Our entire thesis at Rethink Energy is that change happens in a funny way. It begins with a trickle of deals, more people get exposed to them, understand how they work, profits are taken, and slowly momentum grows. And then watch out – mayhem. The energy markets have not had anything like this since the arrival of nuclear in the 1950s.
Part and parcel of those changes are sweeping aside regulations that used to make sense, but in the light of new ideas, no longer do so. Disruptive innovation is best defined as something that is half as good for a tenth of the price. There is a long way to go before renewables are a tenth of the price, but they are better than half as good.
This week a number of publications have begun to highlight the battle in the US to get one major energy market, PJM, to abandon its requirement that energy storage offers energy for a minimum of 10 hours, which is shutting out virtually every Lithium Ion battery from taking part in the capacity market. Essentially that rule says that gas turbines HAVE to replace both nuclear and coal, because we know of no battery that can survive for 10 hours in the GW class.
Interestingly we noted that in a previous opinion piece Wood MacKenzie’s estimate of what it would take to replace gas with batteries, relied on a multiple of 24 hour capacity batteries. That’s how it came up with a $4.5 trillion to switch to renewables, which was, quite frankly, a joke. We have to call them out as being politically tuned only to their oil customers.
So what happened this week? First the Federal Energy Regulatory Commission created a regulation to allow batteries to take part in capacity markets, and then PJM added this 10 hour condition, effectively to block it. Actually it is probably just doing things by rote – that’s how we’ve always done it, what’s the point of switching on a gas peaker plant for less than 10 hours. It is only when you say, “How can we accommodate batteries as they are used today, to make the market more competitive, that you begin to realize that everyone builds batteries to counter the intermittent nature of renewables.
Essentially if you have a wind turbine going 24 hours it may only give you 30% of its maximum capacity and the variance from peak to trough will be perhaps 15%. If you add a battery that offers 15% of the capacity all of the time, you can more or less guarantee a constant output from the combination of the two. So a 100 MW wind farm may need to be fronted with a 15 MWh battery and the two can then be used to reliably output 45MW. With the 10 hour rule that battery can only contract for 1.5 MW of capacity, but as we say can likely deliver 45 MW constantly. An engineer may argue with those precise calculations, but you get the drift, the batteries in the configurations as they are being partnered with wind and solar are being kept out of the market. Same for solar, but here the calculation is quite different because in the hours of darkness this varies throughout he year. In the darkest months it may be collected spare capacity for only 9 hours a day, but is likely only to have to offer high usage for 4 or 5 hours. Configurations tend to be that a 100 MW peak solar farm can work alongside a 50 MW peak battery which holds 200 MWh of charge. Which the capacity markets would only allow to sell a 20 MW contract.
This is how you end up with solar and wind in curtailment most of the time, and not being used, even when there is a battery attached.
The US Energy Storage Association and the National Resources Defense
Council (NRDC) set about proving that existing storage facilities can work for capacity, and getting the key markets to change their rulings. It commissioned a study by Astrapé Consulting which provides evidence to the contrary and it has lobbied to get congressmen into the loop.
What is currently happening is that capacity HAS to go to nuclear, Coal and Gas and emissions do not fall. Some 29 GW of retiring coal plants in the PJM markets have been replaced with 23 GW of gas. This relegates storage to wholesale and grid stability markets.
The Astrape report analyzed what would have happened given the real world workload, had batteries been asked to supply the capacity, and showed that up to 4,000 MW of total 4-hour storage and a further 4,000 MW of 6-hour storage, would both provide the same level of reliability as conventional power plants. Once this market gets beyond that, it may have to allocate the work to batteries with longer capacities up to 10 or 12 hours.
PJM may hold out for a while longer, but eventually this ruling has to change, because as the batteries get cheaper, so does the capacity, and the buyers will want to begin using batteries. Hopefully this legal push from the Energy Storage Association should get the job done.
What that will do is fundamentally allow batteries to go after more revenues types, and make them more profitable, and as that practice becomes widespread, investors will be looking to put cash into them, not gas peaker plants. Economies of scale will cut in, and prices will come down further and pretty soon we will be looking at a market that is MADE almost entirely for batteries not gas and coal plants.