By Brandon Chase, Fellow at the Clean Energy Leadership Institute
Wind turbines and solar panels both use natural resources to produce clean, renewable energy. However, the intermittency of these energy sources (i.e. speed and availability of wind is uncertain and solar production varies with cloud cover and time of day) creates a challenge for grid operators who need to keep supply and demand in balance. This has led to numerous smart grid developments, including a new industry of hardware and software companies that have developed technology to store renewable energy for on-site use and to send back to the grid. In September, Tesla announced a plan to build a $5 billion battery factory in Nevada, which is expected to drive down battery costs by more than 30%, historically the biggest barrier to deploying renewables with storage.
Over the past few months, I’ve had the opportunity to meet with Intelligent Generation and Solar Grid Storage, two innovators that are making solar and storage profitable. Intelligent Generation has developed a software platform to aggregate energy storage assets and bid them into the wholesale power markets to earn revenues for customers. Solar Grid Storage provides a PV and energy storage solution, but owns and manages the assets and focuses on the resiliency associated with backup power as the main value for customer. Both of these companies are tapping into a relatively new revenue stream known as frequency regulation.
As I described in a recent blog post, Get Plugged In: Electric Grid Economics, electricity supply and demand have to be in balance in order for the grid to operate reliably. When there is a sudden surge in demand, the electric grid needs to deploy additional power immediately and ramp up and down to provide a stable power supply. Batteries are able to provide an instantaneous response (within 4 seconds or less), which is known as frequency regulation. Historically, grid operators had not compensated generation owners for providing this service, but with the passing of FERC (Federal Energy Regulatory Commission) Order 755, grid operators are now required to pay for fast reacting power.
Most storage companies are focusing on markets with high electricity prices, like Hawaii and California, but there is a significant value proposition for storage elsewhere too. PJM is the nation’s largest grid operator, serving 60 million customers across the Midwest and Mid-Atlantic, and is successfully operating its own frequency regulation market. Intelligent Generation and Solar Grid Storage are confident that PJM is the right place to focus their attention because pairing solar with the frequency regulation benefits of storage can make the project economics more compelling. For example, the ROI (return on investment) of a typical solar project is based on how long it takes for the federal incentives, electric savings, and SRECs (Solar Renewable Energy Credits) to cover the upfront cost of the system (differs with a solar lease or PPA). For a solar and battery storage project, the customer will still benefit from federal incentives, electric savings, and SRECs, but also generate revenue from frequency regulation and the determined value of resiliency by producing clean backup power.
That said, significant barriers still exist that are hindering widespread adoption. Battery costs are relatively high, especially when compared to the significant declines we’ve seen in solar photovoltaic prices. Utility and local government approvals such as interconnection and permitting can be challenging and time consuming, but are likely to improve as the technology becomes more common. Also, frequency regulation is still a relatively uncertain revenue stream. As the number of intermittent renewable energy systems connected to the grid increases, grid operators will need batteries and other storage technologies for quick-response load following, but as the market attracts new players, supply may outpace the demand for frequency regulation, which could lead to lower revenues.
A solar and battery project becomes compelling when you consider all the potential benefits, including: energy savings, tax equity, SRECs, frequency regulation revenues, and backup power. This technology is at a pivotal point in its maturity, much like the clean energy technologies of 10 years ago. Without a doubt, a lot of exciting new projects will be entering the space, such as the recent announcement of a $1 billion utility-scale energy storage project in North Carolina. Stay tuned.