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In August I wrote an introductory article entitled Grid-based Energy Storage: Birth of a Giant. Over the last few months the utility sub-sector been very active and now might be a good time to drill a little deeper into the kinds of utility applications that can benefit from cost-effective energy storage. Once again, I want to caution readers that I’m a little out of my depth when it comes to providing simple explanations for complex technical issues. But I believe an understandable overview can far more valuable to investors than too much detail. Once again, I'm not seeking perfection and will be more than happy with B- grades from power professionals and engineers.

To maintain a level of continuity, I’ll begin with a graph from the Lawrence Berkley National Laboratory that shows statewide electricity use in California on July 31, 2007.

While the 24-hour curve looks pretty smooth, it gets more complex when you start looking at shorter time intervals. I found the following example of what a three-hour morning segment might look like in a paper from the Oak Ridge National Laboratory titled “Frequency Regulation Basics and Trends” (December 2004).

While the ORNL graph may seem complex, it’s really fairly straightforward. The smooth blue line shows how on-line generating resources ramp up from 3,600 MW to 4,000 MW over a three-hour period from 7 to 10 a.m. The jagged green line overlying the blue shows actual demand during the same time period. The very jagged red line at the bottom is simply a scaled up representation of the minute-to-minute differences between the blue supply line and the green demand line. That 60 MW slice of highly variable demand is the domain of frequency regulation.

Historically, utilities were able to avoid frequency regulation issues by maintaining on-line generating capacity at a level that was always higher than expected peak demand. In ORNL graph, that kind of strategy would require a cushion of about 60 MW, or roughly 2% of total system capacity. But with increasing fuel prices the cost of keeping an extra 60 MW of capacity on-line 24 hours a day has become prohibitive. So utilities have turned to frequency regulation strategies as a means of reducing their costs while maintaining reliable service. The following table summarizes the hierarchy of frequency regulation resources that has become a mainstay of today’s utility industry.

Required
Response Speed
Normal
Cycle
Duration
Period
Between
Cycles
Voltage
Control

Online reactive reserves with automated controls that respond instantly to maintain system voltages within required ranges.

Seconds
Seconds
Seconds
Regulation

Online power sources with automated controls that can respond instantly to minute-to-minute changes in system load and correct for normal fluctuations.

Seconds to

<1 minute

<1 minute to
10 minutes
Minutes
Spinning
Reserves

Online power sources with automated controls that can respond instantly to major outages or demand spikes.

Seconds to
<10 minutes
<1 minute to
10 minutes
Days

Supplemental Reserves

Standby power sources with manual controls that can respond to major outages or demand spikes within 10 minutes.

<10 minutes
10 minutes
to 1 hour
Days
Replacement
Reserves

Standby power sources with manual controls that can respond to major outages or demand spikes within 30 minutes to free up regulation, spinning reserve and supplemental reserve resources.

<30 minutes
>1 hour
Days

If you consider the first three classes of frequency regulation resources in the table and then revisit the red line in the ORNL graph, it’s easy to see how appropriately sized battery- and flywheel-based storage systems could accumulate surplus power during short intervals of low demand, return that surplus power to the grid during short intervals of high demand and offer substantial response time advantages over mechanical systems.

Frequency regulation has always offered critical cost savings as it improved overall reliability. But it’s important to understand how recent and planned additions of wind and solar power to the grid have increased the importance of frequency regulation due to the inherent variability of their power output. The graph below comes from the ORNL report and shows the typical two-day power output from a wind farm with 138 turbines. While the combined power output is huge, it is also highly variable. Without massive storage resources, the wind farm depicted in the graph will never be able to provide the consistent reliable electric power that customers demand from utilities. That’s why I believe cost-effective storage is a fundamental enabling technology for all emerging alternative energy technologies.

The wind farm depicted in the graph is a great visual example of why storage is essential. But it’s important to understand that battery and mechanical energy storage systems do not have the brute capacity required to smooth the power output for an installation like a large wind farm. At present, the only energy storage technologies that can smooth variations of that magnitude are compressed air and pumped-hydro. Nevertheless, the underlying point remains valid: wind and solar are inherently variable and the more variability you add to the grid, the more critical the need for frequency regulation becomes.

The generation, transmission and distribution of electricity is a regional business, but all electricity consumption is local and customers don’t care about 99.8% system reliability if they happen to be in the 0.2% of the service area that has problems. So the trick for utilities is forecasting what the likely demands of a particular service area will be and deploying frequency regulation and resources to provide the essential stability. Unlike generation capacity, which is frequently centralized in large facilities, frequency regulation resources will usually be located in close proximity to end users and distributed among a larger number of smaller facilities.

In a heavy-demand industrial or business district that is not prone to frequent outages or unusual demand spikes, voltage control and regulation will likely be the primary concerns even though the requirements may be extreme. So the first choice would probably be either a flywheel system or a battery system based on lithium-ion chemistry. As you move away from heavy-demand centers and migrate to the suburbs and beyond, regulation needs often become less important while spinning reserve capacity becomes more important. In less demanding environments, the first choice would probably be a less-expensive storage system based on either lead-acid chemistry or flow batteries. The key point here is that frequency regulation resources will be selected because they provide a cost-effective solution in a specific service area and a variety of solutions will be required to meet a variety of needs.

Over the past few months Altair Nanotechnologies (NASDAQ:ALTI), Beacon Power (BCON), Axion Power International (NASDAQ:AXPW), ZBB Energy ((NYSEMKT:ZBB)) and A123 Systems (IPO pending) have each made significant progress on their respective frequency regulation initiatives. In particular:

  • Altair completed preliminary testing of a battery energy storage system (“BESS”) that uses lithium-titanate batteries to provide up to 2 MW of on-demand power for 15 minutes of frequency regulation (500 kWh of total storage capacity). The PJM Regional Transmission Organization approved the Altair BESS last week, which means that the system can now be used to offer frequency regulation services in 13 states and the District of Columbia.
  • Beacon completed construction of a 10-unit flywheel array that can provide up to 1 MW of on-demand power for 15 minutes of frequency regulation (250 kWh of total storage capacity). Beacon intends to expand the installation to 2 MW before year-end and 5 MW in 2009. The Beacon system was approved for commercial use in connection with ISO New England’s Alternative Technologies Pilot Program last week; which means that Beacon can now offer paid frequency regulation services.
  • Axion completed fabrication of its first modular “Power Cube,” which uses lead-carbon PbC batteries to provide up to 75 kW of on-demand power for up to 3 hours of frequency regulation and spinning reserves (225 kWh of total storage capacity). The Axion Power Cube will begin an 18-month demonstration at a utility substation in New York as soon as the utility completes the permitting process.
  • ZBB signed a distribution agreement for the commercial sale of its modular zinc energy storage system (“ZESS”) in Australia. The modular ZESS system uses zinc-bromine flow batteries to provide up to 25 kW of on-demand power for up to 2 hours of frequency regulation and spinning reserves (50 kWh of storage capacity per module).
  • A123 completed fabrication and began field-testing of its first Hybrid Ancillary Power Unit (H-APU), which uses lithium-phosphate batteries to provide up to 2 MW of on-demand power for frequency regulation. While A123 has not yet released details on the energy storage capacity or discharge profile of its H-APU, I think it’s probably safe to assume that the H-APU will offer capabilities that are comparable to Altair’s 2 MW/500 kWh BESS.

A couple weeks ago, I explained that I don’t see the future of energy storage as a black or white proposition. I think lithium-ion batteries, lead-acid batteries, flow batteries, flywheels, compressed air and pumped hydro and will each make important contributions to the energy storage solution. I also believe that every company that is actively pursuing the development and commercialization of storage solutions for frequency regulation is likely to experience more growth than we can even begin to imagine.

Since all of the companies that are active in the sub-sector are in the early stages of their technical and commercial development, I believe a balanced portfolio of storage stocks is the only sensible approach for investors who don’t have the time or inclination to do their own detailed research. Articles like this one can provide useful insights, but they should not be relied on as investment advice because every author (including me) has his own agenda, preferences, predilections and prejudices.

Disclosure: Author holds a long position in Axion Power International (AXPW) and is a former director of that company.

Source: Alternative Energy Storage: Why Frequency Regulation Is Important