Date: 04/11/22
Author: Kent Moors, Ph.D.
About nine months ago, I authored a private sector study on an application my folks have been following for more than three years. This one is becoming more visible as a combination of increasing geopolitical risk and (dare we say) post-COVID market conditions point toward a more substantive revision in energy infrastructure worldwide than at any point since the end of World War II.
This revision is referred to as “energy storage mandates” and it is expanding globally. These are rules requiring grid operators, utilities, and/or power plants to expand their use of battery storage.
My topic in the most recent report was the expected domestic impact of new mandate applications emerging in India, a country which has had a mandate program for the last several years. In that sense, the country has become a sort of international test case in usage. Among other changes in India, new solar power plants in some regions are now required to include batteries.
The immediate goal was to improve the transfer of power between internal states. That India is one of the leaders in adding solar generation to its national grid also made this an interesting development.
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During the larger (both by scope and country) focused analysis conducted by my network, we also determined adding more energy storage to the power grid has other benefits:
- It decreases the need for upgrades to electrical transmission lines,
- prevents blackouts and brownouts,
- and allows energy sources that vary their power output throughout the day – such as solar and wind power – to provide electricity around the clock.
Now, India isn’t the only part of the world pushing for energy storage. The drive has hit the US. There have been mandates in California and Oregon for three years, while Massachusetts was added to the list in 2020.
The significant savings batteries create was widely reported. The interesting part is the realization that most of these increasing efficiencies could be experienced on the local level. For example, early on, San Diego’s Grossmont Union High School District had estimated savings of more than $6.4 million over the lifetime of their battery installation.
Batteries have a range of benefits for both power consumers and utilities. Large-scale, commercial, and industrial users of electricity usually pay their electrical utility what is called a “demand charge.” This charge can account for up to 50 percent of their power bill but is determined by the highest 15 minutes of power use over the billing period.
This might seem excessive, but from the utility’s point of view, it makes a lot of sense. After all, the electrical grid transmission and distribution lines must be able to withstand peak electricity demand, regardless of how much higher that is from the baseline load.
In other words, how much utilities pay for their infrastructure is set by the peak load, not the base load. So, users with high power consumption spikes end up being much more costly than it might seem – a cost that the utility uses the “demand charge” part of the power bill to offset.
But that is just the cost of moving power during peak demand.
When demand for electricity spikes during peak demand, utilities also need to generate all that extra power. This power is provided by so-called “peaker plants“ – power plants that are only switched on when power demand is at its peak.
That sometimes accounts for only 5 percent or less of hours per year.
As you can imagine, keeping a power plant primed and ready to go all-year round, but turned off, costs a lot of money – so when it is turned on, the operators charge the utility a lot more for that peak power. And until now, the utilities have had no choice but to pay this premium, or see their customers lose power.
That’s where energy storage – in other words, batteries – comes in.
Installing batteries reduces costs on both sides of the equation. For power consumers, charging the batteries during off-hours, and drawing power from them during what would otherwise be the peak demand time, reduces the huge “demand charge” part of their power bill.
For utilities, smaller spikes in demand during peak hours mean that the transmission and distribution grid does not need to be upgraded to deal with higher peak loads. It also means less reliance on “peaker plants.” In fact, according to some estimates made in 2021, replacing “peaker plants” with batteries saves utilities about 30 percent in ongoing operating costs.
But because of legal and billing issues, utilities have been slow to install battery storage.
Until now…
Massachusetts changed the mandate landscape. They began requiring state regulators to set a target for how much energy storage utilities will need to deploy in the state, with the first projections taking place by January 1, 2021, as well as making it more economical for utilities to own batteries. It was assisted by a $10 million energy storage initiative sponsored by the governor.
An application of targets parallels provisions in the California and Oregon approaches. But in the Northeast, energy storage has another, huge benefit…
You see, Massachusetts and its neighboring states have been investing in wind power, especially offshore. The energy storage mandate bill in Massachusetts, for example, calls for 1,600 megawatts (MW) of offshore wind power and 1,200 MW of other renewables. That is the equivalent of almost three nuclear reactors, in total.
Now, unlike nuclear power plants, wind power only works when the wind is blowing. And while winds are more stable offshore than on land, they are still not guaranteed.
But integrating more batteries would solve this problem for Massachusetts – and for other Northeast states looking at offshore wind power, too.
The expansion of mandate provisions will serve to wean the exploding (no pun intended) battery market and the upstream sourcing of material like lithium from reliance for use solely in electric vehicles.
I have long held that an increasing percentage of the next generation battery market will occupy space in what had been considered more traditional energy usages. State initiated energy storage mandates will contribute to this expansion…as well as make a lot of sense in moves to lower costs and improve grid efficiency.
Dr. Kent Moors
This is an installment of Classified Intelligence Brief, your guide to what’s really happening behind the headlines… and how to profit from it. Dr. Kent Moors served the United States for 30 years as one of the most highly decorated intelligence operatives alive today (including THREE Presidential commendations).
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