As Storage Costs Decline, Market Changes Needed

The benefits energy storage can provide in terms of power grid support and flexibility are becoming clear, but creating the right market mechanisms and rate designs will be critical to scaling up energy storage deployment, federal and state officials said.

“As we think about storage at the ISO, really what we’re thinking about is how do we make sure that storage can participate as fully as possible as an asset, as a resource,” Michael DeSocio, senior manager of market design at the New York Independent System Operator said Tuesday at the Independent Power Producers of New York Spring Conference in Albany.
“We see storage as vital for the grid of the future and if you think about the stresses and strains the future grid will have, it will be an asset I think any grid operator would love to have,” he said.

The growth in intermittent renewable energy has created an important role for storage resources that can either store energy during low demand periods like windy evenings to be discharged during the day, or help smooth the transitions between high and low renewable energy production periods.

And as the use case for storage has become clear and more equipment is built, the costs are rapidly declining, which many see as a catalyst for wider deployment. Lithium-ion battery energy storage costs were $1,000/kWh in 2010 and have come down to less than $200/kWh today and are expected to be less than $100/kWh by the mid 2020’s, Jason Doling, energy storage program manager at the New York State Energy Research & Development Authority, said. Those costs are for battery packs, which account for 20% to 30% of the total installed cost of a battery energy storage system. “When we start to hit $400/kWh installed cost, really fascinating things happen because the number of use cases that economically” make sense significantly increases, Doling said.

These include distribution system relief, customer-sited storage for load relief or demand response, pairing with existing generation to operate plants more efficiently and pairing with renewables. Doling estimates that this point will be reached in the next three to five years and research indicates that around 2,000 MW could be deployed by 2025 in New York. The state has a goal of reaching 1,500 MW by that date.


In order for energy storage to be properly valued, rate design changes will be needed, including more granular, sub-daily demand charges “so there is greater cost causation with who is creating the demand,” Doling said. Also needed are changes to the retail value stack that make it more granular and soft cost reductions from things like permitting, customer acquisition, financing costs and interconnection costs that can account for 20% to 25% of a project’s total costs in some cases.
NYSERDA is releasing a staff white paper later this quarter that will kick off a formal public comment and stakeholder process ahead of the Public Service Commission’s scheduled fourth quarter energy storage plan issuance.


NYISO is working on finding ways to more optimally use storage assets on its grid. “From a market perspective, we have information about what all suppliers are doing and what all demand is doing, so how can we better leverage storage,” NYISO’s DeSocio asked.
One possible market design could include modeling renewables and storage independently to maximize those values and then create a financial construct that links them.

As the power grid continues changing due to low-cost natural gas, energy efficiency and renewable energy mandates, two themes that emerge are resource flexibility and grid resilience. And storage plays a key role in both of those, DeSocio said.

So going forward you will see the ISO start to work on market services that help support both of these things. For example, the procurement of operating reserves that might go beyond minimum requirements could bolster resilience. “Because let’s face it, if I’m short a MW of operating reserve we know there is a value to that, we already have a price, but to suggest there is no value when I’m long one MW doesn’t seem to make a whole lot of market sense,” DeSocio said. The NYISO will be rethinking that model, he added.


Federal Energy Regulatory Commission member Neil Chatterjee is excited about the prospects for energy storage in US markets and said it has been a top priority of his since joining FERC. “I’m proud of the commission’s recent rulemaking which aims to remove barriers to electric storage participation in ISO and RTO markets,” he said referring to Order 841 that was issued February 15.
And collocating storage with solar or wind has the capacity to fundamentally alter the way we generate, distribute and consume energy, he said.

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