The Kleinman Center Explores Energy Storage

At the end of March, Florida Power and Light (FPL) announced that the company will build the world’s largest battery storage system to complement its existing solar power plant, to begin operations in late 2021. The system will be a 409-MW/900-MWh battery storage facility, around four times the storage capacity of the world’s current largest battery system at the Hornsdale Power Reserve in Australia.

The U.S. energy storage market has seen a major expansion in recent years— the market nearly doubled in 2018 and is expected to double again in 2019. Large utility-scale projects like FPL’s, signal that the industry is maturing and solving operational and financial challenges that previously hindered large-scale deployments.

The Kleinman Center recently invited a panel moderated by Wharton Professor Arthur Van Benthem to speak to the trends and challenges of the energy storage sector. The panelists included:

• Ravi Manghani: Director of Energy Storage, Wood Mackenzie Power & Renewables
• Arjun Prasad Ramadevanahalli: Associate, Morgan Lewis Law Firm
• Paul Reed: Director of Business Development & Account Management, Viridity Energy

Below are the key takeaways to share from this panel:

• 10x growth: Energy storage is poised for a rapid acceleration of installed capacity, projected to grow more than ten times in the next 5 to 7 years. The growth is driven by several technology and market dynamics, including:
  • High utility demand charges– for commercial and industrial customers, peak demand charges (highest energy consumption rate at any time during the billing period) can compose 40 to 60% of their total utility bill. Storage is a key solution for reducing peak demand.
  • Net energy metering shifts– utilities are pushing back against buying excess energy generated from renewable sources at retail prices; thus, owners of renewable generators are better off storing the energy to be used at a different time than sell the energy back to the grid.
  • Declining system prices– the cost of lithium-ion batteries has decreased 85% between 2014 to 2018 and is continuing to decrease. The cost curve is similar to the ones from the solar industry in recent years. 
• Order 841: In a big step forward, the Federal Energy Regulatory Commission (FERC) passed Order 841 this year on February 28 as a mandate to Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs) to establish market rules for energy storage. These rules should allow storage resources to participate in the market as both a buyer and seller, enabling storage to compete against traditional fossil fuel burning resources such as peaking plants. Many regulatory issues are pending, including understanding the impact to the distribution grid from bidirectional flow, procedures to connect the devices to the grid, and transmission access charges.
• The Swiss army knife of the energy industry: Storage is often called the Swiss army knife of the industry because it can be flexed to perform different functions throughout the value chain, depending on the design and location.
  • Generation– renewables integration/firming (e.g. reserves solar energy, for use at night), microgrids, instantaneous power output
  • Transmission & Distribution (T&D)– frequency regulation, T&D asset deferral, congestion relief
  • Consumption– peak shaving, demand management, back-up supply
• How storage is monetized: Given the flexibility in design and application, storage resources can be monetized through different models at scale.
  • Contracted revenue– a buyer pays the storage owner a fixed charge for its right to utilize the battery’s capacity and charging/discharging
  • Merchant revenue – selling energy from the storage resource back to the wholesale electricity market
  • License– provide ‘energy-storage-as-a-service’ or demand management services to customers

As the demand for energy grows, there is a need for more reliable and cleaner sources of energy. Storage, especially when complemented with renewables, is proving to be the innovation that can address this need. Much progress has been made and today’s market dynamics and new policy structure will continue to push the storage market forward.

Isabelle Ji

The Whaton School

Isabelle Ji is an MBA student in the Wharton School at the University of Pennsylvania.