The Missing Strategy for Storage
- July 17, 2011
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The past several months have seen an explosion of interest in grid-connected energy storage. Driven in part by the realization that the advanced automotive battery market will be slower to develop than many hoped, and by recent white papers on the economics of grid-connected energy storage by EPRI, Southern California Edison and Sandia National Laboratory, investment bankers, stock analysts and large industrial companies crowded into the Energy Storage Association’s recent meeting in San Jose to try to figure out what is going on.
The enthusiasm for grid-connected energy storage is well-founded. The inability to store electric energy on the grid is, in many respects, the technological limitation that defined the design of our national power grid in the early 20th Century and that continues to account for its basic architecture today. The ability to generate electricity, to store it economically in large quantities, and to use it at a later time, would be the most disruptive technology to emerge on the power grid in the past 100 years.
That said, the technological ability to store electricity has been around for a while (in fact, it pre-dates the construction of our national power grid by several millennia). The reason that electricity is not stored in large quantities on the U.S. electricity grid today (other than 21.5 gigawatts of pumped storage hydropower) is because it is still generally less expensive to generate an electron than to store it. It is a safe bet that the day that calculation changes, the world will beat a path to the grid-connected energy storage door.
So the economic case for investing in new energy storage technologies is clear. The company that can bring to market a technology that stores electricity cheaper than a public utility or other customer can generate or acquire it will do very well.
But what is the case for government investment (either directly or through tax credits) in grid-connected energy storage technology? Why can’t the government leave development of grid-connected energy storage to the private sector alone?
The case for government investment in storage turns on three arguments: First, that storage will help integrate variable renewably generated electricity onto the grid; second, that deploying certain types of energy storage technology on the grid will help battery makers achieve economies of scale, bring down the cost of electric vehicles and reduce petroleum imports; and, third, that distributed storage will help stabilize the grid and facilitate the fast charging of electric vehicles.
The first argument, which focuses on renewables integration, in the most tenuous. Most new forms of renewable energy (i.e., wind and solar) are variable and need to be balanced by other sources of electricity. Today, most of the stand by capacity used to balance variable renewables is provided by natural gas peaker plants. So, in effect, the first argument is that the government should invest in storage technology so that the country can burn less natural gas and, therefore, reduce greenhouse gas emissions.
An argument for investing in storage in order to reduce natural gas consumption, however, is a weak argument. While there would be some emissions benefit to reducing natural gas consumption, there are far more cost-effective ways to reduce greenhouse gas emissions than by reducing the use of natural gas, a form of energy that even President Obama classifies as “clean” and that apparently exists in greater domestic abundance than was generally understood just a few years ago.
A better case for government investment in storage technology is the second argument: that grid-connected storage can bring down the cost of electric vehicles. The electrification of motor vehicles is a critical part of any strategy to reduce U.S. petroleum imports. Yet the high cost of large format lithium-ion batteries remains the principal barrier to widespread adoption of electric vehicles. The inability of advanced battery manufacturers to take advantage of economies of scale is a big part of the cost problem. Today, PHEV and EV sales in the United States run at the rate of only a few hundred units per month. This creates a death cycle of advanced battery pricing, with battery production volumes being too low meaningfully to lower unit battery prices, and PHEV and EV prices remaining too high to generate larger battery production volumes.
Government investment in grid-connected energy storage can help break this pricing death cycle. If battery makers can use the same plants and processes to manufacture large quantities of batteries for the grid-connected market as for the automotive market, the prices of PHEV’s and EV’s can be significantly reduced, as battery suppliers will be able to amortize high plant costs over a larger number of units. Economy of scale is an important factor in the capital-intensive advanced battery industry. In the early part of the last decade, the price of lithium-ion batteries in consumer electronics fell significantly, in large part due to volume increases in that market. Expecting a similar volume-driven price drop in large format lithium-ion batteries would not be unreasonable.
Third and finally, the important role that grid-connected energy storage could play in stabilizing and protecting electricity distribution systems is often not fully appreciated. The vulnerability of the U.S. electricity grid to malicious attack and natural disaster is an issue of growing concern in the defense community. Promoting the development of microgrids within larger, centralized distribution systems would help address this concern. Energy storage technology deployed at the distribution level is an essential component of microgrid systems. The case for government investment in grid-connected energy storage as part of an effort to secure the power grid is compelling, as securing the grid against attack is a proper and necessary role of government.
Locating storage at the distribution level would also facilitate fast charging technologies for electric vehicles. Deploying fast charging stations will in turn make EV’s and PHEV’s more attractive to consumers and lower petroleum imports. Fast charging stations must discharge large amounts of electricity very quickly into EV’s and PHEV’s. Local energy storage is a critical component of most such systems.
The most compelling case for government investment in grid-connected energy storage, therefore, centers on two relatively narrow concerns: vehicle electrification and grid vulnerability. Current government initiatives to promote storage, however, lack any such focus. DOE funding of storage technologies and recent Congressional proposals to encourage storage investments seem simply to focus on storage with a capital “S”, without any regard to how that storage will be used or what precise benefit it promises to the American public. Energy storage, it seems, has become an end in itself rather than a means to other more important ends.
The government badly needs to set a strategy for grid-connected energy storage. In a time of constricting budgets, it is critical that the few dollars available to develop this important technology are spent where they are most needed and where they will produce the greatest return for U.S. taxpayers. Grid-connected storage is a promising technology, which has the potential to address some of our nation’s greatest energy challenges. It would be a shame if the limited government funding for it simply becomes another give-away for a wide range of commercial interests.