In GTM Research's recent report, Grid-Scale Energy Storage in North America 2013: Applications, Technologies and Suppliers, we identify the most promising geographic markets and segments for storage. The following report excerpt identifies three U.S. markets poised for growth.

California

California’s electrical grid system is undergoing massive change, and these changes will create opportunities for energy storage. Unprecedented amounts of intermittent wind and solar are being added to the system. At the same time, over 16,000 megawatts of gas-fired power plants that use once-thru cooling technology must be repowered or retired. And an increasing proportion of California’s generation fleet will exceed its design life and will need to be retired simply due to old age.

In June 2013, Southern California Edison announced that it will close its San Onofre Nuclear Generating Station (SONGS) plant permanently, nine years before the expiration of the facility’s operating license. Closure of this plant reduces generation capacity in California to tighter levels overnight. That could help accelerate the use of storage for peak power substitution as an alternative to fossil peakers, because storage can be built quickly and produces zero air emissions. A shortage of flexible capacity further supports opportunities for energy storage.

California still has excess generating capacity, but does not have excess flexible capacity. Flexible resources are generation resources whose operations can be controlled to quickly start up, shut down, and ramp power output up or down as needed by the grid. More flexible resources will be needed to support large increases in intermittent renewable assets. In part, this is because dispatching out-of-market marginal generators to provide upward ramping capacity can be expensive. For example, during the morning ramp-up, when many generators hit their maximum up-ramp limits, there is often insufficient ramping capacity on the grid. In order to obtain 30 megawatts of upward ramping capability, a 200-megawatt out-of-market generator might need to be dispatched. In contrast, 30 megawatts of fast-responding storage could do the job just as well, if not better.

California’s ramping problem will worsen as more variable renewable energy sources are added to the system. In response, the CAISO is developing a flexible ramping product called “Flexiramp” through a stakeholder process. The CAISO proposal will create a short-term energy market for resources that can increase or decrease production (i.e., ramp up or down) in five-minute increments. The structure of the Flexiramp tariff may favor certain types of flexible resources like demand response and energy storage over fossil-based resources.

If it is adopted, load-serving entities would be required to procure capacity resources that are considered to be flexible. Energy storage will need to compete against existing generation resources that have been partially or fully depreciated, as well as DR resources that can be quite cost-effective in their own right. We expect storage will have a large role to play in providing flexible ramping capacity, especially in consideration of California’s 33 percent RPS goal.

If it was a separate country, California would have the 8th largest economy in the world. It represents enormous market potential for energy storage. The governor and the staffs of the CPUC, CAISO, and CEC and CARB are favorable to storage, as is the California Legislature. State legislation that encourages the development and commercialization of energy storage includes the following:

Energy Storage Procurement Targets (AB 2514)

RPS Legislation (SB X1-2)

Self-Generation Incentive Program: SGIP (SB 412, AB1150)

Smart Grid Systems (SB 17)

Global Warming Solutions Act of 2006 (AB 32)

Solar Energy System Incentives: CSI (SB 1)

Texas

Texas consumes more energy than any other state in the U.S. Because of its large industrial base, Texas is highly energy-intensive. It uses 30 percent more electric power than California even though it has 30 percent less population. More than 10,000 megawatts of intermittent wind generation has been installed so far, and $6.7 billion of investment in new transmission infrastructure is expected to allow that to nearly double by 2020.

The Texas PUC and ERCOT realize that storage may be critical to integrating these new levels of nondispatchable power into the ERCOT grid. In 2005, energy storage was made eligible for electric utility rebates under Standard Offer Programs, which pay incentives based upon the amount of capacity actually reduced. In 2009, the New Technology Implementation Grant program was established at the Texas Commission on Environmental Quality. This grant includes funding for energy storage projects related to renewable energy.

As noted, market rules have been revised to facilitate storage interconnections and reduce the cost of operating a storage facility by allowing storage to charge at cheaper wholesale energy rates. ERCOT also initiated a pilot program for Fast Responding Regulation Service (FRRS), ERCOT’s version of FERC Order 755.

In 2011, the Texas Energy Storage Association (TESA) helped get a bill passed to clarify that storage resources participating in the wholesale market have the same rights as generators with regard to interconnection and transmission access. This law, SB 943, is critical to energy storage project developers because in ERCOT territory, transmission utilities are responsible for the cost of interconnection, not project developers.

In 2013, TESA successfully advocated for a bill to establish energy storage projects in non-attainment areas as a form of pollution-control property. That designation would allow local taxing entities to grant a property tax exemption for storage projects. HB 2712 passed, but was narrowed in scope to cover one proposed project. As more storage projects are proposed, TESA plans to lobby for expansion of the exemption to those new projects.

Unlike most parts of the United States, Texas is chronically short on reserve capacity. The ERCOT ISO forecasts that Texas will fall below its target reserve capacity margin in 2014 or 2015. In combination with the positive market rule and legislative changes mentioned, this reserve capacity shortage should drive many attractive opportunities for both thermal and electricity storage to help shift loads from on-peak to off-peak in order to reduce summer air conditioning loads.

Hawaii and Puerto Rico

From an economic standpoint, islands are a very beneficial place to apply energy storage, as they almost always lack indigenous natural gas or oil resources and must import one or both at high cost. Puerto Rico and Hawaii, for example, generate most of their power using diesel-based generators. This results in high electricity costs at both the wholesale and retail levels. Storage can be used to help mitigate those high costs.

Many island economies are installing wind and solar to reduce their dependence on diesel fuel. The intermittency of renewable assets causes energy balancing problems within small systems, especially since most of these resources are interconnected at lower distribution voltages where rapid changes in generation output can create havoc for customers served by the same line. Energy storage can also solve those problems.

For example, Hawaii Electric Company requires that new wind turbines maintain their ramp rates below 1 to 2 megawatts per minute (the precise value varies by season and time of day). Practically speaking, since no natural gas is available that could be used to fuel simple-cycle gas generators, the resources being installed to solve the ramp rate problem are energy storage. But storage can do a lot more than mitigate ramp rates on wind farms.

Storage is being used in Hawaii to reduce wind curtailment and the total cost of producing power. Most of the savings achieved in these scenarios do not result from replacing constant-cost diesel-fired generation with wind generation. Rather, the savings derive from improving the operational efficiency of the conventional generating units that comprise the island’s generation fleet. Beyond what is needed to correct ramp rate problems, extra storage is installed to provide spinning reserve capacity. This allows the system operator to reduce the amount of spinning reserve being provided by inefficient single-cycle units. The amount of spinning reserve provided by more efficient combined-cycle units may also decrease, allowing those units to operate at higher, more efficient levels.

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Learn more about the Grid-Scale Energy Storage Market in North America report here.