The World's #1 Renewable Energy Network for News, Information, and Companies.

Understanding Manufacturing Economics for Grid-scale Energy Storage

I have a new favorite word — aggregation. At the risk of sounding like a reporter, I'm going to summarize a pre-holiday news story you might have missed but need to know about.

In late November the PJM Interconnect, the largest of nine regional grid system operators in the U.S., announced that it had begun buying frequency regulation services from small-scale, behind the meter, demand response assets in Pennsylvania. 

The first resources brought on-line by PJM were variable speed pumps at a water treatment plant and a 500 kW industrial battery array at a factory. Each of these resources has been configured to respond to PJM’s signals within four seconds and provide 100 kW of frequency regulation capacity.

In the water treatment plant, the operator will change pump speeds as necessary while keeping average throughput at 80% of nameplate capacity. For the industrial battery array, the operator will shift loads to the battery when the grid needs power and charge the battery when the grid has excess power.  

The contract operators for both installations envision portfolios of flexible industrial loads that can be aggregated and operated as a distributed virtual utility that responds instantaneously to supply and demand conditions on the grid side of the meter. They’re literally turning grid loads into grid assets.

How cool is that?

I learned about the development because my old team at Axion Power International (AXPW.OB) built the battery array and is using its New Castle plant in Pennsylvania as the test-facility. But this was more than just an Axion event because it opens a world of opportunity for all manufacturers of industrial power quality and reliability systems. 

Traditionally, the battery industry’s pitch on industrial energy storage systems focused on ensuring the highest possible level of power quality and reliability for industrial customers. More recently manufacturers have refined their pitch to include other behind the meter benefits like time of use and demand charge management.

This latest twist creates a whole new set of opportunities to reduce the net cost of a customer’s power quality assets by aggregating incremental revenue from grid-side ancillary services. The battery industry is at a tipping point because energy prices have finally reached a level where waste isn’t always cheaper than storage. 

It’s still a tough cost-benefit equation because customers hate anything that eats into margins, but as energy storage system (ESS) developers find new ways to aggregate benefits and use their facilities more efficiently, the potential market grows exponentially. 

Now it’s time to shuck the reporter’s fedora and give my horns a little room to breathe. Let’s drill deeper into the inherently confusing metrics ESS developers use to describe grid-scale storage systems. 

In a recent report on grid-scale ESS costs, the DOE’s Sandia National Laboratories took a bifurcated approach to pricing that separated the costs of the power control subsystem from the costs of the energy storage subsystem. Their summary table of generic ESS costs using the principal battery chemistries breaks down like this.

The problem arises when battery manufacturers focus on a power metric in their public statements, instead of an energy metric, and fail to give readers any clues about who contributes what share of system value. 

To highlight the problem I’ll use Sandia’s numbers to estimate the prices of Axion’s PowerCube and A123 Systems’ (AONE) Laurel Mountain wind farm project.

ESS buyers aren’t stupid. They won’t let battery manufacturers earn the same margin on the power control subsystem that they earn on the energy storage subsystem.

That leads to the inescapable conclusion that a $2 million ESS sale that’s 70% power control systems and 30% batteries is not the same as a $2 million battery sale. At some point the failure to clearly distinguish between purchased components and proprietary components will give rise to stakeholder confusion that could have been avoided. If market participants can’t find a way to effectively communicate the difference between power control subsystem sales and energy storage subsystem sales, they run an enormous risk that investors, analysts, bankers and other stakeholders will over-estimate the relative impact of ESS sales on the bottom line and then be disappointed when their inflated expectations aren’t met. Losing credibility with stakeholders is a luxury that no company can afford. 

Life was simpler when UPS systems integrators built their products and bought batteries as necessary components. It gets far more difficult when battery manufacturers sell ESS products where the bulk of the added value comes from upstream component suppliers. 

While my cup usually overflows with sage advice for anybody who’ll listen, I don’t see any easy answers to this conundrum. I suppose the industry could take the easy way out and claim that the batteries just keep the turbines turning when the wind dies down, but that’s really not an acceptable answer either.

NOTE: This article was first published in the Winter 2012 issue of Batteries International Magazine and I want to thank editor Michael Halls and cartoonist Jan Darasz for their contributions.

Disclosure: Author is a former director of Axion Power International (AXPW.OB) and holds a substantial long position in its common stock.

This article was originally published on AltEnergyStocks.com and was republished with permission.

RELATED ARTICLES

Microgrids

Coast to Coast and Across the Electric System, Microgrids Provide Benefits to All

Dick Munson, Environmental Defense Fund At the most obvious level, microgrids could disrupt today’s utilities and their regulated-monopoly business model, because they challenge the centralized paradigm. In a nutshell, microgrids are localized power grids that ha...
Lead image: Earth with solar and wind. Credit: Shutterstock.

What's In A Name? That Which We Call A Solar Microgrid Is By Any Other Name A Solar Installation

Paula Mints A few years ago in a solar marketing department near you an enterprising executive had an epiphany: the word “microgrid” could be adapted to describe any system of any size and then used to confer a marketing advantage. Mor...
Tesla New Energy Storage Sales

Can Tesla's Battery Hit $1 Billion Faster Than the iPhone?

Tom Randall, Bloomberg Tesla’s new line of big, stackable batteries for homes and businesses started with a bang. The reservations reported in the first week are valued at roughly $800 million, according to numbers crunched by Bloomberg. If Tesla...
Le Cheylas pumped storage plant scheme. Credit: Alstom.

A Solution to Intermittent Renewables Using Pumped Hydropower

Nathalie Lefebvre, Marie Tabarin, and Olivier Teller, Contributors Integrating large quantities of renewable generation with low-carbon technology will require the development of large flexible carbon-free generation and storage assets. Over the last 40 years, numerous large capacity pumpe...

CURRENT MAGAZINE ISSUE

03/01/2015
Volume 18, Issue 3
file

STAY CONNECTED

To register for our free
e-Newsletters, subscribe today:

SOCIAL ACTIVITY

Tweet the Editors! @megcichon @jennrunyon

FEATURED PARTNERS



EVENTS

Doing Business in Brazil – in partnership with GWEC, the Global Win...

Brazil is one of the most promising markets for wind energy.  Ranke...

Using Grid data analytics to protect revenue, reduce network losses...

Schneider Electric and Awesense have combined expertise to develop integ...

Energy Storage USA 2015

Energy Storage USA is the leading conference in the United States focuse...

COMPANY BLOGS

Get Into Your Prospect's Shoes

    It may sound simple, but one of the best strategies for d...

Helping Small Businesses Visualize Savings

    What does a small business owner care about? Most are run...

Harnessing the #ElonEffect: Deconstructing the PR Success of Tesla’...

As most of the world has heard by now, Tesla and its co-founder, Elon Mu...

NEWSLETTERS

Renewable Energy: Subscribe Now

Solar Energy: Subscribe Now

Wind Energy: Subscribe Now

Geothermal Energy: Subscribe Now

Bioenergy: Subscribe Now  

 

FEATURED PARTNERS