Recent advances in technology and the consequent decline in manufacturing costs are making energy storage systems a central element of energy and climate change policy debates across the nation. Energy storage systems have the potential to provide many benefits such as lower electricity prices at peak demand times, deferred or avoided new capacity investments, and reduced greenhouse gas emissions. Indeed, both federal and state policymakers are enthusiastically encouraging more energy storage deployment with the belief that energy storage systems will help reduce greenhouse gas emissions from the electricity sector by making intermittent and variable renewable energy resources such as solar and wind more attractive.
This Article challenges this common assumption that increased energy storage will necessarily reduce greenhouse gas emissions. We first explore the conditions under which energy storage systems can cause an increase in greenhouse gas emissions contrary to the intent of the policymakers. As policymakers start to rely more heavily on energy storage systems to achieve clean energy goals, this insight is crucial to inform the stakeholders in the energy and climate policy debates. Furthermore, we show that the current regulatory and policy landscape falls short of providing sufficient incentives for a desirable level of deployment of energy storage or sufficient safeguards to ensure that more energy storage deployment is indeed beneficial. We suggest policy reforms that can correct these inefficiencies and discuss the jurisdictional roles between state and federal regulators in implementing these reforms.
The term “energy storage” refers to technologies capable of receiving electric energy from the grid and storing it for the purpose of releasing it back to the grid at a later time.1 These technologies have the potential to provide different services to a variety of the stakeholders of the electricity system: power plants that generate it on a large scale; owners of distributed energy resources that produce it on a smaller-scale, decentralized manner; utilities that distribute it; grid operators that balance its demand and supply; and end-use customers that consume it. The benefits of energy storage include reduced electricity prices, deferred or avoided new capacity investments, and the ability to provide a variety of ancillary services, which are necessary to support the reliable transmission of electricity from generators to end users.
Energy storage systems are now economically viable as a result of advances in technology and the consequent declines in their manufacturing costs.2 A comparison of levelized costs—the unit cost of providing electricity over the lifetime of a resource—reveals that several energy storage technologies are now competitive with forms of electricity generation. Moreover, energy storage costs are expected to fall even further as a result of economies of scale achieved by the large production scale of leading companies like Tesla and its international competitors, making energy storage an even more attractive alternative.3
Currently, there is 24.12 gigawatts (GW) of operational energy storage in the United States, with an additional 7.51 GW that is announced, contracted, or under construction.4 The current total corresponds to about 2.7 percent of the current U.S. generation capacity.5 It is expected that annual new deployment of energy storage will exceed 1 GW in 2019, and 2 GW in 2020.6 By comparison, annual capacity additions of all other technologies are expected to be 11.1 GW in 2019 and 14.8 GW in 2020, making energy storage an increasingly important component of the electricity grid in the near future.
While the decline in costs has been a major driver of the increase in the adoption of energy storage systems, policymakers at both the state and federal level have also been taking significant actions to speed up the process. President Obama recently announced public and private procurement, deployment, and investment commitments, which could lead to about $1 billion in investments, and at least 1.3 GW of additional storage procurement or deployment by 2021.8 These commitments include the U.S Department of Energy initiatives to promote access to and standardization of energy data to help utilities, consumers, and energy companies coordinate, collaborate, and benefit from energy storage more easily; procurement commitments from states, and utilities; and deployment commitments from developers, and power companies.9
President Trump’s view on energy storage, however, is not clear. A list of infrastructure priorities compiled by the Trump administration prior to his inauguration included a project to expedite the procurement of local energy storage resources.10 However, since the inauguration, there has not been any formal initiative by his administration to bring this to fruition. On the contrary, he has proposed budget cuts that would directly harm the development of energy storage technologies.11 Specifically, his proposed budget cuts the funding for U.S. Department of Energy’s Advanced Research Projects-Energy (ARPA-E) program.12 This program currently provides $43 million in funding to 19 energy storage projects in 14 states.13Policymakers have been enthusiastic about energy storage systems primarily because of their belief that cheaper and more prevalent storage options could help facilitate the integration of increased renewable energy generation and speed up the transition to a low-carbon grid.14 Generation from renewable resources such as solar and wind is intermittent and variable based on daylight and weather patterns.15 In contrast, electricity demand is continuous throughout the day. This mismatch makes renewable energy relatively less attractive than energy that can be produced in a more continuous manner by burning fossil fuels. But energy storage systems can make this disadvantage go away, storing electricity at times when generation exceeds demand and deliver it subsequently when demand exceeds generation. And, by making investments in renewable energy relatively more attractive, energy storage systems can help reduce greenhouse gas emissions (and the emissions of other air pollutants) by reducing the use of fossil fuels.
The view that energy storage systems produce environmentally attractive results has been
standard in policy circles.16 This beneficial outcome, however, is not guaranteed. Indeed, cheaper storage could also facilitate the use of electricity produced by fossil fuels and could lead to an increase in greenhouse gas emissions. Historically, coal plants have been able to generate electricity more cheaply than natural gas plants.17 As a result, at times during the day when the demand for electricity is low, coal plants can meet this demand at a low price, and more expensive natural gas plants are not needed. As demand increases during “peak” time periods, and the capacity of already operating plants is not enough to meet that demand, more expensive natural gas plants are also needed. But this natural gas generation might not be necessary if coal-produced energy could be stored during periods of low demand. In this scenario, energy storage would make it possible for more electricity to be generated by burning coal rather than natural gas, which has a lower carbon content. As a result, the availability of energy storage systems would lead to higher levels of greenhouse gas emissions. And, the problem is compounded because of the energy losses that occur during the charging and discharging process.18Thus, cheaper energy storage systems can have either beneficial or perverse results, as opposed to the uniformly beneficial results generally attributed to them. As a result, it is important to design policies that help ensure that the increased use of storage leads to a reduction of greenhouse gas emissions, rather than to an increase. To do so requires a thorough understanding of the operation of the grid and of the manner in which storage systems affect this operation.
BENEFITS OF ENERGY STORAGE
While a detailed technical analysis of the electricity grid and the services that energy storage can provide is beyond the scope of this Article, a brief overview is necessary to understand the benefits energy storage systems can potentially provide to the electricity system. Therefore, in this Part, we first provide a basic overview of the operational requirements of the electricity grid. We then explain the role energy storage systems can play in achieving these operational requirements.
Developing an efficient policy for energy storage also requires an understanding of different types of energy storage systems, and how valuable each different technology is in providing
different kind of services. An analysis of the services each type of energy storage technology can provide, as well as a discussion of their respective “levelized cost”—the per kWh cost of operation over system’s lifetime that is often used to compare different technologies19—is necessary to provide a foundation for the later discussion in this Article on the need for a new policy framework. Therefore, in the last Section of this Part, we describe different energy storage technologies, their potential uses, and their costs.
A. Balancing the Grid
The electricity system has three main components: generation, transmission, and distribution. Electricity is generated by converting a primary source of energy into electric energy. This primary source of energy can come from a variety of ways such as the thermal energy of burning fossil fuels or nuclear reactions, the kinetic energy of water and wind, the solar radiation, or the geothermal energy of the earth.20 Once the source energy is converted into electricity, it is carried long distances over high-voltage transmission lines.21 Then, it is carried over low-voltage distribution lines for the last few miles before being delivered to the consumers.22 Both transmission and distribution networks have capacity constraints.23
The demand for electricity during the night is usually low; it starts increasing during the day, and peaks in the late afternoon and early evening.27 Also, the demand is generally higher during the summer as a result of the use of air conditioning.28 While this rough shape of customer demand on a typical day is known based on general patterns, the exact customer demand on a specific day cannot be predicted with certainty.
Instantaneously balancing electricity supply and demand requires both long-term planning and real-time response. Long-term planning is necessary to ensure that there is enough capacity planned and built to meet all of the consumer demand during the times when such demand is greatest, usually during the daytime. In particular, there should be adequate resource capacity to meet the demand on the hottest few days of the summer, which is when the demand is usually at its annual peak, even if this capacity will sit idle for the rest of the year when the demand is not as high. The resulting costs of this additional capacity are high. Historically, however, they needed to be expended to to meet the demand at all times.The instantaneous balancing of the grid, however, requires more than capacity building: a variety of ancillary services are needed as well. Frequency regulation is used to reduce the minute-to-minute, or shorter, fluctuations caused by differences in electricity supply and demand.29 Ramping resources are needed to manage longer-duration fluctuations in the supply due to factors that affect generation such as changes in wind speed, or cloud cover.30 Voltage support helps maintain voltage levels throughout the system.31 Reserve capacity is the extra capacity needed that can respond quickly to ensure system stability in the case of unexpected changes in the customer demand.32 Spinning reserves are already on line and can respond in less than 10 minutes, while non-spinning reserves are off line but can come online and respond in less than 10 minutes.33
Energy storage systems have the potential to help meet some or all of these requirements of balancing the grid, and help reduce the overall system costs by avoiding the need for new capacity or by providing ancillary services at lower cost than the resources that have been traditionally used for these services such as gas turbines.
4independent third parties.35 Some of the studies are state specific,36 whereas others perform nationwide analyses.37 While these studies classify the services provided by energy storage in different ways, a classification based on the level of the grid at which the benefits accrue is most useful when evaluating regulatory and policy frameworks. Therefore, this Article will classify the services provided by energy storage systems into four groups based on where the benefit accrues: generation, transmission, distribution, and end-users.
At the generation level, energy storage systems can help optimize the supply from existing resources and ensure grid reliability by providing a variety of the ancillary services needed to balance the grid. Energy storage can help improve the efficiency of existing resources by providing services such as energy arbitrage, resource adequacy, variable resource integration, and management of must-take resources.39 Energy arbitrage – purchasing wholesale electricity when the price is low and selling it when the price is high – can help reduce the total cost of meeting the electricity demand by reducing the need to generate electricity when it is costly to do so.40 Energy storage can help meet resource adequacy requirements that are needed to ensure system reliability during system peaks by charging during off peak times and discharging during peak times.41 This helps defer or reduce the need for investment in more traditional resources, such as new natural gas combustion turbines, to meet peak demand.42 In addition, when paired with a renewable generator, it can help “firm” the variable output from that generator by charging when there is not enough demand for the generator’s output and discharging when there is need.43 Finally, it can also help improve the utilization of the “must-take” resources, which are resources such as hydro, nuclear, and wind that must be taken by the buyers regardless of market prices due to other regulatory or operational constraints, by helping them manage their generation and preventing them from dumping excess energy at low demand times.Energy storage can also help provide a variety of ancillary services such as frequency regulation, ramping, spinning/non-spinning reserves, voltage support, and black start. Frequency regulation is necessary to prevent grid instability by ensuring that generation is matched with consumer demand at every moment.45 Ramping is necessary to counteract the effects of varying renewable generation during the day.46 Spinning and non-spinning reserves can respond to unforeseen events such as generation outages.47 Voltage support helps maintain the voltage within an acceptable range to match demand.48 Finally, black start services help restore operation in the event of an outage.49
In turn, energy storage can help improve the transmission system by providing congestion relief, transmission system upgrade deferral, transmission congestion relief, and by improving performance.50 Congestion relief means that energy storage can reduce the bottlenecks caused at certain locations of the transmission system during high-demand times by discharging at those locations during those periods.51 Transmission system upgrade deferral means that energy storage can help delay, reduce the size of, or totally avoid new investment in the transmission systems by shifting the electricity demand to less congested times, and, thus, preventing the overload of the system.52 Lastly, energy storage can help improve transmission system performance and reliability by maintaining system voltage or providing capacity during system faults.