Why Solar-with-Storage Is a Leap Forward

March 20, 2020 | 10:00 am
Biel Morro/Unsplash
Mike Jacobs
Senior Energy Analyst

I heard a solar developer say that if the solar development was checkers, storage looks like three-dimensional chess, or for some, like a Swiss Army knife. Storage is complicated, and a new study of the value of energy storage explains some patterns we see in energy storage adoption and deployment. This helps explain why the latest of trends, storage combined with solar or wind, called hybrids, is quickly becoming the most common development mode.

Storage combined with renewables is riding a wave of falling prices and increasing productivity.  Competitive solicitations in the western US are selecting renewable energy projects with eye-popping low prices that include batteries able to shift production several hours. Unfortunately, in contrast the organized markets in the eastern US have really struggled to use existing tools, markets and models to understand storage. The model of vertically-integrated utilities in  the western states is similar to how most of the world structures utilities.

The International Renewable Energy Agency (IRENA) report Electricity Storage Valuation Framework: Assessing system value and ensuring project viability offers insights into which markets and buyers see value in storage. IRENA describes how storage deployment is strongly affected by two things: 1) the scope of the benefits counted (lower costs to the system, or defined revenues from the market products), and 2) whether utilities that are vertically integrated are better able to recognize a wider range of savings. IRENA approached this framework differently than most, and the insights are very helpful in understanding how storage is continuing to surprise and challenge past practices in the power industry.

The good news

Energy markets have been the proving grounds for storage doing the job of power plants. The early examples of commercial deployments of storage to meet a power grid need were spread out in regions that relied on competition and market signals to value investments in storage. These first opportunities were high-value niches where storage could fill a need with very fast response as reserves, or re-establishing balance (frequency regulation). Within 10 years, battery projects with four-hour discharge duration were selected and built to meet resource adequacy shortfalls in California following the gas system failure at Aliso Canyon.

Falling costs for both renewable energy and batteries has led to amazing offers to build hybrid plants. In regions where utilities seek contract price bids from new plants, renewable-storage hybrids are winning in side-by-side competition with conventional power plants. While many states were pleasantly surprised with solar energy priced under 3 cents per kWh, now we see winning bids for solar-plus-storage under 2 cents.

Certainly, the activity in development shows there is very high interest for renewables and storage. New England, hardly a leader in building renewables, sees in the ISO-NE queue of possible new projects that now 95% of the proposed plants are wind, solar or storage.

The not yet good news

The hybrid plants that developers want to offer and build, that can prevent over-production during sunny or windy hours, are not readily understood or accepted in the highly structured organized markets of PJM, SPP, and New England. Current rules in place, and the models used to plan for the connection and valuing of hybrid plant additions are treating the battery as one supply, and the renewables as a separate supply. FERC’s recent order to these markets to lower barriers to storage did not address hybrid plants.

Standardization, direct competition, tight definition and prediction of functions, all useful for grid operations, have created (hopefully temporary) obstacles to recognizing hybrids as single power plants. To be fair, this kind of thing defines the career of a lot of people interested in power grids. Grid operators still have gaps in modeling and use of the dominant generator type in these markets, the combined cycle gas-fired plant because the two combined combustion and steam generator types do not function seamlessly together.

IRENA makes the point about market categories

The intergovernmental body explored the frameworks used to value storage, and found “the system value of storage is often poorly accounted for in electricity markets.” The authors looked at the value of a storage-based power plant from the perspective of how overall system costs can be minimized, with reductions in operating costs and capital costs in numerous categories. They then found that market revenues for investors in storage assets are not available for many of the benefits.

3-D chess is a real challenge. Example of Strato-chess board from https://www.chess-site.com/chess-boards/3d-chess-board/

IRENA makes a point also made by others, that we don’t have prices or revenues for things needed in a power system, causing the market to send the wrong signals for investment. IRENA goes further, explaining a “sub-optimal deployment of electricity storage” results. IRENA also illustrates the point that a utility that has more scope (i.e. invests in the wires, the generation capacity and pays operations, as does a vertically-integrated utility) will see more of the benefits.

IRENA approach includes benefits and costs, and alternative solutions

This framework explicitly compares system benefits of a storage asset, the revenues and their adequacy to pay for the asset, and benefits and costs of alternatives. Several steps are required, as there is a look at capacity expansion as well as operational costs. But more steps are needed to calculate the asset owner’s potential revenue streams for the optimized set of services that asset is designed to provide. IRENA’s framework compares revenues to both the cost of the storage asset, and the associated system benefits.

We’re only halfway there

IRENA’s points about scope and recognition of benefits helps explain the current conceptual logjam that surround the pairing of renewables and storage in a single hybrid power plant. In less than a decade, the pursuit of hybrid generation went from exotic to dominant in the renewable energy industry, and in a significant chunk of the whole electric power industry. Suddenly the commercial developers of power plants in the US, such as NextEra using wind, solar and batteries in one project, fully embraced hybridization, combining storage with renewables (and a few cases of gas generation). This put the grid operators and modelers even farther behind.

The IRENA report puts its framework through the paces in a variety of use cases. There’s an update on the use of batteries in areas with high levels of renewables. This one section puts the issues raised above into perspective, with examples and analyses that demonstrate the earlier points.

Like so many of the debates in the energy sector these days, where you stand and what you measure make an enormous difference in the choices. Understanding energy storage has become all the more important as the current wave of power plant proposals pair storage with renewables. We need to sort out the rules and measures of such plants quickly in the Eastern organized markets, because the market results in the West show these plants competing successfully with fossil fuel plants.