From interconnection to market structures, U.S. power grid operators are grappling with an onslaught of battery storage development, which has boomed due to the critical need to shore up variable renewable energy.
Two states — California and Texas — account for the vast majority of installed battery storage capacity in the U.S., which has grown from 1.6 GW in 2020 to more than 14 GW by the end of 2023. The trajectory is only expected to continue.
“There was nothing. Now, we’re chasing our…” said Sai Moorty, principal of market design and development at ERCOT, the Texas grid operator.
Moorty joined a panel of regional grid operators at POWERGEN International 2024 in New Orleans alongside CAISO market design sector manager Danny Johnson and Michael DeSosio, a consultant who previously served as the director of market design at NYISO.
Battery storage growth in ERCOT can be largely attributed to a streamlined permitting and interconnection process, as opposed to procurement mandates in states like California and New York.
And while batteries have captured much of ERCOT’s ancillary services market, sustained growth could be predicated on market adjustments, Moorty said. Price volatility in energy-only ERCOT creates uncertainty for developers, while the surge in predominately 1-hour batteries creates operational challenges for the grid operator.
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Moorty said a capacity construct, which is under consideration, may be the key to incentivizing longer-duration battery storage development.
“We have good scarcity pricing, our price gaps are really high, but do they last long enough to justify the additional capital investment?” Moorty said. “Lacking (capacity payments), we’re going to have to wait.”
Other potential pitfalls concern state of charge requirements, which determine the amount of power that must be stored in a battery at a given time.
Moorty acknowledges that a state of charge rule issued by ERCOT last year may be viewed by some battery storage developers as discriminatory to the technology. He said the rule is the product of rapid growth and an imperative to adapt to an evolving grid.
“We just don’t have experience with batteries,” Moorty added. “In ERCOT, we’re playing catch up right now.”
California, the U.S. leader in battery storage deployment with 7.3 GW of nameplate installed capacity, is the country’s most formidable market, thanks to capacity payments, broad participation opportunities, and a sizeable procurement mandate.
There are still “significant” challenges facing grid operators, according to Johnson of CAISO. State of charge management tops the list, he said.
“It’s finding the right balance of flexibility for asset owners to utilize and bid-in their assets as they see fit, while also ensuring that, as a grid operator, those assets will be able to perform as dispatched and we can maintain reliability,” Johnson added.
Another, forward capacity planning for battery storage, still eludes grid operators.
The traditional process of adding up total capacity to meet peak load in the coldest or hottest times of the year doesn’t easily incorporate an asset like battery storage, which has to charge in order to serve the grid.
“The traditional stack analysis goes out the window with storage,” Johnson said. “You have to make sure that they have the ability to discharge the energy. When are you charging? How does that get factored into capacity planning?”
New York State’s 194 MW of installed battery capacity pales in comparison to the totals boasted by California and Texas. But near-term capacity constraints, paired with a 3,000 MW energy storage target, present attractive opportunities for developers.
DeSocio, who now leads the consultancy Luminary Energy, said an indexed energy storage credit construct under consideration in New York is a good start. The program would marry capacity payments with energy arbitrage, which at present isn’t economically attractive enough to incentivize storage deployment in the state.
DeSocio advised developers to avoid New York’s retail market, which treats batteries as native load, triggering demand charges.
“There is a whole lot of pressure to get new resources built,” DeSocio said. “The opportunity for storage is two-fold: maximize wholesale revenues (capacity and ancillary services) and offtakers.”
Originally published in Power Engineering.