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1 March 26, 2012

2 What does the Long Term Energy Plan (LTEP) say about Electricity Storage? The mid term supply picture Overview of storage technologies with some Ontario examples Challenges to entry and Sustainability Market, Institutional and Regulatory challenges Economics, Costs and Market pricing Summary - What s needed to drive electricity storage 2

3 Mandate: Ensure reliable, cost-effective, sustainable electricity supply for Ontario Key activities: Long-term power system planning Coordinating conservation efforts Procuring new supply 3

4 The Government of Ontario developed a LTEP in 2011 that guide s policy and decision making for Ontario s electricity sector. It was created to serve as a framework to build a clean, modern and reliable electricity system for Ontario. What the LTEP says about storage (11/23/2010) Identifies potential for firming renewables Growing opportunities for all types of energy storage There are some issues with energy storage High capital costs Many are in demonstration phase. Very few have reached commercial operation and are sustainable without subsidies. Long lead times for larger installations. What the Supply Mix Directive says about Storage (2/17/2011) Consider energy storage to meet operability and reliability needs (mitigating surplus energy periods, available for ramping, etc.) Energy storage solutions should result in real benefits to ratepayers and the system 4

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6 Relatively simple concept, pump water to an upper reservoir overnight and use that water to generate power during more expensive periods during the day (designed to cycle daily). Not a new technology, but very few sites have been developed in the last 20 years due to cost and pricing barriers in the market (Beck PGS an example) Proposals to build new pump hydro facilities have been gaining interest in the U.S. and Canada PROS CONS Proven Technology Relatively high capital costs Ability to store large amount of energy Require large capacity facility to reduce cost (economy of scale) Secondary Benefits - Capacity, Ramping, Frequency Regulation, SBG Mitigation Can have environmental issues similar to conventional hydro 6

7 CAES plants use electricity to compress air into a storage system using off peak electricity. When electricity is needed and the natural gas generator runs during the day, the high pressure air is withdrawn. Compared to a combustion turbine, such plants burn about 1/3 the fuel and produce about 1/3 of the pollutants per kwh There are only 2 known sites in the world that are in commercial operation. In late 2009, the US Department of Energy awarded smart grid matching grants for the construction of 150MW/10-hour and 300MW/10-hour second generation Advanced CAES units in New York State and California. Advanced units expected to have lower capital costs and lower operating costs than the first generation plant design Advanced CAES plants using below ground storage are expected to be less expensive than pumped hydro plants. Those using above ground storage are expected to be less expensive than battery storage and attractive for short-term storage. 7

8 Lead acid batteries are the most commercially mature rechargeable battery in the world. Advanced lead acid is being developed for peak shaving, frequency regulation, wind integration, solar smoothing and automotive applications Sodium sulfur (NaS) batteries are commercially mature used in distribution networks, wind power integration and in remote community/island applications. Flow batteries work by converting chemical energy into electricity. Flow batteries charge and discharge rapidly, and they have a long lifespan. Lithium-ion batteries are commonly found in electronic devices but being positioned to be the leading technology platform for electric vehicles. The high energy density and relatively low weight of Li-ion systems make them an attractive choice for areas with space constraints Also being considered for Distributed Energy Storage 8

9 Flywheels are shorter energy duration systems that are not generally attractive for large scale grid support applications. They operate by storing kinetic energy in a spinning rotor made of advanced high strength materials that are charged and discharged through a generator Flywheels charge by drawing electricity from the grid to increase rotational speed and discharge by generating electricity as the wheel s rotation slows. Because flywheel systems are fast responding and efficient, they are being positioned to provide ISO frequency regulation services. A Toronto based company (Temporal Power) is developing a flywheel that they claim will hold 95% power for 10 hours compared to current technologies from Beacon Power that can hold a charge for approx. 20 minutes. 9

10 Hydrogen (early developments) Thermal energy storage (can be used for cooling and heating largest contributor currently in service) Many battery storage developments Underwater compressed air energy storage Ontario examples Pumped hydro (Ontario Power Generation, Northland Power) Batteries (Electrovaya) Flywheels (Temporal Power) Hydrogen (Hydrogenics) Compressed air storage (Hydrostor) 10

11 Source: Electricity Storage Association 11

12 Source: Southern California Edison - Approach to Evaluating Energy Storage 12

13 Existing storage facilities (at least in Ontario) are treated like end users when they are withdrawing energy from the grid and like generators when they are generating. Since system costs are ultimately assigned to loads, they bear the system costs when they are buying, and get paid the wholesale price when they generate. Current market institutions (i.e. ISO s) are unable to recognize the full value that storage facilities can contribute to the electricity system. The greatest value could be realized if projects were operated by system operators as a system resource to provide ancillary services or other services and overall value to the customer. In competitive wholesale markets such a role for the system operator is inconsistent with its independence, the cornerstone of which is to insulate it from any commercial dealings. 13

14 -Commercial Availability -Cost of Options -Capacity Contribution -Planning Margin Technical E.g. Reliability -Solid Waste -Water Use -Land Use -Radioactivity -Greenhouse gas emissions -Air contaminant emissions Environment al -Share of household income spent on electricity bill -Affordability Social -livelihood opportunities -Expected change in costs for different customer types -Cost to customer and bill impacts Economic NOTE: The indicators in yellow are used in today s planning process, the ones in white are being considered for future use. (examples) Indicators Criteria Principles To plan for a reliable, cost-effective and sustainable electricity system in Ontario To provide advice and plans that consider both technical and sustainability factors (example)

15 Electricity storage can store renewable generation to be used at more efficient times, which would reduce the carbon emissions from other generation like natural gas Electricity storage can re-use the same fuel over and over again in some applications (e.g. closed loop pumped hydro) Electricity storage along with renewable generation may be able to play a larger role in remote communities where some are currently supplied by diesel generators for their electrical power 15

16 Regulatory agencies have not yet defined ownership structures and flexible business models in which storage can be used for both generation and grid uses (revenue streams from both). Regulatory approval of storage projects requires that the facility provides a benefit to consumers commensurate with its cost. In evaluating these facilities, regulators should consider all of the benefits, not just those that are readily monetized Regulators need to recognize the benefits offered by electricity storage projects and be open to proposals by utilities for the development of these projects where consumer benefits can be demonstrated. Utilities need to do a good job at demonstrating to the regulator the value of electricity storage. 16

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18 One economic barrier for storage technologies comes from their higher capital costs relative to other options. These projects can appear riskier to lenders. Some generation projects have high initial capex up front and lower variable costs (nuclear, wind and storage) while others have lower initial capex but higher variable costs (natural gas) There isn t really a mechanism right now by which value can be realized by the utility and shared with the storage developer. 18

19 Difference Between cost of off peak and on peak energy Gas Prices (currently at 10 year lows) Carbon Prices Surplus Energy (projected to peak in 2015) Storage Costs Capital, O&M and charging costs Efficiency losses Penetration levels of variable renewable energy Wind and solar integration costs Curtailment frequency and duration Transmission and Distribution system constraints (deferrals) Penetration of Storage (value of regulation and other services) 19

20 Capacity payment to share the value produced by deferring the investment (e.g. transmission). This would be similar to Reliability Must Run ( RMR contracts which are used for generation assets which are needed for local area support. System operators often have contracts with RMR units when these units are needed for reliability related services. Therefore the RMR framework is a possible model for electricity storage. One question would be whether there should a special tariff for storage systems. 20

21 Assumptions 200 MW capacity, 1000 MWh 80% efficiency Cost is $2,000/KW ($2 million / MW) or $400 million Assumes no costs above wholesale charges (no DRC, no uplift, no IESO fees, no demand charges for pumping on peak) Does not consider other revenue streams such as capacity payments, ancillary services (operating reserve, frequency regulation, etc.) 45 year payback using 2011 data (undiscounted) Year Avg. of 6 Lowest Prices (HOEP) Avg. of 6 Lowest Price at 80% Efficiency Avg. of 5 Highest Prices (HOEP) Avg. operating profit per MWh Expected operating profit per MWh for 1 year Expected operating profit for 1 year using this example 2011 $16.22 $20.27 $44.64 $24.37 $8,900 $8,900, $24.37 $30.46 $51.42 $20.96 $7,700 $7,700, $14.78 $18.47 $47.09 $28.61 $10,400 $10,400,000 21

22 Results from the large number of demonstration projects should reveal real world performance of new energy storage technologies and whether they provided the services they were designed to provide. Existing or Planned demonstrations across North America include the following: CAES, Flywheel, Lithium-ion, Advanced lead-acid, VRB Flow Battery, Advanced Pb Acid, NaS Battery, NiCd, ZnBr, FeCr Flow Battery, SMES, Capacitor, Zinc Magnesium Oxide Battery, Soluble Lead Flow Battery, Hydrogen Bromine Flow Battery, Lithium-Sulphur Battery, Magnesium Ion Battery, Fuel Cell, Metal Air Ionic Liquid, Zinc Air Flow Battery and Lithium Air, New Pump Hydro designs Distribution utilities, Large commercial and industrial customers and the MUSH (municipalities, universities, schools and hospitals) sector are uniquely positioned to support energy storage applications because they can test, evaluate and deploy applications in different sections of the electricity value and supply chain, and ultimately monetize the benefits of the various applications. 22

23 Good news: FERC pay for performance require ISOs and RTOs to compensate fast-acting energy resources, like flywheels for example, more favorably than inefficient traditional means like fossil resources. ISO s are more open to changing rules to accommodate storage Some challenges: Technology development doesn t always happen in a straight line. Along the way there may be a lack of funding, lack of adoption, lack of need or use of application NGK Insulators Halts NAS Battery Production After Fires (October 28, 2011) Ener1, the parent company of battery maker Enerdel files for bankruptcy (January 27, 2012) but expected to emerge from bankruptcy later in Beacon Power Completes Landmark Project, Files for Bankruptcy (October 31, 2011) - being purchased by Rockland Power Partners 23

24 Deployment in high value areas Research, Define, Develop Action Plan Production and Simulations, Demos & Trials, Test, Validate and Integrate, Measure Performance Goals Storage as part of Distribution Planning Activities Demonstration that technology meets the needs it was designed for 1 2 years 1 2 years 1 2 years 24

25 Stay the course charted in LTEP and outlined in Supply Mix Directive decide on further procurements in 2012 Continue to narrow the uncertainties related to storage projects by: Understanding and monitoring customer based storage solutions Tracking advancing development in technology and economics Fully understand the value opportunities for electricity storage Improve power quality, peak shifting, ancillary services, T&D capacity deferral, operability benefits such as mitigation of surplus energy Optimize the use of existing storage assets (Beck PGS) and explore storage opportunities with neighbouring markets (Quebec and Manitoba) 25

26 Needs to be cost effective and demonstrates that it provides the values it was designed to provide (follow storage through the phases of development, piloting, learning, etc.) Recognition of the inherent value in electricity storage the benefits that are easily quantifiable and those that are not as easy to quantify (e.g. flexibility) Programs designed to facilitate electricity storage participation (e.g. frequency regulation contracts that are specifically designed for new technologies) Recognition and financial compensation for the benefits that energy storage plays in transmission investment deferral, ramping, mitigation of surplus energy, integration of renewables and flexibility. Changes in how energy storage is charged when consuming energy (e.g. special tariff that exempts storage from load charges). Funding to support early development, piloting, demonstrations, etc. OPA to continue advising on the value and need 26

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28 EPRI, Electricity Energy Storage Technology Options, A White Paper Primer on Applications, Costs and Benefits, December 2010 NREL, The Role of Energy Storage with Renewable Electricity Generation, January 2010 EPRI, Compressed Air Energy Storage Executive Summary, August 2010 Power Advisory, Economic and Market Barriers to the Adoption of Energy Storage Projects for Renewable Energy Integration Prepared for NRCAN, March 2010 Southern California Edison, Moving Energy Storage from Concept to Reality, Approach to Evaluating Energy Storage, 2011 KEMA, Market Evaluation for Energy Storage in the United States, January 2012 Electric Perspectives, New Demand for Energy Storage by Dan Rastler, September/October