Banking on Batteries

AES Energy Storage maintains racks of batteries similar in appearance to a server farm.

Arlington-based AES Energy Storage operates the largest battery-storage enterprise in the world. The company does not manufacture batteries. Rather, its Advancion energy-storage platform integrates batteries with inverters and controllers, and tells the batteries when to recharge and when to sell into the grid. The batteries, as seen above, are stacked in racks not unlike servers in data centers.

AES Energy Storage is building a global enterprise using industrial-scale batteries to make the electric grid cleaner and more reliable. 

Richmond-based Dominion Resources may be the most visible energy company in Virginia — its Dominion Virginia Power subsidiary is the dominant electric utility in the state — but it is not the biggest. That distinction belongs to Arlington-based AES Corp., which operates power plants in 17 countries. Where Dominion generated $11.7 billion in revenue in 2015, AES racked up $15 billion.

While coal dominates its electric-generation portfolio, AES is moving aggressively into renewable energy. In the U.S. alone, AES Distributed Energy operates solar plants in seven states, wind in three, and energy storage in four. The company claims to have “the most comprehensive and accomplished fleet of battery-based energy storage in the world.”

Battery storage is still a niche product in the $388 billion electricity industry, but it is strategically important. Batteries can smooth minute-to-minute fluctuations in electricity frequency, shave peaks in demand, and facilitate the integration of large volumes of variable solar and wind production into the grid. Indeed, it is hard to imagine a green energy future without a big contribution from battery storage.

“We find energy storage to be one of the elements we need to create a clean, unbreakable grid,” Kiran Kumaraswamy, market development director for AES Energy Storage, tells Bacon’s Rebellion.

The grid faces what Kumaraswamy calls a “trilemma” — tradeoffs between cost, reliability and sustainability. Zero-carbon wind and solar energy sources are environmentally sustainable and their costs are plunging. But they have a big drawback: variable electricity output. Fluctuations must be balanced very quickly.

PJM Interconnection, which oversees the 14-state regional electric transmission grid of which Virginia is a part, says it can accommodate up to 30% renewable power by juggling conventional power sources. But variability becomes an issue above that level, as it can be in utilities’ lower-voltage distribution systems not overseen by PJM. Battery storage can offset that variability by supplying electricity instantaneously as needed.

As the world turns to solar and wind, says Kumaraswamy, “the grid will need more flexibility. Energy storage enables you to achieve that flexibility.”

AES, which helped jump-start the battery-storage industry eight years ago, now has 156 megawatts of battery storage installed around the globe and 276 megawatts under construction or late-stage development. Broadly speaking, AES has identified four applications where battery storage can provide economical solutions:

Frequency regulation. The best-developed application for energy storage is known in industry jargon as “frequency regulation.” The U.S. electric grid operates on a frequency of 60 hertz — a standard that generators, power lines, machines, HVAC systems and household appliances all have been designed around. Maintaining frequency requires a perfect balance between electricity being added to and withdrawn from the system. If there’s too much electricity, the frequency rises; if there’s too little, the frequency falls. In either case, system reliability can be impacted.

PJM has devised an elaborate system for regulating frequency. It has set up day-ahead auctions to match the lowest-price supplies of electricity with anticipated demand, and also real-time auctions to refine supply and demand for five-minute increments. As good as PJM’s models are, however, they cannot forecast with exactitude every blip in generation when clouds pass over a solar farm or  an industrial customer throws the switch on a big machine.

Batteries can deliver precise and accurate power to the PJM system for short durations. PJM’s need for regulation resources is a tiny percentage of its total load, which can peak around 100,000 megawatts on a typical day, says Andrew Levitt, PJM’s senior market strategist, but the batteries and other resources supplying regulation are critical for keeping the frequency within a narrow range. PJM sends a signal every two seconds to fine-tune the draw.

As an example of how the battery storage industry is taking shape, consider one of AES’s battery arrays in Laurel Mountain, W.Va. That 32-megawatt facility sells electricity into PJM’s frequency-regulation market. The size of the payment varies in direct proportion to the timeliness and accuracy with which AES can deliver micro-bursts of power. Profitability hinges on how well AES follows the PJM control signals for regulation.

T&D upgrade deferral. Local demand increases in load pockets (where there is limited capacity to bring in power from the outside) can trigger a need for upgrades to Transmission & Distribution (T&D) systems. Sometimes installing batteries can be a cost-effective substitute for upgrading lower-voltage distribution lines or substations.

Demand management. Depending on their rate structure, commercial and industrial users can draw on batteries to shave consumption and reduce expensive demand charges during peak periods. This is most advantageous when users pay a premium price for peak-load use.

Flexible peaking capacity. Solar energy production peaks around mid-day and declines as the sun sinks in the sky, but summer demand peaks later in the day when people go home, turn on their air conditioners and start using their appliances. For two to four hours, conventional power plants need to ramp up production to replace waning solar output. “Energy storage can help significantly,” says Kumaraswamy.

In 2014 Southern California Edison (SCE) issued a competitive solicitation for new power capacity in the Los Angeles area to replace a retired nuclear power station. SCE received more than 1,800 offers. AES Advancion’s battery storage solution was one of the winners. The new capacity, scheduled to come online in 2021, will be able to deliver up to 100 megawatt hours of energy for up to four hours.

Battery storage does double duty, Kumaraswamy says. First, it absorbs excess solar capacity during the daytime. Second, it dispenses electricity during the ramp-up phase when it is needed most. It competes with gas-powered peaker plants, the usual remedy for meeting peak demand.

“The problem with simple-cycle gas turbines is that they are idle 95% of the time,” Kumaraswamy says. Contrast that to battery storage: When batteries aren’t meeting peak load, they can perform other tasks such as frequency regulation. They also provide operational benefits for the system by letting other thermal plants run at more stable rates. “You’re not moving them up and down, up and down, for load balancing.”

Regulatory obstacles. California and Massachusetts, which are aggressively restructuring their electric grids to handle more renewable power, are leading the charge with energy storage, Kumaraswamy says. Washington, Oregon and other states are showing interest as well. Virginia and other Southeastern states… not so much. Indeed, according to the U.S. Department of Energy Global Energy Storage database, there are only two battery-charging operations in Virginia. (A side article describe one of them, a Dominion Virginia Power pilot plant.)

PJM is a big fan of batteries for frequency regulation, but its 13-state (plus D.C.) region isn’t seeing much interest for California-style load shifting. PJM’s sophisticated auctions do a great job of balancing the electric load, says Levitt, the PJM marketing strategist. The organization can accommodate considerably more solar and wind output without breaking a sweat, obviating the need to use batteries for that purpose.

Market rules designed years ago around limitations of traditional fossil-fuel generation create regulatory barriers to storage. From the perspective of a public utility commission, says Levitt, batteries can be hard to classify: They function both as electricity generator and consumer. “Batteries are half power plants, half transmission lines,” he says. “That can create a lot of heartburn.”

But Kumaraswamy expresses optimism. The Federal Energy Regulatory Commission (FERC) is working to ensure that market rules stay up-to-date with the rapidly evolving technology, and many states are re-thinking their regulatory framework. “Proceedings are happening in every state,” he says. “It continues to be front and center.”

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