storage charging is increased until the beginning of the 

next hour (not shown) when storage charging and generator operation both cease. 

Energy Associated with Load Following 

When using storage charging for load following, the energy stored must be purchased at the 

prevailing wholesale price. This is an important consideration – especially for storage with lower 

efficiency and/or if the energy used for charging is relatively expensive – because the cost of 

energy used to charge storage (to provide load following) may exceed the value of the load 

following service. 

Conversely, the value of energy discharged from storage to provide load following is determined 

by the prevailing price for wholesale energy. Depending on circumstances (i.e., if the price for 

the load following service does not include the value of the wholesale energy involved), when 

discharging for load following, two benefits accrue – one for the load following service and 

another for the energy. 
E-1 

Appendix E – Area Regulation 

Introduction 

This appendix documents a high-level analysis of the benefit from and cost for flywheel energy 

storage used to provide area regulation for the electricity supply and transmission system in 

California. The analysis is based on results from a demonstration, in California, of flywheel 

energy storage developed and manufactured by Beacon Power Corporation. Demonstrated was 

flywheel storage systems’ ability to provide rapid-response regulation. (Flywheel storage output 

can be varied much more rapidly than the output from conventional regulation sources, making 

flywheels more attractive than conventional regulation resources.) 

The work was sponsored by the U.S. Department of Energy (DOE) and the Sandia National 

Laboratories (SNL) Energy Storage Systems Program. The demonstration was supported by the 

California Energy Commission (CEC) Public Interest Energy Research Program. It was located 

at the Distributed Utility Integration Testing facility managed by Distributed Utility Associates 

(DUA) and located at the Pacific Gas and Electric Company (PG&E) Technological and 

Ecological Services research facility in San Ramon, California. 

Although the specific type of storage evaluated was flywheel storage, other types of storage that 

can respond rapidly when conditions change can also provide the area regulation service. Those 

may include some types of electrochemical batteries and capacitors. And though they respond 

more slowly, CAES and pumped hydroelectric storage can also be used to provide area 

regulation. 

Another desirable storage characteristic is high efficiency, because when storage charging occurs 

during regulation, any energy that is lost must be purchased at the prevailing price. 

Regulation Service 

Regulation is a type of ancillary service* that involves managing the “interchange flows with 

other control areas to match closely the scheduled interchange flows” and moment-to-moment 

variations in demand within the control area. The primary reasons for including regulation in the 

power system are to maintain the grid frequency and to comply with the North American Electric 

Reliability Council’s (NERC) Control Performance Standards 1 and 2 (NERC 1999a). 

Regulation also assists in recovery from disturbances, as measured by compliance with NERC’s 

Disturbance Control Standard.[E1] 

When there is a momentary shortfall of electric supply capacity, the output from regulation 

resources is increased to provide up regulation when there is a momentary shortfall of power on 

the grid. Conversely, regulation resources’ output is reduced to provide down regulation when 

there is a momentary excess of electric supply power. 

 

*

 Ancillary services are electric resources that are used to maintain reliable and effective operation of electric supply 

and transmission systems. Most often, ancillary services are provided by utilities, although an increasing portion is 

being provided by third parties. Six key ancillary services are 1) scheduling, system control and dispatch, 2) reactive 

supply and voltage control from generation sources, 3) regulation and frequency response, 4) energy imbalance, 

5) spinning reserve, and 6) supplemental reserve. 
E-2 

Traditionally, regulation has been provided by dispatchable thermal generation facilities. They 

provide up regulation by increasing output when electricity demand exceeds supply, and they 

provide down regulation by reducing output when electricity supply exceeds demand. Generation 

facilities used for up regulation and those used for down regulation are operated at levels below 

the facilities’ maximum output and above minimum output, respectively.[E2] Generation units 

used for regulation must be equipped with automatic generation control (AGC) equipment and 

be able to change output relatively quickly (MW/minute) over an agreed upon range of power 

output (MW). 

Flywheels for Area Regulation 

Flywheel electric energy storage systems (flywheel storage or flywheels) consist of a cylinder 

with a shaft that can spin rapidly within a robust enclosure. A magnet levitates the cylinder to 

limit friction-related losses and wear. The shaft is connected to a motor/generator and stator. 

Kinetic energy is converted to electric power via an external power conditioning unit (PCU). 

High-speed flywheel electricity storage is nearing commercialization. One apparently superior 

application of the technology is for electric power system regulation (also known as area 

regulation or simply regulation). Storage provides up regulation by discharging energy into the 

grid and down regulation by absorbing energy from the grid. 

Notably, the rate of power from (or into) flywheel storage can change quite rapidly whereas 

output from conventional regulation sources (primarily thermal generation plants) changes 

slowly. Generation plants’ output (up or down) changes by percentage points per minute whereas 

flywheels’ output can change from full output (discharge) to full input (charging) and vice versa

within a few seconds. Additionally, thermal power plants generally are most efficient when 

operated at a specific and constant (power) output level. Similarly, air emissions and plant wear 

and tear are usually lowest when thermal generation operates at constant output. Unlike thermal 

power plants, flywheels’ performance is not affected much as output varies, and the systems are 

virtually emissions free. 

Demonstration Plant 

Results described below are for a 100-kW pilot version of a Beacon Power high-speed flywheel 

storage system. The pilot system consisted of seven individual flywheels, a PCU, and 

communication and control subsystems. It can discharge at full output for 15 minutes. The 

response time is described by Beacon Power to be “less than 4 seconds (at full power).” The 

demonstration was conducted at Distributed Utility Associates’ Distributed Utility Integration 

Test testbed located at PG&E’s Technical and Ecological Services facility in San Ramon, 

California. Recently, Beacon has developed a 20-MW Smart Energy MatrixTM version of the 

flywheel system for commercial use. 

Benefits 

At minimum, regulation from flywheels is at least as valuable as regulation provided by slower 

generation capacity. Regulation from flywheels, however, may prove even more valuable. First, 

flywheel storage can provide both up regulation and down regulation during the same time 

period (although not simultaneously). Also, because of their rapid-response (i.e., their ability to 

change power input and output rapidly), flywheels may provide regulation that is more effective 

than that provided by much slower generation-based resources. Because of this advantage, 
E-3 

regulation from flywheels is assumed to provide twice the benefit to the grid as regulation from 

generation.[E3][E4][E5] 

Revenue for providing up and down regulation services for an entire year (8,760 hours) is 

estimated based on California Independent System Operator (CAISO) published hourly prices 

for both services for the year 2006. (See the subsection ‘Price for Regulation Service’ in this 

appendix for details.) The hourly prices are multiplied by two (to reflect the higher benefit from 

flywheels relative to generation-based regulation) before annual revenues are estimated. 

In addition to the price for regulation in specific hours of the year, another important criterion 

affecting the flywheel-for-regulation value proposition is flywheel plant availability. The amount 

of time that the flywheel is available to provide regulation affects the total profit that can be 

realized during the year. Because flywheel storage is modular, equipment diversity should result 

in high reliability. For example, a Beacon’s 20-MW, commercial-scale plant is expected to 

comprise a few hundred flywheels. 

Although not included in the financial analysis, additional benefits derived from the use of 

flywheels for regulation may include a reduced need for generation capacity, reduced fuel use for 

generation, reduced air emissions from generation, and reduced generation equipment wear-andtear. 

As an indication of the prospects for reducing air emissions, consider results from a study 

performed by KEMA, Inc (kema.com), shown in Table E-1. Based on study results, flywheels 

used for regulation in California could reduce CO2 emissions by 26% when compared to pumped 

hydroelectric storage, 53% if the flywheels replace baseload gas-fired generation and 59% if a 

natural gas-fired peaking generator is displaced. Similarly, (NOx) emissions may also reduced by 

20% to nearly 50%.[E6] 

Table E-1. Air Emissions Reduction Potential 
E-4 

Flywheel Energy Storage Cost and Performance 

The values shown in Table E-2 are flywheel storage system cost and performance assumptions 

plus the price for make-up energy (energy required to make up for storage losses). The cost and 

performance values for flywheels reflect expected values for a 20-MW commercial-scale plant. 

Installed cost reflects a 20% uncertainty adder. This value is used to account for the normal 

uncertainty associated with technology scale-up and commercial project development 

(e.g., siting, contracts, construction delays, etc.). 

Table E-2. Flywheel Storage Cost and Performance Assumptions 

Criterion Value

Commercial Plant Scale (MW) 20

Plant Installed Cost ($/kW) 1,566

Plant Availability 0.95

Roundtrip Efficiency 81%

Variable Operartion Cost ($/MWhout) 3.14

Fixed Operation Cost ($/kW, Year 1 ) 11.60

Makeup Energy Price ($/MWh) 40

Price for Regulation Service 

The key data used for estimating the regulation benefit is the hourly price for up and down 

regulation services. The price is denominated in $/MW per hour of service. There are two prices 

for the hour: up regulation and down regulation. Hourly prices for up and down regulation in 

California in 2006 are shown in Figure E-1 and , respectively. Annual average prices used for the 

valuation are $21.48/MW and $15.33/MW per service hour for up and for down regulation, 

respectively, for a total of $36.70/MW per service hour. 

0

50

100

150

200

250

300

350

400

450

1 1001 2001 3001 4001 5001 6001 7001 8001

Hour

Price ($/MW)

Figure E-1. Up regulation prices in California, 2006. 
E-5 

0

50

100

150

200

250

300

350

400

450

1 1001 2001 3001 4001 5001 6001 7001 8001

Hour

Price ($/MW)

Figure E-2. Down regulation prices in California, 2006. 

Value of Regulation from Flywheels 

As described elsewhere in this appendix, it is assumed that flywheels used for regulation provide 

twice as much benefit (to the grid) as generation-based regulation. Specifically, it is assumed that 

regulation resources are twice as valuable if they follow the area control error (ACE) signal 

closely. That signal changes every several seconds to reflect the momentary difference between 

the amount of power that is online and the amount needed to keep supply and demand balanced 

and to maintain the electrical stability of the grid (especially the 60-Hz AC frequency). Based on 

this assumption, flywheel storage used as a regulation resource is treated as if it is eligible for 

payments that are twice as much as the prices shown above for conventional, generation-based 

regulation. 

Market Potential 

In addition to financials, the CEC’s Public Interest Energy Research Program is interested in the 

market potential (in MW) for the flywheels-for-regulation value proposition. Unfortunately, the 

authors of this guide do not have the resources needed to establish that value rigorously or 

credibly. Nonetheless, the authors speculate that a conservative estimate of the market potential 

in California could be on the order of 50 to 60 MW of the total regulation market managed by 

the CAISO over the next 10 years. (The CAISO does not manage all of the regulation resources 

within the state. Some of that capacity could be in play as well.) This speculation has two 

primary bases. The first is a very cursory review of regulation capacity requirements available at 

the CAISO Open Access Same-time Information System website (http://oasis.caiso.com/, under 

the ancillary services tab). The second is a discussion with representatives from Beacon 

Power.[E7] 
E-6 

Financial Assumptions 

The financial analysis used to calculate lifecycle cost and benefits include a 2.5% annual price 

escalation and a 10% discount rate. The annual plant carrying cost is calculated by applying an 

annualization factor (i.e., a fixed charge rate) of 0.20 (e.g., annual financial carrying charges for 

a $1 million plant = $200,000/year). 

Results 

Demonstration plant availability for three plant output levels (relative to full rating) is 

summarized in Table E-3. Also shown is the availability assumed for a commercial plant. As 

shown in the table, the demonstration unit operated 51.4% of the time at full capacity (full 

capacity means that all seven flywheels were operating). Similarly, the demonstration unit 

operated nearly 53% of the time at 85.7% of rated capacity (85.7% capacity represents six 

flywheels of seven). There were at least five of seven flywheels (71.4% of full rated capacity) 

operating almost 88% of the time. 

Also shown is that the demonstration plant’s availability would be somewhat higher when 

accounting for research-related outages. Research-related outages include downtime due to 

causes that would only affect operation of a research or pilot project (e.g., no control signal was 

available, access to the demonstration facility was restricted, or the system could not be 

connected to the grid). Downtime to due equipment failure is not considered a research-related 

outage. 

Table E-3. Demonstration Plant Actual Availability 

and Commercial Plant Expected Availability 

Capacity 

(% of full)

Availability 

(Actual)

Without 

"Researchrelated" 

Outages

Commercial 

Plant 

(expected)

100% 47.3% 51.4% 95.0%

85.7% 52.7% 56.9%

71.4% 87.8% 92.0%

The financial implications of plant availability are summarized inFigure E-3. In the figure, the 

left axis shows $/kW in Year 1. The axis on the right indicates the corresponding lifecycle value, 

over the 10-year life assumed for the plant. Results are shown for three levels of annual average 

power output: 71%, 86%, and 100% of plant rating (note that these values correspond to those 

shown in Table E-3, rounded to the nearest full percentage point). An output of 71% represents 

5 of 7 flywheels in the demonstration system, 86% represents 6 of 7 flywheels, and 100% 

represents 7 of 7 flywheels. Results are presented, for each of those three plant output levels, for 

a range of plant annual availability levels. Also shown is the break-even amount, reflecting the 

carrying cost for a commercial plant. 

The uppermost plot indicates results for plants operating at full rating. The next two plots 

indicate financials for a plant operating at 86% and 71% of its rating, respectively. Thicker parts 

(to the lower left) of the three plots reflect results from the demonstration. Endpoints on all three 

plots indicate financials for a plant operating at the respective portion of rated output, if the plant 
E-7 

operates as much as a commercial plant is expected to operate (i.e., 95% of the year, full-load 

equivalent). The box in the upper right indicates financials that would be expected for a 

commercial plant, based on assumptions provided in Section 3 of this guide. The financial 

benefit/cost ratio for such a plant ranges 

from $500/kW benefits ÷ $313/kW breakeven = 1.6 

up to $554/kW benefits ÷ $313/kW breakeven = 1.77. 

Note that plant designers expect a 20-year service life for a 20-MW, commercial-scale plant, 

although the assumed service life for this report is 10 years. To account for the difference, the 

present worth of additional benefits increases by about 50%. 

100

150

200

250

300

350

400

450

500

550

600

40% 50% 60% 70% 80% 90% 100%

Availability

Annual Net Revenue 

 ($ / kW* Year 1) 

717

1,217

1,717

2,217

2,717

3,217

3,717

4,217

 Lifecycle Net Revenue

 ($PW / kW*) 

100% of plant rating

86% of plant rating

71% of plant rating

Breakeven ($/Year 1)

*Per kW of plant rating.

Commercial Plant

100

150

200

250

300

350

400

450

500

550

600

40% 50% 60% 70% 80% 90% 100%

Availability

Annual Net Revenue 

 ($ / kW* Year 1) 

717

1,217

1,717

2,217

2,717

3,217

3,717

4,217

 Lifecycle Net Revenue

 ($PW / kW*) 

100% of plant rating

86% of plant rating

71% of plant rating

Breakeven ($/Year 1)

*Per kW of plant rating.

Commercial Plant

Figure E-3. First-year and lifecycle net revenue, with breakeven indicator. 

Methodology Observations and Caveats 

• The make-up energy price assumed was not developed rigorously. Although this value is 

adequate for this analysis, it should be established using a more rigorous approach when 

evaluating the financials for an actual project. 

• Based on results from the demonstration project, flywheel systems with 15 minutes of 

storage can store enough energy to provide regulation during 97.5% of the time that the 

storage is used. For the purpose of this evaluation, the financial implications of that 

criterion are assumed to be modest and are ignored. 

• The project was a demonstration of the flywheel’s ability to respond to rapidly changing 

control signals without regard to the magnitude of the response (in MW) that might be 

needed. Consequently, the results reflect the value for regulation capacity on the margin. 
E-8 

• The market potential estimate used for this evaluation, although adequate for a high-level 

estimate of the magnitude of statewide economic impact, is imprecise. Unfortunately, 

little is known about the effect significant penetration of rapid-response regulation 

capacity will have on the need for regulation and on the price for regulation. 

• The premise about how much more valuable flywheels are than generation-based 

regulation resources, as meritorious as it may be, may not be reflected in regulation 

pricing without a significant amount of confirmation, regulatory accommodation, and 

time. 

• The 0.20 annualization factor used to estimate the annual carrying cost for the plant, 

though perhaps imprecise, does provide a reasonable general indication of the cost to 

finance the plant and equipment using non-utility capital. 

• Another important assumption affecting these results is the 20% uncertainly adder 

(provided by Beacon Power) that increases the assumed installed cost for a commercial 

plant. That value is used to account for the myriad unforeseen challenges that are likely to 

beset any technology development enterprise and project development effort. 

• The design service life for a commercial Beacon Power flywheel plant is 20 years; 

however, the assumed service life for the evaluation described in this report is 10 years. 

The reason for this is twofold. First, guidelines established by the CEC’s Public Interest 

Energy Research Program for evaluating the merits of various storage demonstrations 

require the use of standard assumptions as bases for comparing financials for all 

demonstration projects sponsored. Those standard assumptions include a 10-year life, a 

10% discount rate, and a 2.5 % price escalation rate. Second, while the authors do not 

refute the 20-year expected life assumed by Beacon Power, a more conservative 10-year 

life expectancy was used because both the technology and the value proposition are so 

new. 

Conclusions 

Perhaps the most important result from the Beacon flywheel demonstration is that the sponsors 

and vendors successfully demonstrated the ability of the flywheel to follow control signals that 

change very rapidly, much more rapidly than the signal used to control the output of generationbased regulation. The results indicated that the characteristics of high-speed flywheel storage are 

generally consistent with a possible new class of regulation resources – rapid-response energy 

storage-based regulation – in California. In short, it was demonstrated that high-speed flywheel 

storage systems are capable of following a rapidly changing (every 4 seconds) control signal (the 

ACE). 

Based on these results and on the expected plant cost and performance, high-speed flywheel 

storage systems have a good chance of being a financially viable regulation resource. The results 

indicated a benefit/cost ratio of 1.6 to 1.8 using somewhat conservative assumptions. The results 

also indicated that flywheel systems with 15 minutes of storage can store enough energy to 

provide regulation during 97.5% of the time that the storage is used. 

The market potential (in MW) is less certain. Uncertainty about technical market potential is 

driven in part by a lack of knowledge regarding how the use of rapid-response regulation 

resources on the margin will affect overall demand and prices for regulation. Regarding market 
E-9 

share, there is always uncertainty regarding competing options (e.g., other vendors/developers 

and other technologies or approaches). 

R&D Needs and Opportunities 

One compelling question for this value proposition is–How much of this resource could be used 

and how much will be used? Consistent with the hypothesis that rapid-response storage is twice 

as valuable as generation-based regulation capacity, another hypothesis to test is that only half as 

much regulation is needed if all regulation is rapid-response. Increased penetration of rapidresponse regulation also means that generation capacity is freed to provide power or other more 

valuable ancillary services and less pollution will be produced and less fuel will be used per 

MWh delivered. Another way to broach the question is–What are the key implications for the 

grid if all regulation is provided entirely by rapid-response regulation? Those implications 

include impacts on: the amount of regulation needed, the total cost to ratepayers for regulation, 

fuel use, and air emissions from generation. 

References 

[E1] Hirst, Eric. Kirby, Brendan. What is the Correct Time-Averaging Period for the Regulation 

Ancillary Service? Oak Ridge National Laboratory. April 2000. 

Available at: http://www.ornl.gov/sci/btc/apps/Restructuring/regtime.pdf. 

[E2] ibid. [E1]. 

[E3] David Hawkins, California ISO; Mike Gravely, California Energy Commission; Bill Capp 

and Chet Lyons, Beacon Power. Discussion with Jim Eyer, Distributed Utility Associates at the 

California ISO offices. Folsom, California. April 12, 2007. 

[E4] California Energy Commission Press Release. California Energy Commission Applauds 

Beacon Power Upon Reaching Research Goal. January 10, 2007. 

[E5] Makarov, Dr. Yuri. Pacific Northwest National Laboratory in conjunction with the CAISO. 

Relative Regulation Capacity Value of the Flywheel Energy Storage Resource. The research was 

initially commissioned and funded by the CAISO. While the work was in progress, Dr. Makarov 

left the ISO and later published the report in November 2005. 

[E6] Enslin, Johan, Ph.D. Fioravanti, Richard. Emissions Comparison for a 20-MW Flywheelbased Frequency Regulation Power Plant. A study performed by KEMA, Inc. under a contract 

funded by the U.S. DOE via Sandia National Laboratories. Sandia National Laboratories 

Contract #611589 and RFQ #9058. October 2006. 

[E7] Chet Lyons and Jim Arseneaux, Beacon Power. Discussion with Jim Eyer, Distributed 

Utility Associates. Mr. Lyons and Mr. Arseneaux indicated that discussions with representatives 

of various ISOs leads Beacon to assume that market penetration levels of 20% to 25% would 

have little to modest impact on both the need for regulation and the price paid for regulation. 

Beacon Power contends that that level is conservative. June 6, 2007. 
E-10 
F-1 

Appendix F – Energy Prices 

This appendix serves two interrelated objectives: 1) provide generic electric energy costs based 

on a range of fuel conversion efficiencies and fuel costs and 2) provide details about projected 

wholesale energy prices in California. The California-specific data and figures are based on a 

California Energy Commission (CEC) forecast for spot electric energy prices in 2009.[F1] 

Generic Electric Energy Cost 

Figure F-1 and Figure F-2 show generic values for the two key components of unit energy cost: 

fuel and plant capital cost. Figure F-1 illustrates how fuel price and fuel conversion efficiency 

affect electricity price. The three plots in the figure represent three conversion efficiency values: 

35%, 45%, and 55%. 

4

5

6

7

8

9

10

6.0 6.5 7.0 7.5 8.0 8.5 9.0

Fuel Price ($/MMBtu)

Generation Variable Cost (¢/kWh) 

35.0%

45.0%

55.0%

Variable O&M: 1.0¢/kWh

Figure F-1. Generic effect of conversion efficiency 

and fuel price on electricity price. 

Figure F-2 shows how plant capital cost affects the price for electricity. The three plots in this 

figure represent three generation installed cost values: $400/kW, $1,000/kW, and $1,600/kW. 

These cost values reflect a generic fixed charge rate of 0.11. To adjust values to reflect a 

different fixed charge rate, multiply the cost values by the ratio of the actual fixed charge rate by 

the generic value of 0.11. For example, if the fixed charge rate is 0.13, then multiply the values 

in Figure F-2 by 

0.13 ÷ 0.11 = 1.19. 
F-2 

Figure F-2. Generic effect of plant capital cost on electricity price. 

California Electric Energy Cost Projection 

Figure F-3 shows prices in chronological order, while Figure F-4shows hourly electric energy 

prices arranged in order of magnitude. In Figure F-4, two plots are shown: one is the actual price 

and the other is the running average value. The same data, with emphasis on the hours of the 

years with the highest 10% prices, are shown in Figure F-5. 

0

100

200

300

400

500

600

700

800

0 876 1,752 2,628 3,504 4,380 5,256 6,132 7,008 7,884 8,760

Hour of the Year

$/MWh

Figure F-3. Electric energy spot prices for California (2009 forecast). 

0

2

4

6

8

10

12

14

16

18

20

1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000

Hours Per Year of Operation

Generation Equipment Cost (¢/kWh) 

$1600/kW

$1000/kW

$400/kW

Fixed Charge Rate = 0.110

Fixed O&M = 10.0/kW-year
F-3 

0

100

200

300

400

500

600

700

800

0 876 1,752 2,628 3,504 4,380 5,256 6,132 7,008 7,884 8,760

Hours

$/MWh

Running Average Price

Actual Prices

Figure F-4. Price duration curve for California (2009 forecast). 

0

100

200

300

400

500

600

700

800

0 100 200 300 400 500 600 700 800

Hours

$/MWh

Running Average Price

Actual Prices

 

Figure F-5. Price duration curve for California (2009 forecast) 

10% highest price hours. 
F-4 

Hourly average prices for each hour of the day for each month are listed in Table F-1. Data in 

Table F-2 show the net benefit for energy time-shift based on the prices in Table F-1. 

Table F-1. Monthly Hourly Average Prices for California 

2009 Forecast ($/MWh) 

Month=>

Hour 1 2 3 4 5 6 7 8 9 10 11 12

1 56.4 45.9 50.6 60.1 45.4 41.1 63.9 75.3 82.5 74.7 65.3 76.5

2 49.2 43.5 44.6 57.3 38.1 35.9 56.1 64.8 75.1 61.7 60.4 71.1

3 45.9 41.4 41.5 56.9 35.6 33.6 53.3 63.8 70.5 54.0 56.0 66.7

4 45.9 41.0 41.3 56.7 36.7 31.5 53.0 64.8 73.5 51.3 55.1 64.8

5 51.3 44.3 46.8 62.2 43.2 29.4 54.3 76.2 76.9 57.5 59.8 69.9

6 61.8 50.5 52.7 74.1 57.0 39.7 49.9 73.4 83.4 68.7 72.3 88.8

7 74.0 61.2 62.8 84.0 75.2 59.6 71.7 95.3 97.8 78.7 80.7 89.9

8 81.0 69.0 70.2 89.0 88.9 73.8 85.6 106.2 110.3 89.0 89.5 101.7

9 84.2 72.3 75.2 92.9 93.0 91.2 96.6 112.2 115.4 92.1 98.2 107.2

10 85.5 73.2 78.1 96.4 101.8 102.7 108.9 116.5 119.2 99.7 99.4 102.1

11 85.4 73.3 78.9 96.5 103.0 106.5 117.7 120.1 123.9 102.8 101.4 99.6

12 83.3 72.3 77.9 95.5 102.6 111.2 129.3 132.1 130.7 99.6 101.7 96.8

13 82.1 71.0 77.0 96.1 104.3 120.9 146.0 161.8 139.0 98.1 101.3 93.1

14 80.3 70.3 76.0 94.4 103.3 128.7 165.3 188.5 147.5 100.4 101.3 91.4

15 78.6 68.3 74.0 93.1 103.0 132.4 172.0 203.1 147.6 97.5 99.5 87.4

16 76.0 67.5 71.6 91.4 98.6 128.5 171.5 197.9 144.6 95.5 97.7 87.4

17 80.0 68.6 70.3 89.2 95.6 118.6 163.2 172.8 146.1 96.5 101.6 101.1

18 97.4 79.8 73.9 90.6 92.8 106.9 133.6 136.5 140.3 95.9 115.1 135.2

19 95.7 87.1 91.3 96.9 94.4 98.2 113.0 121.4 142.3 103.6 113.3 132.5

20 90.8 83.1 86.8 105.4 110.5 109.3 121.1 122.4 132.4 105.4 106.5 119.3

21 86.6 76.7 80.0 95.5 94.6 101.7 108.7 111.4 115.5 103.3 102.6 111.7

22 79.7 70.4 73.6 83.4 78.5 79.7 112.4 108.2 104.8 95.7 94.7 102.2

23 73.2 61.5 66.6 69.4 59.4 61.4 80.8 88.3 96.6 88.6 88.4 92.6

24 62.2 49.7 55.3 65.1 55.2 52.4 76.4 82.4 94.5 72.6 71.9 81.9

Month=>

Hour 1 2 3 4 5 6 7 8 9 10 11 12

00 P.M. 85.1 74.5 77.6 94.6 100.3 118.0 148.2 163.1 142.5 99.1 104.5 105.9

00 A.M. 51.8 44.4 46.2 61.2 42.7 35.2 55.1 69.7 77.0 61.3 61.5 72.9

fference 33.3 30.0 31.4 33.4 57.7 82.8 93.1 93.3 65.5 37.8 43.0 33.0

May - October November - April

00 P.M. 128.5 90.4

00 A.M. 56.8 56.4

fference 71.7 34.0
F-5 

Table F-2. Storage Buy-Low / Sell-High Potential for California 

2009 Forecast ($/MWh) 

References 

[F1] Derived from preliminary Wholesale Electricity Price Forecast data provided by Joel Klein, 

California Energy Commission. April 2008. 

Month=>

Hour 1 2 3 4 5 6 7 8 9 10 11 12

12:00 P.M. - 5:00 P.M. 85.1 74.5 77.6 94.6 100.3 118.0 148.2 163.1 142.5 99.1 104.5 105.9

1:00 A.M. - 6:00 A.M. 51.8 44.4 46.2 61.2 42.7 35.2 55.1 69.7 77.0 61.3 61.5 72.9

Storage Losses 10.4 8.9 9.2 12.2 8.5 7.0 11.0 13.9 15.4 12.3 12.3 14.6

Net 23.0 21.1 22.1 21.1 49.1 75.7 82.1 79.4 50.1 25.5 30.7 18.4

May - October November - April Hours Value*

12:00 P.M. - 5:00 P.M. 128.5 90.4 Summer 651.8 39,323

1:00 A.M. - 6:00 A.M. 56.8 56.4 Winter 651.8 14,830

Storage Losses* 11.4 11.3 Total 1,304 54,152

Net 60.3 22.8 *Storage Efficiency = 80.0%

*Storage Efficiency = 80.0%
F-6 
G-1 

Appendix G – Challenges for Storage 

A spectrum of challenges may affect prospects for increased use and acceptance of storage. A 

high-level characterization of those challenges is provided in this appendix. The purpose for this 

is to provide storage advocates and other interested stakeholders with a general indication of and 

awareness about the types of challenges that may arise for any given storage project, and more 

broadly, that may require attention before storage can be widely deployed. (Note that some of the 

items listed below are also described as opportunity drivers in Section 7.3.) 

• Storage has a relatively high cost. 

• Storage energy losses – 20% to 40% of energy stored is lost: 

o Storage tends to have round-trip efficiency of 60% to 80% 

• ‘Inefficient’ electric energy and services pricing: 

o Transmission and possibly distribution 

o Demand 

o Energy 

o Reliability 

• Limited risk/reward sharing mechanisms between a) utilities and utility customers and 

b) utilities and third parties: 

o Regulatory rules and ‘permission’ 

o Interconnect 

o Undetermined optimal and/or maximum storage penetration levels 

 bulk/central 

 modular/distributed 

o Operations 

• Permitting and siting rules and regulations (many have yet to be developed): 

o Zoning and building codes 

o City and community planning 

o Fire, public health, and safety-related rules and codes (mostly local) 

o National Electric Code 

o Occupational safety and health (state and federal agencies) 
G-2 

• Limited familiarity, knowledge, and experience base: 

o Storage cost and benefits 

o Storage technology 

o Storage system integration 

o Distributed energy resources 

o Integration of storage with the grid 

o Storage benefits and value 

• Existing utility technology biases (especially utilities and, to a lesser extent, regulators): 

o Utilities are technologically risk averse, for understandable reasons 

o Perceived risk for any new technology 

• Limited engineering standards and evaluation methodologies. 

• Lack of evaluation tools: 

o Electrical 

o Financial 

• Financing of ‘new’ technology is challenging: 

o Unknown operational costs 

o Uncertain system life 

o Multi-year payback is difficult for commercial/residential 

o Multi-year payback is acceptable for government and utilities 

• Investor-owned utilities’ (IOUs’) preference for investments in equipment and their 

aversion to expense-based alternatives (such as rentals, leases or incentives): 

o IOUs derive all profit from investments in equipment

o IOUS will tend to avoid expenses related to storage involving equipment rental or 

leases and possibly ‘risk and reward sharing’ 

o IOUS will prefer to purchase storage equipment though financial justification will 

often be elusive 

• Inadequate infrastructure features and ‘hooks’: 

o Interconnection 

o Control 

o Communication 

o Price signals 
G-3 

• Many technologies, concepts and programs ‘competing’ for ‘attention’: 

o Renewables 

 Waste and biofuels 

 Solar thermal 

 Photovoltaics 

 Wind generation 

o Conventional fuels 

 Clean coal 

 Advanced nuclear 

o Demand response 

o Distributed resources 

o Load aggregation 

o Smart Grid 

o Conservation and efficiency 

• Coordinating among numerous stakeholders, for ‘permission’ to use grid-connected 

storage and/or to aggregate benefits may be expensive and time-consuming. 
G-4 
H-1 

Appendix H – Distribution 

Hard Copies 

Energy Storage Program (5) Sandia National Laboratories M/S 1108 

Butler, Paul C. 

OUSD(AT&L)/PSA/LW&M 

3090 Defense Pentagon, Room 5C756 

Washington, DC 20301-3090 

Electronic Copies—Internal 

1 MS0899 Technical Library 9536 

Atcitty, Stan satcitt@sandia.gov 

Borneo, Dan drborne@sandia.gov 

Bower, Ward I. wibower@sandia.gov 

Boyes, John jdboyes@sandia.gov 

Butler, Paul C. pcbutle@sandia.gov 

Cameron, Christopher P. cpcamer@sandia.gov 

Clark, Nancy nhclark@sandia.gov 

Corey, Garth gpcorey@sandia.gov 

Hund, Tom tdhund@sandia.gov 

Ingersoll, David dingers@sandia.gov 

Jungst, Rudolph G. rgjungs@sandia.gov 

Peek, Georgianne ghpeek@sandia.gov 

Ragland, Don B. dragla@sandia.gov 
H-2 

Electronic Copies—External 

Badger, Joe JBI Corporation

 joe@jbicorp.com 

Baxter, Richard Ardour Capital Investments, LLC

 rbaxter@ardourcapital.com 

Beardsworth, Ed Energy Technology Advisors

 edbeards@ufto.com 

Benke, Michael BEW Engineering

 mike.behnke@bewengineering.com 

Bertagnolli, David ISO New England 

 dbert@iso-ne.com 

Bindewald, Gil U.S. Department of Energy

 gilbert.bindewald@hq.doe.gov 

Bloom, Ira D. Argonne National Laboratories

 bloom@cmt.anl.gov 

Boden, Dave Hammond Expanders

 dboden@hmndgroup.com 

Braun, Gerald W. California Energy Commission

 Gerry.braun@ucop.edu 

Brown, Dave Battery Energy

 david.brown@batteryenergy.com.au 

Burnham, Jeff NGK 

 jeff@ngk-polymer.com 

Butler, Paul C. OUSD(AT&L)/PSA/LW&M

 pcbutle@sandia.gov 

Camm, Ernest S&C Electric Company

 ecamm@sandc.com 

Cantrell, Michelle NorthStar Battery

 michelle.cantrell@northstarbattery.com 

Capp, Bill Beacon Power Corp

 capp@beaconpower.com 

Cole, Jerome F. International Lead Zinc Research Organization, Inc.

 jcole@ilzro.org 

Craft, Ben NorthStar Battery

 ben.craft@northstarbattery.com 

Crimp, Peter Alaska Energy Authority/AIDEA

 pcrimp@aidea.org 

Crow, Mariesa University of Missouri-Rolla

 crow@umr.edu 

Dailey, John Electro Energy, Inc.

 jdsouthbry@aol.com 

Davis, Murray W. DTE Energy

 davism@dteenergy.com 
H-3 

Deshpande, Sanjay EnerSys Inc

 Sanjay.Deshpande@enersysinc.com 

Dickinson, Enders Axion Power

 edickinson@axionpower.com 

Djogo, Goran S&C Electric Company

 gdjogo@sandc.com 

Donalek, Peter Montgomery Watson Harza (MWH) Global

 peter.j.donalek@mwhglobal.com 

Dossey, Tom Southern California Edison

 thomas.dossey@sce.com 

Drake, Richard NYSERDA

 rld@nyserda.org 

Dudney, Kevin California Public Utilities Commission

 kd1@cpuc.ca.gov 

Duncan, David Georgia Power Company

 jdduncan@southernco.com 

Duncan, Paul Gridpoint, Inc.

 pduncan@gridpoint.com 

Duong, Tien Q. U.S. Department of Energy

 tien.duong@hq.doe.gov 

Eilertsen, Thor Custom Electronics, Inc.

 teilertsen@customelec.com 

Enbar, Nadv Energy Insights

 nenbar@energy-insights.com 

Eto, Joseph H. Lawrence Berkeley National Laboratory

 jheto@lbl.gov 

Eyer, Jim Distributed Utility Associates 

 jim@dua1.com 

Farber-DeAnda, Mindi SAIC

 farbermj@saic.com 

Fiske, Jim Power Ring

 jfiske@launchpnt.com 

Fleming, Frank NorthStar Battery

 frank.fleming@northstarbattery.com 

Eva Gardow First Energy Corporation 

 egardow@firstenergycorp.com 

Geist, Thomas EPRI Solutions

 tgeist@eprisolutions.com 

Gotschall, Harold Technology Insights

 gotschall@ti-sd.com 

Gray-Fenner, Amber Energy Communications Consulting

 amber@energycommunications-nm.com 

Gyuk, Imre U.S. Department of Energy

 imre.gyuk@hq.doe.gov 
H-4 

Hassenzahl, William Advanced Energy Analysis

 advenergy1@aol.com 

Haught, Deborah U.S. Department of Energy

 debbie.haught@hq.doe.gov 

Hayden, Herbert Arizona Public Service

 herbert.hayden@pinnaclewest.com 

Hennessey, Tim VRB Power Systems Inc.

 office@vrbpower.com 

Herbst, John University of Texas

 j.herbst@mail.utexas.edu 

Hoagland, Joseph TVA/Public Power Institute

 jjhoagland@tva.gov 

Hoffman, Michael Bonneville Power Administration

 mghoffman@bpa.gov 

Horgan, Susan Distributed Utility Associates Inc.

 susan@dua1.com 

Huang, Alex North Carolina State University - ECE - SPEC

 aqhuang@ncsu.edu 

Hughes, Michael ZBB Technologies Inc.

 m.hughes@zbbenergy.com 

Jaffe, Todd Energy Business Brokers and Consultants

 tjaffe@energybusinessconsultants.com 

Jensen, James Alaska Energy Authority

 jjensen@aidea.org 

Johnson, Brad bwjohnson@acninc.net 

Kalafala, A. Kamal Intermagnetics General Corp.

 kamal@igc.com 

Kamath, Haresh EPRI Solutions

 hkamath@epri.com 

Karner, Don Electric Transportation Applications

 dkerner@etecevs.com 

Key, Tom EPRI

 tkey@epri.com 

King, Richard J. U.S. Department of Energy

 richard.king@ee.doe.gov 

Kirby, Brendan J. Oak Ridge National Laboratory

 kirbybj@ornl.gov 

Koontz, Charles Integrys Energy Services

 cakoontz@integrysenergy.com 

Kristiansen, R. EnerSys, Inc.

 rich.kristiansen@enersysinc.com 

Kulkarni, Pramod California Energy Commission

 pkulkarn@energy.state.ca.us 
H-5 

Lasseter, Bob University of Wisconsin

 lasseter@engr.wisc.edu 

Lex, Peter ZBB Technologies, Inc.

 p.lex@zbbenergy.com 

Liaw, Bor Yann University of Hawaii

 liawb001@hawaii.rr.com 

Lightner, Eric M. U.S. Department of Energy

 eric.lightner@hq.doe.gov 

Magnani, Nick magnanin@yuasainc.com 

Marnay, Chris Lawrence Berkeley National Laboratory

 c_marnay@lbl.gov 

McDowall, James SAFT

 jim.mcdowall@saftbatteries.com 

McGinn, Patrick Satcon

 patrick.mcginn@satcon.com 

Mears, Daniel Technology Insights 

 mears@ti-sd.com 

Moore, Jeffrey S&C Electric Company

 broberts@sandc.com 

Moseley, Patrick ILZRO

 pmoseley@ilzro.org 

Newnham, Russell CSIRO

 Russell.newnham@csiro.au 

Norris, Ben Norris Energy Consulting Company

 ben@norrisenergy.com 

Nourai, Ali AEP

 anourai@aep.com 

O'Leary, Ray S&C Electric Company

 roleary@sandc.com 

Oshima, Taku NGK Insulators, LTD. 

 t-oshima@ngk.co.jp 

Overholt, Philip N. U.S. Department of Energy

 philip.overholt@hq.doe.gov 

Parker, Carl International Lead Zinc Research Organization Inc.

 cparker@ilzro.org 

Phillips, Maryann Electro Energy, Inc.

 mphillips@electroenergyinc.com 

Porter, Dave S&C Electric Company

 dporter@sandc.com 

Ranade, Satish New Mexico State University

 sranade@nmsu.edu 

Rannels, James E. U.S. Department of Energy

 james.rannels@hq.doe.gov 
H-6 

Reed, Michael Electro Energy, Inc.

 mreed@electroenergyinc.com 

Reilly, James T. Reilly Associates

 j_reilly@verizon.net 

Roberts, Bradford S&C Electric Company, Power Quality Products Division

 broberts@sandc.com 

Rosenthal, Andrew L. New Mexico State University

 arosenth@nmsu.edu 

Rossmeissl, Neil P. U.S. Department of Energy

 neil.rossmeissl@hq.doe.gov 

Rufer, Alfred Ecole Polytechnique Federale de Lausanne (EPFL)

 alfred.rufer@epfl.ch 

Saft, Michael C. Saft America, Inc.

 michael.saft@saftamerica.com 

Sanchez, Dan U.S. DOE - Albuquerque Operations Office

 dsanchez@doeal.gov 

Schainker, Robert EPRI 

 rschaink@epri.com 

Scheer, Rich Energetics, Inc.

 rscheer@energeticsinc.com 

Schmitt, Robert GNB Industrial Power

 rob.schmitt@exide.com 

Schoenung, Susan Longitude 122 West, Inc

 schoenung@aol.com 

Shahidehpour, Mohammad Illinois Institute of Technology 

 ms@iit.edu 

Shirk, Bob NorthStar Battery

 bob.shirk@northstarbattery.com 

Singhal. Amit NEI Corporation

 asinghal@neicorporation.com 

Skolnik, Edward Energetics–A Subsidiary of VSE Corporation

 eskolnik@energeticsinc.com 

Skowronski, Mark Electric Power Group

 skowronski@electricpowergroup.com 

Smith, Paul Smith Aerospace Marketing and Consulting

 psmith9@woh.rr.com 

Sostrom, Stan Power Engineers, Inc.

 ssostrom@powereng.com 

Spence, Matthew Hammond Expanders

 mspence@hmndexpander.com 

Srinivasan, Devarajan APS STAR Center

 devarajan.srinivasan@aps.com 

Srinivasan, Venkat Lawrence Berkeley National Lab

 vsrinivasan@lbl.gov 
H-7 

Steffel, Stephen J. Pepco Holdings, Inc

 steve.steffel@conectiv.com 

Stoval, John Oak Ridge National Laboratory

 stovalljp@ornl.gov 

Takayama, Toyoo Ted NGK Insulators, Ltd.

 takayama@ngk.co.jp 

Thijssen, Gerard STORM

 gerard@storm.bz 

Ton, Dan T. U.S. Department of Energy

 dan.ton@ee.doe.gov 

Torrero, Edward NRECA Cooperative Research Network

 ed.torrero@nreca.org 

Udo, Victor E. Conectiv

 victor.udo@conectiv.com 

van der Linden, Septimus BRULIN Associates, LLC.

 brulinassoc@comcast.net 

Walmet, Paula Mead-Westvaco

 paula.walmet@mwv.com 

Weaver, Robert D. rdweaver@foothillwireless.net 

Whitaker, Chuck Endecon Engineering

 chuckw@endecon.com 

Winter, Rick Deeya Energy

 rowinter@sbcglobal.net 

Woolf, Gerry BEST Magazine

 gerry@bestmag.co.uk 

Zaininger, Henry Zaininger Engineering Co.

 hzaininger@aol.com 
H-8 
[inside back cover]