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Powering the Future Grid: Energy Storage

October 28, 2018
Resilience. It’s the new buzzword going around the U.S. electricity sector, and it’s defined by an electrical grid’s ability to recover from major disturbances (read: cyberattacks and natural disasters). President Trump and Secretary of Energy Rick Perry have accordingly introduced plans to support struggling coal and nuclear plants because of their ability to store backup fuel on-site.

However, there is a new player in the resilience agenda, namely electric energy storage (EES). This technology can economically stockpile energy for use during grid failures and at a lower environmental impact when paired with renewable sources. Sec. Perry claimed “Battery storage changes the world, I will suggest, the same way that hydraulic fracturing and directional drilling has changed the world.”[1]

 Scientists, business people, and policymakers alike are starting to take notice. Battery capacity is expected to triple by 2021, with a majority of that investment happening in the Asian Pacific (South Korea and China in particular) and Europe.[2] In light of this global expansion, recent policy supporting energy storage’s entrance into the energy market have popped up in U.S. state and federal legislation as well.

The Science

There are many types of EES that are separated into families differentiated by the underlying physical mechanisms that store energy. For example, scientists have figured out how to store energy using compressed air, spinning flywheels, supercapacitors, hydrogen fuel cells, and even superconducting magnets. The most common storage method in the past has been pumped hydroelectric storage (essentially, pumping water to “charge,” and releasing it to “discharge.”) Lately, however, one technology has stood above the rest: the lithium-ion (Li-ion) battery.

Due to its high energy density, tumbling cost, and relative safety, the Li-ion battery is poised to compete with legacy technologies in several energy and power applications.[3][4] The best part about the battery is that it is modular; it can be sized for a variety of different uses. Smaller scale modules can be installed in homes, “behind-the-meter,” paired with residential solar or used in electric vehicles. Large scale battery projects can jump start power plants after a blackout, and store renewable energy for when the sun isn’t shining or the wind isn’t blowing, and more.


Image: Large scale energy storage project in Pullman, WA Source: Wikimedia Commons


The Finance

As EES becomes more cost competitive in different applications, it can access a variety of revenue streams. This discussion will focus on three:

  1. Energy arbitrage creates revenue when the battery plant buys and stores low-priced power during off-peak demand hours and sells that same energy back to the grid at a higher price during peak hours.
  2. Frequency regulating plants are compensated through the ISO/RTO for mitigating the momentary imbalances between energy supply and demand.[5] During high demand, the batteries supply power, and during high supply, the battery stores it.
  3. Participation in the capacity markets generates revenue through selling commitments for future energy demand, up to three years in the future at a price determined by auction.

EES will soon be able to access an extremely valuable revenue stream when they integrate into peaking capacity.[6] Currently, when U.S. energy demand “peaks”, or spikes up, small natural gas plants, called “peakers”, ramp up production to meet the demand. In accordance with supply and demand rules, when demand spikes, price jumps as well, making the peaking capacity market lucrative. EES plants can ramp up to meet demand even faster, at an increasingly competitive price.

Recent research has shown that storage is most valuable when it can access these different revenue streams at the same time, a practice referred to as value-stacking.[7] This involves optimization software that tells the batteries which markets to participate in to yield the highest profits.

However, there are still economic challenges that face Li-ion batteries. There are several different battery chemistries, even within the Li-ion subset. While many worry about a global shortage of lithium, many reports don’t expect that rising lithium prices will be a significant challenge in the coming decade. But the rising price of cobalt, another important battery element, is driving scientists and businesses to work with low-cobalt chemistries.[8]

The Politics

While lithium-ion battery module costs have decreased by more than an incredible 80% in the last decade, the price must come down even further to be consistently competitive.[9][10] Some believe that government support will allow prices to fall even further, while others believe that improved battery chemistries and supporting technology improvements will suffice.[11]


Image: Lithium-ion Battery Price Survey, 2010-2016 Source: Bloomberg New Energy Finance

Recent U.S. policy efforts to further energy storage have been mixed. It’s clear that Sec. Perry has supported storage in the past, but recent budget plans have drastically cut funding for the U.S. Department of Energy offices working with the technology.[12] Federal Energy Regulatory Commission (FERC) Order 841, however, allows energy storage to participate in the capacity markets and ancillary services markets.[13]

Indirectly, policy surrounding electric vehicles (EVs) and renewable energy will also impact battery storage success. In countries like India, China, and Germany, where renewables are projected to penetrate the market to a larger-than-average extent in the coming decades, storage will be critical to making energy dispatchable during low-renewable events.[14] If government further supports EV adoption, the demand for batteries (used in the cars) can also increase. It is becoming more apparent that renewable, EV, and storage technology will evolve together given their mutually beneficial relationship. 

In the short term, though, energy storage might face more of a challenge in the US. The US shale revolution has provided extremely cheap natural gas, slowing the renewables growth that complement storage demand. India, too, faces storage barriers. Even with its high solar energy potential, India will likely rely on low-quality lignite coal for the near future because of fuel’s political importance.


While the Li-ion battery has made huge strides economically, technologically, and politically, it needs further development to completely displace legacy technologies. Time, so far, has been EES’s greatest ally, and if past trends are any indication, the Li-ion (or a new electrochemical battery technology), will play a huge role in grid resilience, renewable energy integration, and electric vehicles.

Student Blog Disclaimer
  • The views expressed on the Student Blog are the author’s opinions and don’t necessarily represent the Penn Wharton Public Policy Initiative’s strategies, recommendations, or opinions.


  [1] https://www.platts.com/latest-news/electric-power/washington/us-does-perry-sees-storage-as-potential-holy-21437709

  [2] https://www.sciencedirect.com/science/article/pii/S1364032117306263

  [3] https://about.bnef.com/new-energy-outlook/

  [4] https://about.bnef.com/blog/lithium-ion-battery-costs-squeezed-margins-new-business-models/

  [5] https://en.wikipedia.org/wiki/Regional_transmission_organization_(North_America)

  [6] https://www.wsj.com/articles/big-batteries-are-taking-a-bite-out-of-the-power-market-1518431400

  [7] https://www.rmi.org/wp-content/uploads/2017/03/RMI-TheEconomicsOfBatteryEnergyStorage-FullReport-FINAL.pdf

  [8] https://www.greentechmedia.com/articles/read/battery-markets-and-metals-markets-have-officially-collided

  [9] https://about.bnef.com/blog/lithium-ion-battery-costs-squeezed-margins-new-business-models/

  [10] https://www.mckinsey.com/business-functions/sustainability-and-resource-productivity/our-insights/the-new-economics-of-energy-storage

  [11] https://www.mckinsey.com/business-functions/sustainability-and-resource-productivity/our-insights/the-new-economics-of-energy-storage

  [12] https://www.greentechmedia.com/articles/read/trump-budget-slashes-clean-energy-programs

  [13] https://www.ferc.gov/whats-new/comm-meet/2018/021518/E-1.pdf

  [14] https://www.iea.org/publications/renewables2017/


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