Opportunities in a Changing Electrical Grid
In 2006, the US Department of Energy created forecasts for all generation sources and it’s prediction for installed solar generation was a massive 4,813 percent shy of the 2016 reality. Wind also crushed the 10 year forecast by 361 percent.
The chart below from the California Energy Commission shows what the renewables growth trajectory has looked like in California since 1983. To put it lightly, wind and solar production have surged since 2006.
While the impressive growth in renewables has extensive positive attributes for the economy and the environment, the rate at which the grid is changing also creates a challenge for utilities and presents a clear solution: energy storage.
What a changing electrical grid looks like for utilities
One of the most notorious and visual examples of increased solar and wind production on the grid can be seen in California with the Duck Chart or Duck Curve, which shows California’s net electrical demand over the course of a day. The net electrical load is the sum of all electricity demand on the grid, minus variable generation sources (primarily wind and solar).
According to CAISO (California Independent System Operator, who manages the state’s electrical grid system), “In certain times of the year, these curves produce a ‘belly’ appearance in the mid-afternoon that quickly ramps up to produce an ‘arch’ similar to the neck of a duck—hence the industry moniker of ‘The Duck Chart’.”
What makes the shape of the duck curve so challenging for utilities is that they must provide generation sources that match the demand on the grid for all hours of the day. So when the net demand on the grid was gently sloping in 2012, it was fairly easy to turn on new generators, or run existing ones at higher output levels, to meet the +/- 3 Gigawatt (GW) fluctuations in net electrical demand. For perspective, a Gigawatt is enough power for 100 million LED bulbs or equivalent to the average power consumption of 726,000 people in the US.
Fast forward to today, as wind and solar continue to grow faster than forecasted, the California grid was already seeing the 2020 forecasted net demand in 2017… 3 years ahead of schedule. So on a sunny and windy day, California utilities must turn off about 7 GW starting at 9 am and then turn on 14 GW starting at about 3pm. That’s like turning off a grid the size of Chile’s in the morning, then turning on a grid the size of Argentina’s in the afternoon. It’s a an enormous undertaking.
The issue is so severe that California has negative wholesale electricity prices during sunny, windy days and is curtailing renewable production. In fact, energy curtailments in April 2017 total 90 GWh, enough to power approximately 100,000 homes, and 3x higher than curtailments were in April 2015.
Utilities respond: new rate plans, and energy storage
The traditional utility solution to demand fluctuations has been installing new gas peaking plants and turning them on or off in series to respond to changing grid demand. However, these plants then sit idle for much of the day, still burn fuel (typically natural gas) when they are in standby mode (also known as ‘spinning reserve’) and take time to ramp up to full capacity. In many cases it’s simply no longer economical to install more peaking plants, not to mention that they conflict with more aggressive renewable portfolio standards.
Instead, utilities are turning to new pricing models to incentive electricity use at the most cost effective time periods. Utilities use time of Use (TOU) rates, under which customers pay increased energy costs during peak demand hours (typically in the afternoon when utilities have to increase generation) and lower costs during off-peak hours. They also are using Demand Charges, whereby customers pay a fixed fee based on their largest electrical power requirements during the month. Both of these tactics incentivize homeowners and businesses to shift their energy use to times of day when energy is cheaper and therefore more abundant on the grid.
Time of Use rates and Demand Charges open the door for energy storage to deliver powerful savings to customers because energy storage can store inexpensive power at night and deploy it during the day to lower energy bills and demand charges simultaneously. And this isn’t just happening in California.
Energy storage opportunities are widespread
According to the National Renewable Energy Laboratory (NREL), approximately five million commercial customers across the country could achieve electricity cost savings by deploying battery storage to manage their peak demand and offset usage. In many cases, demand charges billed to companies can account for anywhere from 30 percent to 70 percent of a customer’s electricity bill.
One of NREL’s main insights is that the country’s highest demand charges - and therefore potentially viable market environments for utilizing energy storage to reduce peak demand - are found in states not typically known for having high electricity prices, such as Colorado, Nebraska, Arizona, and Georgia. The map shown below, which was put together by NREL shows the locations with the highest demand charges - they are scattered throughout the country.
And outside of the US, similar incentives, Duck Curves, and challenges exist. South Australia last year faced a series of blackouts due to heat waves putting excess strain on the grid. The issue reached a fever pitch when Elon Musk bet that Tesla could deliver the largest energy storage facility ever installed in 100 days or it’s free.
These end user incentives along with the utility grid challenges are big reasons for why the US Energy Storage Association predicts that Energy Storage capacity will grow from 0.5 GW today to 35 GW of storage in 2025, resulting in over $4B in grid savings.
The opportunity for storage gets even better
Beyond energy bill reductions from demand charges and better time of use rates, energy storage can deliver a multitude of additional benefits. Utilities from Arizona to New York are using specific installations to delay or prevent costly transmission upgrades.
The California ISO has begun a program to pay - yes, pay - energy storage resources for absorbing energy from the grid when it is abundant and making it available later when energy use peaks mid-day and into the early evening.
And in all of this, homeowners businesses are finding ways to turn these new and changing rate schedules into money saving opportunities. Instead of being at the mercy of new rates and time of use fees, companies are using energy storage to choose when they consume or offset much of their electrical load. And as rate schedules grow in complexity, energy storage allows automated control of charging and discharging to optimize savings for customers.
Energy storage not only provides savings today, but can provide resiliency to future changes in rate structures. And with the rapid declines in the cost of renewable energy - including record breaking low prices for utilities - the grid isn’t going to stop changing anytime soon.
John is the VP of Sales and Marketing at Axiom Exergy.