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Market Research Report

Author: Dr. Ib I. Olsen

Date: Tuesday, July 28, 2009
Revision: First release

Subject: Utility Scale Energy Storage Market

Summary
Based on the need to integrate renewable energy into the transmission and distribution
grid alone, the market for energy storage in US could be between US$0.5 and US$3
billion by 2012, and the world market could be up towards US$12 billion. Based on the
cost of natural gas and oil the market for energy storage could be significantly higher.

Energy Storage Is Not New

We have to look no further than the natural gas industry to see a successful use of
storage in an energy market1. Gas storage adds needed flexibility in the market, and
federal energy policy played a pivotal role in transforming the storage market to the one
we know today.
Similar attention to the electric power industry’s use of storage could spawn a
comparable renaissance in this industry’s ability to foster flexibility, reliability, and
security. Prior to deregulation, the expansion of the gas storage market was used
primarily to hold down the cost of infrastructure expansion. Gas was shipped to the
demand regions during the summer and stored in underground reservoirs for use during
the winter months.
As part of the deregulation of this industry, gas storage was separated from the “bundle”
of services rolled into the transmission cost of gas and end-users were forced to choose
how or whether they would use the service. The results are impressive. Far more flexible
storage facilities have dominated new facility development since. Indeed, gas storage
has grown to become a critical “dimension” in making gas markets efficient. Without it,
trading, reliability, and tailored services would all be far more expensive—and in the
worst case not available at all. As the electricity market restructures, it will also need to

1
“Energy Storage, The Missing Link in the Electricity Value Chain”, An ESC White Paper
Published by the Energy Storage Council, © May, 2002

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rely upon a growing capacity to store energy to improve its efficiency, and dampen
volatility.

Energy Storage In The Electricity Infrastructure

Energy storage can play multiple roles in the electricity infrastructure. Below is given a
list of potential revenue / cost reduction streams based on their location in the
infrastructure: Generation, Transmission and Distribution, and Energy Service at / close
to customer sites. The value of each usage depends on the utility, rules and regulations,
and cost of alternatives. The alternatives are mainly natural gas in US but in more
isolated places with limited access to Natural Gas the alternative is diesel oil

Generation
Commodity Storage: Storing bulk energy generated at night for use during peak
demand periods during the day. This allows for arbitraging the production price of the
two periods and a more uniform load factor for the generation, transmission, and
distribution systems.
Contingency Service: Contingency reserve is power capacity capable of providing
power to serve customer demand should a power facility fall off-line. Spinning reserves
are ready instantaneously, with non-spinning and long-term reserves ready in 10
minutes or longer. Area Control: Prevent unplanned transfer of power between one utility
and another.
Frequency Regulation: Maintain a state of frequency equilibrium for the system’s 60Hz
(cycles per second) during regular and irregular grid conditions. Large and rapid
changes in the electrical load of a system can damage the generator and customers’
electrical equipment.
Black-Start: Units with the capability to start-up on their own in order to energize the
transmission system and assist other facilities to start-up and synchronize to the grid.
Firming of Renewables: Energy storage will play a critical role to make renewable
energy more predictable. As the ratio of wind and solar power increases the installations
will need energy storage to address the intermittency (frequency / voltage regulation)
and load shifting (wind from night to day and PV from day to evenings)

Transmission and Distribution

System Stability: The ability to maintain all system components on a transmission line
in synchronous operation with each other to prevent a system collapse.
Voltage Regulation: Maintain a stable voltage between each end of all power lines.
Asset Deferral: Defer the need for additional transmission facilities by supplementing
and existing transmission facilities—saving capital that otherwise goes underutilized for
years.

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Energy Service Energy Management: Allows customers to peak shave by shifting

energy demand from one time of the day to another. This is primarily used to reduce
their time-of-use (demand) charges.
Power Quality: Provides electrical service to the customer without any secondary
oscillations or disruptions to the electricity "waveform" such as swells/sags, spikes, or
harmonics.
Power Reliability: Provides bridging power (UPS) for consumers to ‘ride-through’ a
power disruption. Coupled with energy management storage, this allows remote power
operation.

Energy Service
Energy Management: Allows customers to peak shave by shifting energy demand from
one time of the day to another. This is primarily used to reduce their time-of-use
(demand) charges.
Power Quality: Provides electrical service to the customer without any secondary
oscillations or disruptions to the electricity "waveform" such as swells/sags, spikes, or
harmonics.
Power Reliability: Provides bridging power (UPS) for consumers to ‘ride-through’ a
power disruption. Coupled with energy management storage, this allows remote power
operation.

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Figure 1: Energy storage applications - power and energy requirements2

In order to maximize the benefits from an energy storage installation, it may be beneficial
to combine two or more functions. For instance, as the energy requirements for
frequency and voltage support are relative modest, combining that with peak shaving or
load leveling may increase the ROI significantly.
According to a 2008 report by Lux Research, bulk energy storage for utilities – shifting
large amounts of energy from excess production times to peak usage times – presents
the biggest potential opportunity of all markets studied: If even 10% of installed wind
power plants adopted large-scale energy storage, the market would hit $50 billion.
However, utility companies’ risk aversion and long planning cycles will sharply limit
market size through 2012 to only $600 million in the USA. This number may be low as
the US Department of Energy has decided to inject at least $350 million in 2009 alone,
and the Congress is contemplating tax credits similar to those enjoyed by the
photovoltaic industry.
The U.S. Department of Energy estimates that, for every gigawatt of wind capacity
added, 17 megawatts of spinning reserves must also be built to account for the system’s

2
From Electricity Storage Association (http://www.electricitystorage.org/site/applications/)

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variability. Also, utilities are building capacity to meet so-called needle peaks in
electricity usage that only occur for a small number of hours each year. It is expensive
and inefficient to size capacity to these peaks, and energy storage can play a large role
in supplanting peaking generation.
Wind energy is currently receiving the most attention in connection with energy storage,
but is because it has the highest penetration. As photovoltaic systems get closer to grid
parity as well, the need for energy storage will explode over the next few years.
Usage Cost (CapEx + Operation)

$0.90
Zebra
$0.80 NAS
Dollars per kWh

LiON
$0.70
Lead Acid
$0.60

$0.50

$0.40

$0.30
2008 2009 2010

Figure 2: Projected cost of battery based energy storage3

Projected Market Size

Each of the value propositions shown above will drive the need for energy storage. In
Table 1 is given a estimate for the US market alone driven by the addition of renewable
energy (mainly wind) over the next few years.

3
Data collected by Gaia Power Technologies based on actual vendor quotes and vendor
conversations.

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Table 1: Projected energy storage needs based on renewable energy addition in USA
2009 2010 2011 2012
US Wind Installations per year4 6000 MW 9000 MW 11000 MW 12000 MW
5
US PV Installations per year 500 MW 800 MW 1200 MW 1800 MW
Total Wind + PV 6500 MW 9800 MW 12200 MW 13800 MW

US DOE 1.7% 111 MW 167 MW 207 MW 235 MW

Lux Research 10% 650 MW 980 MW 1220 MW 1380 MW

Capital Cost / MW6 $2,000,000

Capital Investment, millions Low $ 221 $ 333 $ 415 $ 469

High $ 1,300 $ 1,960 $ 2,440 $ 2,760

Based on this estimate, the energy storage market in US alone driven by renewable
energy alone could be between US$0.5 billion and almost US$3 billion annually by 2012.
As US is lacking behind other areas in renewable energy installations, it can be
assumed that the potential world market for energy storage driven by renewable energy
alone could reach more than US$12 billion by 2012.
If natural gas and oil prices increases significantly again, which is highly likely, the case
for energy storage will be even stronger as the cost of the alternatives will go up.
Because of utility conservatism and project durations, it is more likely that there will be
an initial delay in project starts and most of investments will materialize towards 2012
rather than now.
The initial market for energy storage will most likely be in areas where the grid is small
(i.e. the super capacitor installation in Hawaii7 and NiCd installation in Alaska8) and high

4
Ryan Wiser and Mark Bolinger, “2008 Wind Technologies Market Report”, Lawrence Berkeley
National Laboratory, July 2009
5
Extrapolation based on 360MW installed in 2008 with an annual growth of 50%
6
The capital cost / MW is derived from Electricity Storage Association and does not differentiate
between type of application and technology.
7
Project: Lalamilo Wind Farm, Big Island, HI; Customer: Hawaiian Electric Company, Inc

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penetration of wind power (a number of projects being planned in Japan, US, and
Europe). However, frequency support is starting to be a viable business model here in
US as well.
Regulatory Issues Pose Barriers
In the United States, regulatory issues pose some barriers to deployment of storage
systems. In the competitive electricity markets, public utility commissions require that
energy and ancillary services be provided by unregulated entities like independent
power producers. This means that energy storage technologies like NAS batteries
deployed by regulated utilities for grid support (improved reliability, deferral of
transmission upgrades) cannot be used to provide energy and ancillary services to the
market. Without access to the full spectrum of values that a storage technology makes
possible, investment in storage will be limited to say the least. This is just one example
of the need for new market rules and business models. However, there is some
movement in US in that respect. The New York Independent Service Operator (NYISO)
and the Midwest-ISO recently approved and incorporated the use of “limited energy
storage resources”

8
Project: Fairbanks, AL; Customer: Golden Valley Electric Association

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