Dive Brief:

As much as 32% of new gas peaker capacity will be at risk from four-hour energy storage by 2027, according to a new GTM Research report.

GTM data show that 20 GW of new peakers — a mix of announced and expected projects — are forecast to come online by 2027.

Under a more aggressive assumption of energy storage cost declines — with costs falling roughly 3% more rapidly than the base case — storage would become competitive with peakers about a year earlier.

Dive Insight:

According to GTM’s new report, the costs of storage are dropping at a rate that will allow it to start being competitive with new peaking plants in about five years. But ten years from now, energy storage will “almost always” win out over the cost of a new peaking plant.

It could take years or even decades for energy storage to compete with the GTM-estimated 120 GW of existing peakers, Ravi Manghani, director of energy storage at GTM Research, said during a webinar to discuss the report. The existing plants have lower operating costs because they have largely paid off their debt.

The key to the competitiveness of storage compared with peakers is not just lower costs, but lower costs for longer durations. Duration, how long a storage device can pump energy into the grid, has been the limiting factor when batteries are used to replace peakers. The other side of that concept is that peakers are an inefficient use of capital because they run so infrequently.

GTM’s research found that the median capacity factor of the operating U.S. peaker fleet is 3% and that the median hours of operation per start is 5.3 hours. In addition, 73% of the operating fleet averages eight hours or less per start.

The data show that battery systems are beginning to have sufficient duration to meet a high proportion of peaking needs, Manghani said.

The economics of battery storage used for peaking needs can also be enhanced if the batteries can serve other grid needs when they are not being used for peaking capacity. The Federal Energy Regulatory Commission’s recent Order 841 aims to create opportunities for energy storage to compete on a level playing field in energy, capacity and ancillary service markets, Manghani noted. The opportunities will be regionally specific, as each ISO or RTO will devise their own set of rules, he added.

Some jurisdictions, such as Southern California and some cities in New York, are already moving away from gas peakers, Tim Grejtak, an analyst with Lux Research, told Utility Dive. In some instances, storage can “mostly replace peakers” from a capability standpoint without incurring too much additional cost, he said. But given the fact that NOx emissions are lowered and that storage eases the strain on natural gas infrastructure, public utility commissions could probably find enough upsides to bear a bit of a price premium.

“I am cautiously optimistic about storage competing directly in the market in the coming decades,” Eric Hittinger, an assistant professor in the Department of Public Policy at the Rochester Institute of Technology, told Utility Dive.

Storage should be able to compete with peakers in the coming decades because the “peakiest of peakers” are only used a handful of hours each year,” Hittinger said.

But, Hittinger cautioned, those who favor the concept often assume that replacing a peaker with storage would decrease electricity system emissions. The academic work on the topic has shown that peak-shaving storage increases system emissions on average and only breaks even in the best areas because storage is usually charged from fossil generation.