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Energy Storage is Not Needed for Renewables Integration

|Includes: Advanced Battery Technologies, Inc. (ABAT), ACPW, ALTI, AXPW, BCONQ, ENS, ESNC, HEV, ULBI, VLNCQ
There is a debate as to whether storage is required to integrate renewables. An understanding of the necessity for storage is important for investors in the storage space. Some protagonists for and against are:

No need for storage
"[Electrical Energy Storage] is not needed with current levels of renewable generation nor with renewable generation levels projected in the near term"
Energy Storage FactSheet, Pew Climate TechBook (May 2009)
“..even in this aggressive scenario, the model did not build new storage until 2024, when there were already 200GW of wind capacity on the grid supplying 15% of the nation's energy."
“ storage is not needed to integrate wind energy with the electric grid..”
 “[Renewable Targets] can only be reached if renewables are smoothed and made dispatchable by energy storage.”
 “The need for storage to integrate solar and wind cannot be over emphasized.”
NanoMarkets: Batteries and Ultra-Capacitors for the Smart Power Grid: Market Opportunities 2009-2016 (August 2009)

"Alternative energy storage is an investment tsunami"
John Petersen, Seeking Alpha (November 2008)

Yes or No?
 On balance it is clear to me that energy storage is not needed for the foreseeable future. Storage can be broken into two types: large scale for bulk storage of renewables and small scale storage for intra-hourly changes. The main arguments promulgated by proponents of large scale storage suggest it is required to:
  • Smooth renewable output (make renewable energy dispatchable)
  • Reduce wasteful spending on transmission
  • Prevent the pollution from backup power plants
Large Scale
Smooth renewable output
The argument goes that wind often blows heavily at night and is wasted. Thus we need to store it and make it dispatchable at times of peak demand. It is true that wind is variable however forecasts are reasonably accurate and wind output tends to only change gradually. This allows for the other power plants to be adapted to accommodate the changing wind so that very little wind energy is wasted, even at night.
A 2008 GE Energy study for the Electric Reliability Council of Texas (ERCOT) showed that if Texas had 15,000 MW (presently ~8,000MW) of wind that a 30-minute drop of 2,400 MW would only occur once a year and that such occurrences can be addressed by existing technology and operational attention”. Existing conventional coal and gas power plants regularly abruptly stop generating for mechanical and other reasons and this is handled by the current system.
The current capacity factor of American power plants is approximately 40% and demand across the year varies by a factor of three from the low point to the high point. The variability inherent with wind and solar is not foreign to the current system and it is not a prerequisite that renewables be made dispatchable. Storage is not needed to manage this variability.
Reduce wasteful spending on transmission
The argument goes that building a 1,000 MW transmission line to link up a 1,000 MW wind farm from, say, the windy midlands to the load centres is wasteful because the wind only blows at the rated capacity a small percentage of the time. Better to build a smaller transmission line and use storage to store the wind energy when it blows heavily and produce a constant, dispatchable output from the wind farm.
This issue was thoroughly investigated by NREL in a just published paper. It was assumed that the wind owner paid for transmission. Wind and storage were operated as one entity to maximise revenue using real marginal prices from different electricity markets. The storage was Compressed Air Energy Storage (CAES) priced at $750/kW. Limited storage was found to make sense when transmission was priced above roughly $350/MW-km. Transmission line prices using this MW-km metric have been highly variable in the past, with more above $350 than below. However the authors note that transmission costs are “extremely lumpy”, meaning the marginal cost to go from 800MW to 1,000MW will not be a proportionate increase due to the significant portion of costs that goes into siting a transmission line. Further discussion of transmission costs may be found here. At any rate, pumped hydro and CAES are the only technologies that offer the required scale in terms of kW and kWh.
It is true that storage can defer the need for transmission upgrades by reducing congestion. However that is akin to putting a band-aid on the transmission line. Capital is all upfront for storage systems and the payback period is measured in several years, within which time an upgrade would most likely have been built. This can alter the economics of this type of storage.
Prevent the pollution from backup power plants
This is frankly a canard. Apart from the case of wind and storage being co-located to reduce transmission, storage is not just used to store wind or solar energy. It stores whatever energy is cheapest. Frequently this is coal and storage allows coal plants to operate at a higher level through the night than they otherwise would. The flip side is that wind and solar need to have backup natural gas plants ramp up and down which reduces fuel efficiency. However this efficiency penalty is only between 0.5-1.5%. A Netherlands and a forthcoming Irish study have both shown that all things considered, storage actually increases net system CO2 emissions.
Small Scale
Small scale storage can be divided into second to second smoothing (regulation/load following) and spinning reserve (responsive reserve).
Second to second smoothing is not dramatically altered by renewables. Supply and demand of electricity must be almost instantaneously balanced. While wind and solar vary, the second to second variations are not dramatic, particularly when aggregated over a large geographic area. Furthermore the demand also varies as people switch lights on and off, for example. There is no need, and in fact it is counterproductive, for every single wind or solar farm to try and produce a constant output. Oftentimes an instantaneous decrease in wind will cancel out with an instantaneous decrease in demand. This leads to a fundamental principle that: “it is the net system load that needs to be balanced, not an individual load or generation source in isolation”.
That being said, wind will increase the amount of regulation reserve required. The same GE study showed that 100 MW (a 20% increase) of extra regulation reserve would be required at the 15,000 MW wind penetration level in the ERCOT grid.
There is the suggestion that the new storage technologies such as flywheels and batteries that can provide very fast responses are required. The CAISO  stated in February 2009: “based on analyses prepared by the CAISO thus far, [fast regulation products] are not [needed]”. CAISO were advised to take a technology neutral approach to regulation and to not pilot alternative energy storage devices.
Following on from the second to second there is spinning reserve which can quickly be ramped up quickly and sustained for longer periods. At present both second to second and spinning reserve is predominantly provided by natural gas and hydro plants. These are capable of providing these ancillary services as renewable penetrations increase. There is no inevitability that other technologies need to be used.
Alternative storage technologies such as batteries and flywheels will compete on a purely economic basis. The rules governing these non generating technologies are still being set. It should be noted that utilities are notably conservative when it comes to new technologies and that many of these have not proven themselves. In a follow up I’ll discuss the relative merits of the alternative storage options and the potential for storage in other areas. Investors in these storage companies should, however, not assume that storage is needed for renewables integration. Comments to the contrary are welcomed.

Disclosure: No positions