Energy Storage Brief:

What is energy storage?

Simply speaking, energy storage is any asset that allows energy generated from any source to be stored for later use. As it pertains to the electrical grid, energy storage comes in five major forms: batteries, thermal, mechanical, pumped hydropower, and hydrogen. While approximately 90 percent of energy storage in the United States currently comes from pumped hydropower, the fastest-growing form of storage is battery technology.

Background: Balancing reliability with clean energy

The top three priorities of energy markets are the safety, reliability, and affordability of power supply. As the federal government works in tandem with states to modernize the U.S. power grid, a key concern for utilities, grid operators, and public utilities commissions is balancing reliability with the need for ever-increasing energy procurement. Wind and solar are the most inexpensive forms of new electricity generation, and they are also the two fastest-growing sources of renewable energy. Pairing wind and solar with energy storage offers an attractive solution for maintaining grid reliability in a cost-effective manner.

Power grid reliability has long been achieved using baseload power stations (natural gas, coal, and nuclear plants that can run 24/7) to meet minimum demand levels paired with “peaker” stations (traditionally smaller natural gas stations) that only come online during periods of higher demand. These peaker stations are “dispatchable” – they come online when they are needed to meet demand and go offline when they aren’t needed, however they are often the most expensive electricity on the grid over time.

Energy storage makes wind and solar installations dispatchable, capable of solving variability challenges and offering reliability to the grid. In fact, when paired with renewables, energy storage is cleaner, cheaper, and more reliable than the energy source currently generating the greatest share of U.S. electricity: natural gas.

Why is energy storage important?

It’s obvious that energy storage systems allow energy from sources such as wind and solar to be stored and used when the sun isn’t shining or the wind isn’t blowing, but energy storage systems can play other important roles within our grid system. Among these are:

• Grid balancing: Energy storage systems like batteries help ensure that available energy matches consumption. Storage systems do this by dispatching their stored energy to the grid during times of high consumption and replenishing themselves during times of low consumption.

• Frequency regulation: In order for the grid to provide usable energy to the end customer, electricity in the grid must run at a consistent frequency (60 Hz in the U.S.). Changes in frequency of even 1% can destroy household appliances as well as expensive manufacturing equipment. Since grid frequency fluctuates based largely on power demand (frequency decreases when demand is high and increases when demand is low), electricity providers work diligently to maintain consistent frequency in the grid by adding or removing power from the grid as demand rises and falls. Energy storage systems can add or remove electricity from the grid in milliseconds (orders of magnitude more quickly than traditional peaker stations) as demand rises and falls, keeping the frequency of the grid constant. 

• Black-start capability: In the event of a blackout or cyberattack that shuts down a power station or portion of the grid, energy storage systems have the capability to restart these assets.

• Energy arbitrage: Utilities buy and sell electricity from each other all the time. As you would with any investment portfolio, utilities prefer to buy power at a lower price (when electricity demand is low) and sell at a higher price (when demand is high). Just as energy storage systems help utilities mitigate their own demand peaks and valleys, they offer utilities the opportunity to sell stored energy when demand (and therefore price) is high and they don’t need that stored capacity themselves. This helps the utility better manage the energy prices they charge their customers.

What about cost?

The per unit cost of an energy-generating asset is measured using a method known as Levelized Cost of Energy (LCOE). In basic terms, LCOE is the average total cost of building and operating an asset (such as a gas plant, solar installation, or wind farm) per unit of total electricity generated over the asset’s lifetime.

According to Lazard, the Levelized Cost of Energy ($/MWh) for different types of dispatchable energy sources are as follows:

As you can see from the chart above, unsubsidized onshore wind and utility-scale solar paired with energy storage compete well on price per MWh with gas combined cycle plants and are far cheaper per MWh than gas peaker plants. When subsidized, they generally beat gas combined cycle plants. While subsidized rates are not available for the two gas options above, bear in mind that the United States spent $757 billion on implicit and explicit subsidies for fossil fuels in 2022.

Real world examples:

In recent periods of extreme cold, conventional generation comprised the majority of outages. For example, in its event analysis of Winter Storm Elliott in December 2022, regional transmission organization PJM reported that gas and coal plants accounted for 86 percent of the outages during the height of the storm on December 24, with all other sources accounting for the remaining 14 percent. MISO, another regional transmission organization, reported a similar situation, with gas and coal accounting for 76 percent of the outages on December 24.

In periods of extreme heat, similar trends have been observed. During the summer 2023 heat dome in Texas, power consumption reached an all-time high for ERCOT, Texas’ grid operator. ERCOT’s unplanned thermal outages during summer 2023 averaged 5,034 MW—nearly 2000 MW more than the average unplanned thermal outages forecasted by the grid operator earlier in the year. Meanwhile, wind, solar, and storage briefly met almost half of the load in Texas and consistently outperformed ERCOT’s projections for the duration of the heat dome.

Conclusion

Beyond producing energy from renewable, clean sources, wind and solar paired with storage offer many benefits to our electrical grid as well as the end consumer. As energy consumption across the country increases, energy storage offers the ability to instantaneously respond to peaks in demand while avoiding the need to build costly new natural gas peaker plants and the pipelines and other infrastructure that supports them. During periods of particular strain, such as extreme heat or cold, renewables combined with storage are often more reliable assets than traditional methods of meeting high demand. Finally, stored energy can be sold to other parties when the local distribution system does not need it. Wind and solar technology along with storage accomplishes these goals at rates that are competitive with or cheaper than other forms of energy production.