Energy storage is moving out of the laboratory and into the world of project finance, but how long that evolution will take is in question.
Experts told the Energy Storage Association’s annual conference in Washington DC last week that storage is at a “tipping point.” While storage is being incorporated into some operating projects, the technology is still struggling for recognition of its role, and financing remains a high hurdle.
“Storage is coming of age,” said Imre Gyuk, Program Manager for Energy Storage Research, Department of Energy. Whether it’s banks of advanced-chemistry batteries, compressed air, or other technologies, “We are putting real storage out there,” he said.
Among the cost-sharing storage projects in which DOE invested stimulus funding, he said, were three wind farms where battery storage is crucial to smoothing out power ramps, two in California and one in Texas.
The AES battery facility at Laurel Mountain, WV, has 32 megawatts of batteries co-located with a 98-MW AES wind farm, but the batteries are dispatched through grid operations to compensate for peaks and valleys anywhere, said AES Energy Storage Vice President John Zahurancik.
Utilities Demanding Storage
Zahurancik said grid operators are increasingly demanding that large installations of intermittent renewables like wind and solar “look like a natural gas plant,” with smoothed-out peaks and troughs, and that means storage has to be part of any renewables package.
That was the situation in Hawaii, said Julia Bovey, Director, External Affairs, First Wind. Utilities there are actively seeking options to the costly imported petroleum that drove their electricity prices to more than three times the national average in 2011.
But the islands have small and isolated grids. To get a power purchase agreement from Hawaii’s utilities, she said, “We had to show we would not disrupt the grid.”
Bovey said her company built the 30-MW Kahuku wind project “on the knife’s edge of a mountain” on Oahu, adding in 15 MW of Xtreme Power’s batteries and software. The key to success, she said, was less the battery chemistry chosen than the software that ensured millisecond reactions.
But even in Hawaii’s high price environment, and with a DOE loan guarantee, cashable investment tax credits and a 20-year PPA from Hawaiian Electric in hand, First Wind was turned down for financing by 20 banks, Bovey said.
Ted Hesser, Lead Analyst, Bloomberg New Energy Finance, said storage projects face multiple obstacles because they’re not standardized.
Navigating the “Valley of Death”
He said storage technologies still have high upfront and projected operating costs compared to conventional generation, technologies are changing so quickly bankers don’t understand them, many projects lack PPAs, and storage sits in a regulatory netherworld, neither generation nor transmission.
Geoffrey Morgan, Partner with Michael, Best & Friedrich, agreed “it’s very tough to get deals financed.” Investment firms now want to see “almost 100% equity” in storage projects, and very little debt financing, he said.
Mark Kalpin, Partner, WilmerHale, said that’s why the “valley of death” from laboratory to commercial facility still yawns wide. While innovation is “good to you,” he told the conference, in the project finance world, innovation equates to risk, which nobody wants.
Multiple speakers said that risk perception is why storage technology still needs government backing to become fully commercial, whether that’s through counting storage in renewable projects’ investment or production tax credits or through some other federal or state regulatory recognition that limits market risk for investors.
Speakers generally agreed that getting any new targeted subsidies through the current Congress would be difficult, but several speakers said making federal and state lawmakers more familiar with storage technology is crucial.
Christopher King, Democratic Staff Director, House Science Subcommittee Energy & Environment, said most Capitol Hill debate “fails to recognize the complexity of moving technology forward,” and overestimates the capacity of the private sector to finance needed innovation.
Storage’s potential to stabilize the grid has one sector worried, said Hesser: electricity traders. About 15% of current power bills are due to trading, but trading opportunities will flatten out if volatility does.
