Energy Storage Will Soon Replace Simple Cycle Combustion Turbine Peaker Plants

Power grids need extra generating capacity to work properly. For example, about 20 percent of New York State’s generation fleet runs less than 250 hours a year. Because they don’t run much, “peaker plants” are by design the cheapest and least efficient fossil generators. When they do run they cost a lot to operate and produce more air pollution than other types of fossil generation. Wouldn’t it be great if we had a cost-effective and environmentally sustainable substitute for dirty fossil-based peakers?

As has happened with solar PV, the costs for multi-hour energy storage are about to undergo a steep decline over the next 2 to 3 years. This cost trend will disrupt the economic rationale for gas-fired simple cycle combustion turbines (CTs) in favor of flexible zero emissions energy storage. This will be especially true for storage assets owned and operated by vertical utilities and distributed near utility substations.

Simple cycle gas-fired CTs have been a workhorse utility asset for adding new peaker capacity for decades. But times and technologies change, and the power grid’s long love affair with gas-fired CTs is about to be challenged by multi-hour energy storage. Flow batteries that utilize a liquid electrolyte are especially cost-effective because the energy they store can be easily and inexpensively increased just by adding more electrolyte.

CTs cost from $670 per installed kilowatt to more than twice that much for CT’s located in urban areas. But the economics of peaking capacity must also reflect the benefits side of the cost/benefit equation. Distributed storage assets can deliver both regional (transmission) and local (distribution) level energy balancing services using the same storage asset. This means the locational value and capacity use factor for distributed storage can be significantly higher compared to CTs operated on a central station basis.

These points are discussed in Energy Strategies Group’s white paper, “Guide to Procurement of Flexible Peaking Capacity: Energy Storage of Combustion Turbines.” As noted in the paper, Capex for a 4-hour storage peaker is projected to be $1,390 by 2017, or $348 per (installed) kilowatt-hour of capacity. Factoring in the added value of locating storage on the distribution grid and ownership and operation by a vertical utility, 4-hour energy storage will win over CTs at the high end of the CT cost range by 2017.

By 2018 the cost of ViZn Energy’s 4-hour storage solution, which was selected by Energy Strategies Group as a proxy for the lowest cost multi-hour storage solutions currently being commercialized, is projected to be $974 per kW, nearly identical to that of a conventional simple cycle peaker. For a 4-hour storage resource – that translates to $244 per (installed) kilowatt-hour of capacity. Given the added benefits of installing storage in the distribution network, by 2018 storage will be a winner against the mid-range cost for a simple cycle CT and clearly disruptive compared to higher cost simple cycle CTs.

The disruptive potential of energy storage as a substitute for simple cycle CTs has been recognized. For example, Arizona Public Service (APS) and the Residential Utility Consumer Office (RUCO) recently filed a proposed settlement which, if approved, would require that at least 10% of any new peaker capacity now being planned as simple cycle combustion turbines would instead need to be energy storage — as long as the storage meets the cost effectiveness and reliability criteria of any CTs being proposed.

When selecting new peaking capacity, utility planners can choose between assets that better fit the emerging distributed grid architecture or the older and disappearing centralized approach to grid design. The choices we make today should be consistent with current and long-term cost-performance trends in fossil-based generation, solar PV and energy storage.

Lower cost solar PV and its rising penetration in all market segments will have a profoundly disruptive effect on utility operations and the utility cost-of-service business model. This has already started to happen. Storage offers a way for utilities to replace lost revenues premised on margins from kilowatt-hour energy sales by placing energy storage into the rate based and earning low-risk regulated returns.

Lead image: Natural Gas Combined Cycle Power Plant via Shutterstock

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Chet Lyons is the Founder and Principal of Energy Strategies Group (ESG), a Boston-based consulting firm that assists innovative manufacturers, project developers and investors in establishing an early and profitable role in the energy storage industry. ESG also develops grid-scale energy storage projects. Chet has over 25 years of experience in the development and successful commercialization of advanced energy technologies, including 40 MWs of grid-scale storage projects providing frequency regulation services. Chet is the author of "Grid Scale Energy Storage Opportunities in North America: Applications, Technologies, Suppliers and Business Strategies,” published by GTM Research. This report pinpoints the best applications, geographic markets and market segments, and discusses the best business models and strategies. The report also profiles 150 companies active in the energy storage industry. Chet has held key management positions at DNV Energy & Sustainability, Beacon Power, American Superconductor, Evergreen Solar, Energy Resource Associates and Johnson Controls. He holds an undergraduate degree in Environmental Studies from the University of California, Berkeley and an MBA from Boston University’s Graduate School of Management. See: www.energystrategiesgroup.com.

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