Today’s electric power system is built on a foundation of baseload power, largely coal, nuclear, and gas, supported by more flexible, predominately natural gas-powered plants to provide flexibility and meet peak demand, known as peaker plants. Recent market trends suggest some combination of renewables and battery storage could economically compete to replace some or all our existing fossil-fueled fleet in at least two ways.
First, today there are economic opportunities for storage to compete directly with high-cost, infrequently utilized peaker plants, especially in heavily congested sections of the grid. In that market—consisting of more than 1,000 combustion turbine and internal combustion engine peaking units in operation across the country—storage could start to replace and retire this fossil-fueled fleet now and over the next several years (2). Because system peaks are often short duration events, typically lasting no longer than two to eight hours, batteries are well-suited to meet peak demand needs. But no coordinated analytical and advocacy strategy is now in place to support and accelerate that transition.
Second, and this is a much more debatable and long-term proposition, current market activity suggests that renewables and storage could start to operate like firm power and displace or cause the retirement of a high percentage of existing baseload, carbon-based generation. That prospect—and the role of storage—is subject to a highly contentious debate over whether renewables can fully replace fossil-fueled electricity generation in the long-term energy future. In turn, that renewables debate depends on whether storage costs can realistically decline and also deliver power over a longer duration to the point it and renewables can viably replace baseload power plants. Some advocates and analysts even argue that there will be no need for what has traditionally been known as baseload power as the world transitions to a cleaner, more dynamic energy system (3).
This section addresses the near-term peaker replacement opportunity in some depth. The long-term baseload discussion is largely outside the scope of this report, but it is summarized enough to frame the options going forward—mainly to argue for smarter analytical rigor on the question of how innovation and cost declines will shape the role of storage in the future, and why models need to reflect current market activity on those issues.
As to the nearer-term opportunity, peaker plants are more expensive to run than baseload generation and are typically less efficient, so they tend to emit multiple pollutants at a higher rate than other conventional gas plants. Even worse, peakers are often located in or near densely populated disadvantaged communities and called upon to run on days already experiencing poor air quality conditions (4). A California study found that more than 80 percent of the state’s existing peaker plants are located in the state’s more disadvantaged communities (5). (See Figure 10.)
Recent analysis from the national laboratories suggests that storage “could replace peaking capacity in urban areas” (6). Researchers at the National Renewable Energy Laboratory (NREL) found that, in some cases, storage could be a viable cost-effective alternative to a natural gas peaker plant. While batteries typically have a higher up-front capital cost, they have lower operating costs due to avoided fuel costs and avoided power plant start-up costs, and they deliver additional benefits to the grid by performing other valuable services (7).
Other researchers have confirmed this market trend of peaker replacements with storage in the near future, though all pick slightly different near-term dates for when storage could reach competitive cost parity.
Some analysts say peakers are at risk from storage in the next five years:
“Beyond the early 2020s, as the cost structure of storage systems declines to levels that make them cost-competitive with gas peakers, there is the likelihood of an exponential increase in storage deployment. This will have the effect of reducing the need for gas peakers, putting at risk a sizable portion of [that fossil fleet]” (8).
GTM Research and Wood Mackenzie estimate that declining battery prices will result in natural gas peaker development becoming increasingly rare over the next few years, possibly ending altogether within 10 years (9). (See Figure 11.) Of the 20 gigawatts of peaking capacity expected to be added to the U.S. power system over the next decade, the consulting firms predict that storage could account for at least half of the new additions, possibly more if batteries costs decline faster than expected (10).
Bain & Company agrees, estimating that, by 2025, battery storage could be cost-competitive with peaker plants, and that’s without even considering the many additional values streams that storage could access (11).
Similarly, according to analysts at the investment company Raymond James & Associates, there is likely to be an exponential increase in energy storage deployment in the early 2020s as cost declines make batteries an economic alternative to gas peakers (12).
Finally, other researchers from the University of Texas stated, with some reservations about whether storage cost reductions will occur in time, that “going after peaker plants will likely be the first major play (besides infrastructure deferments) that batteries make into the markets” (13).
And to confirm the popular economics of this trend, the Wall Street Journal in early 2018 gave this replacement opportunity a comprehensive press treatment. A lead piece stated that, “giant batteries charged by renewable energy are beginning to nibble away at a large market: the power plants that generate extra surges of electricity during peak hours” (14).
This movement to replace peaker plants appears to be on strong economic ground and is likely to be an area where storage will be quite active in the coming years.
As to baseload replacement, the future is unclear and is subject to a great deal of dispute, but there is a general consensus forming around the idea that current technologies – wind, solar, and shorter-duration batteries – can enable an economic transition to a much cleaner electricity grid – potentially unlocking a viable path to 80 percent decarbonization of the grid.
Despite some concerns about the reliability of depending on largely intermittent resources, it is hard to ignore current market activity in this space, which suggests that renewables paired with storage is starting to beat out fossil-fuel capacity in some regions of the country, an economic competition unimaginable only a few years ago.
In 2016, PG&E announced plans to replace the 2.3 gigawatts of generation capacity from California’s last nuclear power plant with a mix of renewables, energy storage, and efficiency measures (15).
In 2017, Tucson Electric Power in Arizona set a mainland record for solar paired with storage with a 20-year power purchase agreement rate below 4.5 cents per kilowatt-hour for 100 megawatts of solar and 120 megawatt-hours of storage (16). That rate was beat in 2018 by a 101-megawatt solar project paired with 100 megawatt-hours of battery storage in Nevada, which came in at 3.1 cents per kilowatt-hour (17). Based on data reported by Xcel Energy Colorado, the utility received project bids ranging from 3.0 to 3.2 cents per kilowatt-hour for energy from proposed solar developments paired with storage (18).
In 2018, utilities in Colorado and Indiana proposed plans to replace nearly 2 gigawatts of existing coal plants with a mix of wind, solar, and battery storage. Xcel Energy, parent company of the Colorado utility and serving a territory of more than 3 million customers across eight Western and Midwestern states, committed to 100 percent carbon-free electricity generation by 2050. Xcel’s chairman, president, and chief executive officer, Ben Fowke, noted that reaching the company’s interim goal of cutting carbon emissions 80 percent by 2030 will be “fairly easy and affordable to meet with currently available technologies” (19).
This isn’t to say that batteries aren’t facing opposition as alternatives to traditional power plants. It’s true that, while batteries can meet many of the same peak demand needs as a natural gas peaker plant, they are different types of technologies, and batteries are limited in some ways that gas peakers are not (20). Most notably, batteries can only deliver peak power over a predetermined duration of time, whereas a gas plant with access to fuel supplies can run indefinitely.
However, lithium-ion battery storage projects are already advancing beyond their initially perceived 4-hour duration limitation, with projects in development for 8-hour batteries and proposed projects that could deliver up to 10 hours of peak energy. Limitations to the dispatch duration of current battery storage technologies—a key component to success in baseload disruption—is more of an economic barrier than a technical issue.
As Abe Silverman, vice president for the regulatory affairs group and deputy general counsel at NRG Energy, which operates both traditional and renewable power plants, noted at a conference of natural gas and energy storage industry professionals, “We could replace every gas peaker in the US with batteries right now if we wanted to, but it probably wouldn’t make economic sense everywhere” (21).
That is, with cheaper and cheaper storage, it will be economically possible to cost-effectively deliver stored energy over longer and longer time frames, which makes it possible to firm up more and more intermittent renewable power and replace more fossil fuel power plants.
Batteries also have some distinct advantages over traditional plants, such as the ability to avoid a single point of failure through smaller distributed storage resources; they can be sited closer to loads, which avoids interruptions due to transmission line failures; and they avoid the price volatility of fuels like natural gas, particularly when batteries are charged by renewable energy.