How energy storage is transforming the electric power system

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Energy storage has taken years to evolve on the electric grid. But now, it’s at a turning point, and is seeing massive growth.

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By Janice Lin, Co Founder and Executive Director, California Energy Storage Alliance, and Alex Ghenis, Senior Analyst, Strategen Consulting


Energy storage is a transformative technology class that does exactly what its name suggests: it absorbs electricity at one time and saves it for discharge later. It’s a simple concept and makes perfect sense considering how the electric system operates.

Already commonplace in the consumer electronics and transportation industries, energy storage has taken years to evolve on the electric grid – but now, it’s at a turning point. This suite of technologies is seeing massive growth that will benefit markets and electric grids alike.

A number of analysts have forecasted multi-fold increases in the energy storage market size, with global annual figures over $100 billion in 2020[1]. This is unprecedented growth – reflecting the cusp of an energy revolution.

Here are a few reasons why energy storage is transforming the electric system – and why it will keep doing so for years to come.

1: Better system efficiency

 The electric system is a tricky beast. At any given time, supply needs to match demand, and the system itself has many interacting parts. Unfortunately, these factors and more have combined to create a very inefficient electric system.

Among other things, we’ve built enough generators and transmission lines to meet the peak demand on the hottest summer day – but those resources largely sit idle and are expensive and incredibly polluting.


Energy storage fixes this conundrum and more by charging up at periods of low demand and discharging during periods of high demand. And because storage is an incredibly diverse technology class, it can be installed anywhere in the electric power system and address a multitude of location-specific challenges.  Whether it is substituting for dirty “peaker” plants, smoothing renewables’ output, integrating micro-grids, increasing efficiency of conventional generation, or alleviating local transmission congestion, energy storage enables greater system efficiency across the entire grid.

2: Technological Innovation

Commercially available energy storage projects are being deployed on the grid by the hundreds, ranging from kW-sized projects sited behind customers’ meters to greater-than-100 MW utility scale plants[2].   Investments in these projects, technologies, and creative new business models are being made by governments, entrepreneurs, and developers excited about energy storage’s economic and technical capabilities.

Due to expanding grid storage installations, increasing electric vehicle sales, technological improvements and economies of scale, installed costs of grid storage are dropping dramatically. In 2010, the US Department of Energy projected lithium-ion battery costs to fall from $1800/kWh in 2012 to under $250/kWh in 2020, and well-established thermal energy storage technologies now have installed costs under $500/kw.  These massive cost reductions are making energy storage increasingly competitive in a growing array of grid applications.

3: Superior performance

As compared to many fossil-based status quo grid solutions, energy storage demonstrates superior performance and widespread benefits.

Many storage resources provide better precision compared to conventional generation. Where a state-of-the-art gas turbine takes 10 minutes to “ramp” to full power, many storage technologies can do so in less than one second. In a system where supply must always equal demand, this flexibility and accuracy are extremely valuable.


Energy storage systems also have 4 times the flexible range of equivalent capacity gas peakers (for example, a 100MW gas plant typically must generate at least 50MW, providing 50MW of flexible range, whereas 100MW of storage can charge at 100MW or discharge at 100MW, providing 200 MW of flexible range). Storage likewise has much higher utilization rates: gas peakers only run 20-40% of the year, whereas fast-responding storage resources have utilization factors over 95%. Energy storage co-located with relatively cleaner combined cycle gas turbines (CCGT) can even improve CCGT utilization factors and reduce reliance on dirtier plants. And the list goes on, from faster project development to reduced carbon emissions.

People in industry and government are recognizing these benefits every day.  New system models are showing that energy storage is cost-effective when its full range of services and benefits are fairly accounted for.  The reason for this is that energy storage delivers multiple benefits from one resource (e.g. reducing peak demand and providing grid support for frequency regulation). This is accelerating energy storage’s growth – and that acceleration is poised to keep on going.

4: Supportive Policies

Policies supporting energy storage, from financial support to procurement targets, are appearing worldwide, and the United States is at the forefront of that policy development.

In October 2011, the Federal Energy Regulatory Commission (FERC) issued “pay-for-performance” rules that reward accuracy in response times (FERC order 755).  This increases competitiveness of fast-acting storage.

Policy support is also growing at the state level. California’s AB 2514 (Skinner) directed the California Public Utilities Commission (CPUC) to set procurement targets for the state’s investor-owned utilities for cost-effective energy storage. A landmark June 10 preliminary recommendation by Commissioner Carla Peterman set that number at an impressive 1.325 GW by 2020 and a final decision is anticipated in early October 2013.

In February 2013, CPUC directed Southern California Edison (SCE) to procure at least 50 MW of energy storage resource capacity in the Los Angeles basin to meet long-term local capacity requirements by 2021. Up to an additional total of 600MW of capacity is required to be procured from preferred resources and/or energy storage resources.

Finally, forward thinking utilities are moving forward with storage on their own.  In May 2013, the CPUC granted San Diego Gas & Electric (SDG&E) the ability to rate-base $26 million toward the integration of energy storage resources for distribution support applications as part of their most recent general rate case.

All of these policies are giving investors confidence in both technology development and on-the-ground projects. They are key to market growth, and combined they are kick starting the transformation of our electric power sector.

Energy storage has been called the “holy grail of the electricity system,” half because of its amazing potential and half because it was seemingly unattainable. Now, we are entering an age where it has become attainable – and will improve the electric system for years to come.


[2] Project examples available at the Department of Energy’s International Energy Storage Database.

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