Introduction
This summer, in a seaside town on the California coast, Vistra Energy announced a 300 megawatt battery energy storage project at its Moss Landing Power Plant, about 30 minutes outside Santa Cruz. If all goes according to plan, it will be the world’s largest lithium ion battery, with enough capacity to power 80,000 homes for a full day starting in 2020. The goal is to help alleviate the volatility and unpredictability in California’s solar production, which has reached about 15% of the region’s daily demand and up to 35% during peak production hours.
This planned facility is one of several giant battery storage projects being undertaken on the West coast, and comes on the heels of other positive developments in battery technology news. Tesla recently installed a 100 megawatt battery in Australia, which has reduced the country’s reliance on inefficient peaking units in the hottest months of the year and represents an encouraging case study in the feasibility of large scale battery projects. For California, these projects are part of a larger effort mandated by the state’s legislature to reshape the state’s electricity sources, requiring 50% renewables by 2030 and potentially 100% renewables by 2050 as the state legislature has proposed. Especially since the state has shown a reluctance to invest in nuclear and carbon-sequestration technology, this push for no-carbon generation will rely nearly entirely on utility scale wind and solar plants. Given the notorious unpredictability of energy production that is tied to weather patterns, a system that can meet the entire population’s demand at any time of any day will require many more of these large scale storage projects to smooth out power demand over the coming decades, and the design choices made now will have lasting impact on the cost and reliability of the electrical grid.
Energy Storage Technology Overview
Lithium-ion batteries are not the only option when considering large scale energy storage. In fact, the largest storage capacity currently used in the US is pumped-hydro energy storage, where cheap or excess power during low load hours is converted to gravitational potential energy by pumping water up to a higher elevation. Then during high demand periods, that water flows back the other way, converting its potential energy back into electricity with about 80% efficiency. This is a very mature technology, reliably providing generation smoothing to grid dispatchers for 50 years or more. Currently the US has 22.5 GW of pumped hydro installed, compared to about 0.5 GW of all other installed storage systems (California’s four proposed battery projects will approximately double this everything else category). However, it is difficult to scale pumped-hydro output any further, as it requires access to massive amounts of water and can be very disruptive to local ecosystems. The most feasible locations, such as the Hoover Dam, have already been implemented, and thus the installed capacity has remained unchanged for decades.
Another energy storage system in development is the flywheel, a large low-friction wheel that stores energy in its rotational momentum. With smart design, these systems can reach very high efficiency, with recent pilot projects reaching 95% conversion. Additionally, these systems are very responsive, allowing for microsecond control in output level, compared to the 10-20 seconds in hydro output adjustment. While at-scale versions of these facilities do not have the ecological downsides of a hydro plant, their size can become prohibitive, and the potential for catastrophic failure could be risky near the high population areas where they would be most needed.
Given these considerations, batteries are widely seen as the most viable solution to the future of energy storage systems. Their main advantage is in very high energy density, with the versatility to be implemented nearly anywhere in the country. The challenge is their high maintenance cost, as they typically only last for a few thousand cycles and then must be refurbished or replaced every 5-10 years. However, as more projects are completed, improvements to the design and materials may reduce these maintenance costs.
California Supply and Demand
If indeed batteries are the technology of the future, used to regulate the grid as more renewables are added, the choice of battery design will have a drastic impact on the success of California’s shift in electricity production sources. The main challenge arises from the heavy seasonality in renewable production and electricity demand level. This next plot shows the total amount of generation and demand as a fraction of their peak megawatt hours per month.
As seen above, each fuel source has its own seasonal pattern, varying in output levels across the year. Solar output tracks most closely with demand, as the summer months have the highest air conditioning load. Wind and hydro, however, reach peak output in the winter and spring months, when electricity demand is the lowest, and begin to decline rapidly right as summer demand begins to ramp up. Therefore, as renewables begin to reach a higher penetration into the grid, far more storage is needed to save power until it is needed in the peak season. That’s not even to mention the volatility in daily or hourly demand; should a record heat wave sweep the West coast in July, outstripping installed battery output, additional emergency systems will need to be in place if blackouts are to be avoided. All of that together turns out to be a rather expensive system.
Battery Infrastructure Cost Model
To get a sense of the magnitude of the cost of this infrastructure, we can estimate how much storage is required as a function of renewable penetration. According to the 2017 EIA data, the California system had a minimum monthly consumption of 73,100 gigawatt-hours in February and a maximum of 102,900 gWh in July, with a mean of 85,500 gWh across all months. As an approximation, let’s assume renewable technology will replace traditional generation until the average annual production meets the average annual demand. The difference between the max demand and the mean demand represents how much storage is needed to be able to save enough energy from the low load months to the high load months. Multiplying this capacity by the increase in renewable penetration percentage estimates how much battery capacity is needed. This assumes no growth in load over the years and a starting renewable fraction of 30%. For example, getting to 50% renewable generation would require (102,900 - 85,500) x (0.5-0.3) = 3480 gWh of storage capacity. At current lithium-ion battery prices (400 $/kwh), such an installation would require a whopping $1.39 trillion dollar investment. Assuming an optimistic 15 year lifespan on that investment, this would add $92 billion per year to the cost of generating California’s electricity. Going to 100% renewable would require an even further eye-popping sum of $225 billion per year!
Comparing this calculation to other studies, it seems this is likely a gross overstatement of the actual cost of getting to 50% renewables. A study commissioned by the state of California in 2015 found that getting to 50% renewables under the current plan will cost about $10 billion per year over the 15 years. This is because they do not plan to use a full battery array to save all the excess energy in the winter and use it in the summer; instead, some of the other non-renewable generation will sit idle when prices are too low and return when prices are high and generation is needed. However, as these fossil fuel units are phased out on the road to 100% renewables, my assumption will be closer to correct as battery storage is needed to make up the difference. For further assurance, a 2016 study from The Clean Air Task Force, an energy policy think tank, created a more sophisticated model that adds in ancillary costs such as transmission upgrades and emergency systems, and estimates that a 100% renewable system would cost California approximately $370 billion per year - even more expensive than my result!
Bending the Cost Curve
Despite this unpalatable top-line cost prediction, there is reason for optimism. The largest input into any such model is the assumed cost of the necessary battery storage. Hopefully over the next 30 years, significant improvements to the technology can substantially reduce the investment required. According to a recent Bloomberg study, large scale lithium-ion batteries have decreased in price by an average of 14% per year from 2007-2014. Other similar examples, such as silicon microchips, indicate a percent cost reduction per year can appropriately describe efficiency gains in high tech manufacturing costs. Using my simple model of required battery resources, I have constructed a yearly cash flow model in Excel to investigate the sensitivity of these cost estimates to the percentage of cost reduction in battery storage year-over-year.
The end result shows a dramatic sensitivity of the total cost of this project. The plot below shows the summarized results in cumulative dollars:
Even a 5% per year reduction in the cost of batteries begins to significantly bend the cost curve, cutting the total cost from $8 to $3 trillion over 35 years. Wow! The kink in the lines’ slopes around year 2030 is due to the lifespan of each battery; after 15 years, the first batteries from 2015 must be replaced with new batteries, in addition to the new batteries needed to replace the retiring fossil fuel generation. However, with a percent cost reduction in place, the replacements will be much cheaper than the original installation.
We can convert these total costs to an annualized cost over the 35 year process and evaluate how changing the renewable penetration target affects the annual cost.
Here you can see more clearly how investment in battery technology can flatten the cost slope as the state raises its renewable percentage target. Extrapolated out to the entire country, such investments will pay for themselves quickly if we are serious about widespread clean energy. To get there, we need leaders in this country willing to stand up for the environment and drive investment in energy storage technology.