August 12, 2015

Energy Storage, Electricity Markets, and Economics

By Seth Mullendore

A lot of people are talking about energy storage these days, which is hardly surprising considering energy storage has often been idealized of as a kind of Holy Grail for the energy industry. It is widely acknowledged that storage can provide an array of beneficial services to the power system. From adding flexibility to an increasingly complex and distributed grid to saving customers money on their electricity bills, there is value to be realized at every segment of the power system.

However, despite the many benefits of distributed storage and steadily dropping technology costs, it can still be difficult to pencil out the expense of energy storage systems based purely on economics in most regions of the U.S. This is largely due to the fact that while energy storage technologies are advancing at a rapid pace, the market mechanisms supporting them are still in their infancy. Until markets have been developed and properly structured to value energy storage services, the full beneficial impact of energy storage on the power system will remain unrealized.

The current state of energy storage in U.S. electricity markets is examined in a new report by Clean Energy Group, Energy Storage and Electricity Markets: The value of storage to the power system and the importance of electricity markets in energy storage economics. The report examines several instances where market structures have been implemented in a way that compensates energy storage services adequately enough to encourage increased deployment.

Among these markets, the ancillary services market for the PJM Interconnection, an independent system operator (ISO) territory that covers much of the Mid-Atlantic region, is the best example of a storage enabling market. By applying specifications mandated by the Federal Energy Regulatory Commission (FERC), PJM was able to structure its frequency regulation market so that energy storage is compensated for the speed and accuracy it can provide to the system, thereby making it cost-competitive to participate in a traditionally fossil-fuel dominated market. Other areas of the country have developed additional market structures, such as demand response, where energy storage resources can actively participate and generate revenue for the system owner. Unfortunately, these markets are currently quite limited.

The report also details cost saving opportunities that exist for storage in areas with high utility demand charges or time-of-use rates that encourage less electricity consumption during peak periods. These and other potential value streams are discussed along with the successes and limitations of existing markets.

This report serves as an initial primer on the interplay between electricity markets and other economic opportunities for energy storage technologies. Clean Energy Group’s Resilient Power Project and the Clean Energy States Alliance (CESA), through its Energy Storage Advancement Partnership (ESTAP) project, will be co-hosting a webinar to provide an overview of the report on Thursday, August 27th at 1 pm ET. The webinar will also include presentations from energy storage industry professionals active in U.S. electricity markets. (Webinar details here.)

To continue the discussion of markets and energy storage economics, Clean Energy Group and CESA/ESTAP will be hosting a new series of free webinars featuring market experts from Customized Energy Solutions. The first of these quarterly energy storage market update webinars is scheduled for Wednesday, September 30th at 1pm ET. Information about this and other Clean Energy Group webinars can be found here.

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