Charged Up About Batteries

 | Apr 04, 2014 | 3:30 PM EDT  | Comments
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Energy's next explosion will be in batteries.

It may take a long time. It may come in small steps. Its deployment may take surprising turns. But make no mistake: Batteries will be a big deal.

We saw similar patterns in wind and solar. At first, these funny devices looked like children's toys. Utilities scoffed at the idea that wind power and solar energy could become serious competitors to gas turbines, nuclear power and coal plants. Now they are finding renewable energy is the real deal, and some of them feel threatened.

This time, the utility sector is moving new technology forward. They understand the grid and know where the opportunities are, while newbies like SolarCity (SCTY) are not quite ready.

There are two approaches. The first considers the consumer's point of view. SolarCity tried to pair its batteries with solar panels. Since rooftop solar already produces power during peak pricing periods most days, adding battery systems increased costs without offering adequate returns. Consequently, SolarCity suspended its battery strategy.

SolarCity made two mistakes. First, it tried to solve the wrong problem. Second, it misunderstood the utilities' point of view. Traditional utilities have a different insight. They see the problem from the point of view of the grid. The goal is to provide all consumers with reliable, high-quality power.

This leads to the second approach. While not the first, AES Corp. (AES) has become an industry leader in providing grid-connected batteries. It is a large, U.S.-based utility with an enterprise value of approximately $32 billion. Unlike traditional utilities, AES owns a diverse collection of generation, transmission and distribution assets all over the world. In the U.S., AES owns Indianapolis Power & Light and Dayton Power & Light. But management has a worldview and interesting insight into grids. AES understands that batteries will become critically important assets for the modern grid. That vision led it to develop a new technology called Advancion, a battery-based grid resource.

According to AES, Advancion "acts as both a generation and load resource, enabling more than twice the flexible range of a peaker plant on the same size interconnection. It is continuously available without burning fuel and it was designed with the ability to tap into existing unused capacity from combined cycle power plants, solar and wind facilities. Unlike traditional power plants, Advancion arrays can scale with the ability to match required load growth."

But Advancion is not what some might expect. Some think it is about arbitraging daily differences in power prices; however, Advancion's primary mission is to improve the quality of grid power. This a point SolarCity may have missed.

Utility networks are required to manage fluctuating load. When homeowners turn on sump pumps or dishwashers, they need an inrush of power. When a factory turns on equipment or lights, they also needed an inrush of power. While each inrush may not amount to much or last long, add them all together and the demand on the grid can be serious. Without services on call, the grid's power quality may deteriorate.

To manage fluctuating loads and inrush, grids have power plants providing spinning reserves. They respond when small amounts of demand suddenly appear. Spinning reserve resources are traditional power plants that operate but do not necessarily produce power. They are slow to respond, waste fuel and create unnecessary emissions. The results are adequate but inelegant.

Grid-connected batteries are the new spinning reserves. They charge during off-peak periods. Their response times are instantaneous. They consume cleaner fuel. They produce fewer emissions. They have no moving parts and have low production costs.

Here is the interesting news: It appears AES broke a critical cost barrier. AES will install an Advancion system for $1 million per megawatt, according to greentechgrid. "If that proves to be the case," the website notes, "this pricing is shockingly lower than most industry observers thought possible."

For that $1 million investment, Advancion batteries earn multiple lines of revenue. Grids offer revenue to power producers for spinning reserves and ancillary services. Some grids offer capacity payments. Others offer revenue for energy storage. Battery operators can also buy wholesale power at daily low prices and sell at peak prices.  

One challenge facing AES and SolarCity is lithium. Lithium batteries have a limited life and can tolerate limited discharge and recharging cycles. It is only a bridging technology.

So, like wind and solar power, battery technologies will evolve. New technologies are under development -- some that include capacitors for fast charging and discharging. Others use chemicals other than lithium. Over time, battery performance will increase and lifetime costs will fall. Batteries will change the game in the utility sector and, more important, they will displace natural gas. They will add competitive pressures on marginal generators, causing power prices to fall and helping consumers to win.

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