The Emergence of Utility-Scale Battery Storage
By: Luminous Team
Tags: Energy, Renewable Energy, Electricity, Battery, Utilities

The ability to store energy has been pursued since electricity first saw commercial use in the 1870s. Storage solutions are needed to address a range of energy production and distribution challenges, including increasing the reliability and predictability of the fast-growing solar and wind generation.

Although many chemistry-based storage solutions have been explored over the last century, Pumped-Storage Hydropower (PSH), first introduced in Italy and Switzerland in the 1890s, remained the only utility-scale solution until fairly recently.

PSH plants currently in operation in the US were built between 1918 and 2012. The last of these was the 42 MW Lake Hodges Hydroelectric Facility completed by the San Diego Country Water Authority. The project started in 1998 with the construction of the Olivenhain Dam (upper basin) and became operational 14 years later in 2012 with the completion of Lake Hodges infrastructure (lower basin). Due to the complexity of permitting and construction, since 2012, no other PHS plant has been built and none are planned.

Utility-Scale Battery Storage Technology

Several promising chemistry-based technologies to provide storage solutions were explored and tested on the United States electric grid between 2003 and 2013. During this period, Nickel-based, Sodium-based, and Lead-Acid batteries were deployed. 94% of these installations were implemented by Electric Utilities.

In 2003 for example, early on in this exploratory period, the first utility-scale battery storage in the US became operational in Fairbanks, Alaska when the Golden Valley Electric Association (GVEA) installed a 40 MW nickel-based Battery Energy Storage System (BESS). Today the system delivers 25 MW for 15 minutes to its customers when generators fail due to the frequently inclement Alaskan weather.

Ultimately, however, starting from 2014 Lithium-ion has emerged as the preferred technology for utility-scale storage and is now 92% of the market. All other technologies make up 8% of the market, including those tested in early exploration, and Flow Batteries which entered operation in 2017.

Since its emergence, Lithium-Ion has been growing with a CAGR of 32%. The high viability of this technology has received the attention of Independent Power Providers (IPPs) who now own and operate 72% of the installed base. On the other hand, Electric Utilities currently have a 25% share, and are still in testing mode, seeking to optimize and scale the technology.

Going forward we expect Lithium-Ion battery storage capacity to continue to grow with IPPs taking the largest share.

Battery Storage Applications

58% of battery plants have 2 to 4 applications in the United States. Frequency Regulation is the most significant, present in 72% of plants.

Interestingly, even with increasing concern about the unpredictability of solar and wind electricity, only 19% of the batteries installed are used for renewable load balancing, to store excess electrical power generated during off-peak hours and release it during peak demand periods.

While at this time only 8.8% of the electricity capacity in the US comes from solar and wind, as the share of these renewables grows the need for storage will increase.

We anticipate that after 2023, the Electric Utilities will work more quickly to install battery storage to address this issue.

Storage Regulation and Market Rules

While battery storage is capable of serving many applications, US wholesale market rules and state-level regulations are still evolving and will play a significant role in shaping the market.

For example, in 2011 the Federal Energy Regulatory Commission (FERC) issued Order 755 requiring Independent System Operators (ISO) and Regional Transmission Organizations (RTO) markets to provide compensation to resources that provide faster-ramping frequency regulation. In response, PJM (the largest RTO) split its frequency regulation market into fast-ramping and slower-ramping service. By 2015, more than 180 MW of large-scale battery storage capacity had come online in PJM. However, operational issues arose due to over-dependence on the fast-ramping regulation service leading them to change frequency regulation signals, thus halting installations in the region.

In terms of state-level policy, such as establishing incentives or requiring incorporation of storage into long-term planning mechanisms, California has been the most active. Starting in 2013, the California Public Utility Commission (CPUC) set mandates for investor-owned utilities to procure both distributed and customer-site energy storage to be operational by 2024. It also provided incentives for customer-sited distributed generation and designated rebates for storage systems.

Many states require Electric Utilities to prepare Integrated Resource Plans (IRPs) and demonstrate how they will meet long-term projections while minimizing cost. Thus, despite the operational constraints of storage (such as those faced by PJM), we expect the regulatory focus on storage to increase.

Growth Expectations and Market Dynamics

With the capacity to generate 1200 GW of power, the US currently has 21.9 GW of PHS (1.78% of power generation capacity), and only 1.7 GW utility-scale battery storage (0.14% of power generation capacity).

Currently, CA, TX, and IL together make up 60% of today’s battery storage market. State investment in battery storage will be driven by both regulation and the need for applications to deal with excess solar and wind generation. Therefore, we expect states that generate a large amount of energy from solar and wind (e.g., TX), to have a healthy appetite for battery storage regardless of regulation. By 2023, 6 states are expected to represent 81% of the market led by CA and TX (at 50% of the market), and including FL, AZ, NY, NV.

Based on what is both operational and planned, we expect total installed battery storage to increase 397% between 2020 and 2023 in the US, going up to 8.7 GW and increasing its share of power generation capacity from 0.14% to 0.68%.

IPPs will increase their share of installed battery storage from 72% in 2020 to 83% in 2023, indicating they are ready for scale deployment. Electric Utilities, on the other hand, will decrease their share from 25% in 2020 to 17% in 2023, indicating that they are adopting the technology at a slower pace, testing and optimizing it to work at scale.

In the short-term, battery storage will remain a small part of the electricity generation market. The need for energy storage solutions that address reliability and predictability, especially in support of solar and wind is growing, and the work to operationalize at scale will be critical to long-term growth.

By putting the Spotlight on customers and analyzing market forces, Luminous can help you identify and navigate opportunities in this emerging space.