2015 Altran Battery Storage White Paper

Philip E. Clark Mgr. Business Development July 2015

Energy Storage:

Transforming Power And Utilities Markets

White Paper

2015 - Altran, North America – Philip E. Clark 2

Table of Contents

1. Introduction 3

2. State of the Electric Industry 4

3. Energy Storage Services and Benefits 7

4. Applications and Configurations of Energy Storage Systems 10

5. North America Power Market Applications 11

6. Which rechargeable battery technology is best suited for storage? 12

7. Energy Storage – Market Research & Venture Capital Funding 14

8. Methods for Evaluating Electric Storage 16

9. Energy Storage Business Models 17

10. Storage Decision Diagrams 18

11. Storage Batteries: A 3rd Growth Market 19

12. Storage Economics and Synergies 20

13. Department of Energy (DOE) Storage Database 23

14. Credits 24


Introduction Altran, NA an engineering and consulting firm based in Burlington, MA with a focus

on utility services for power delivery, power generation and oil & gas, has started to

see a shift in the industry model relative to new utility projects and capital

budgeting allocations. The Electricity Grid is being influenced by a variety of new

forces, which affects the future growth and management of the grid. These drivers

include:

• Growing use of natural gas to power electric generation

• Low load growth

• Energy Efficiency

• Demand-Side Management Programs

• Deployment of renewables (PV/Wind/Hydro/Tidal and Battery Storage)

• Retirements of coal and nuclear plants

• Increased Independent Power Producers (IPP) & Distributed Generation (DG)

• Severe Weather Conditions and Climate Change

• Seasonal Load Pocket Requirements

• Federal and State Reliability Standards (NERC CIP)

• Cyber attacks

• Solar (PV), Micro Grids and Electric Vehicles

Altran, NA Power Delivery and Power Generation group provides a full offering of

engineering services for many utility companies, IOU, electric cooperatives and

municipalities as well as Independent Power Producers (IPP). We believe batteries

and energy storage will be critical in a newly envisioned future for electrical energy

and power delivery. It is our intention to provide information on the numerous

options, models, technology and research available to our client base.


State of the Electric Utility Utility executives are confident in

the industry’s growth, but they

also expect to see new models

approaching. Long seen as a

threat, (or the death spiral)

distributed energy resources may

well become the biggest driver of

industry growth, according to many of the utility professionals. While we hear

frequent grumblings about the so-called “death spiral,” utilities view distributed

energy as a massive opportunity. With the rapid proliferation of distributed energy

resources comes the need for utilities to better understand and engage with their

customers. For the first time, new competitors such as rooftop solar companies are

threatening to intermediate ratepayers from the utility. It’s not surprising that

utilities view the customer relationship as another big opportunity.

The opposite of distributed energy — centralized generation — seems to offer little

promise of future revenue to utilities. Once a profit center, central station power is

viewed by only 8% of utilities as their biggest growth opportunity. Those utilities

least interested in centralized generation tend to do business in the deregulated

regions of the country where regulated utilities cannot own power plants.

The utility industry has extensive pressure on capital budgets and has higher utility

commission regulatory requirements to improve reliability and customer services.

Most regions are seeing customer expansion without the ability to service them

without rate increases. On the distribution circuits, upgrades are needed and many


utilities have sought alternative solutions, Energy Storage or Battery Storage has

emerged. One traditional profit

center remains a constant for

utilities: transmission. Stringing

together wires is a utility expertise

and comes with a federal

guaranteed ROI. Demand for transmission has heightened in recent years for

several reasons: the need to improve reliability, replace old lines, connect wind and

solar farms to the grid, accommodate fluctuations in population, and access less

expensive energy resources. Utilities make tremendous profits on transmission fees

to its downstream clients including municipalities and electric cooperatives. Electric

Cooperatives and Municipalities have sought relief from these transmission fees by

using in-state capacity.

Many utilities are

contemplating how they can

fold these varied

opportunities into a

coordinated business

strategy. National Grid’s

Connect21 strategy is one

such example: It proposes that utilities build a resilient grid backbone to help meet

policy goals for renewables and distributed energy resources. Utilities then get paid

for achieving the goals, many related to saving energy and incorporating cleaner

resources.

Credit: Utility Dive


Moving from one profit center to another is not

easy for utilities since they must justify

investments to regulators. If utilities leave the

centralized generation business behind to

provide customers with services like distributed

solar and energy efficiency, regulators must

enable them to adopt new business models.

That’s beginning to happen in certain areas of the country, which may be part of

why many utilities now see distributed energy as a significant growth opportunity.

New York regulators are contemplating radical changes through the Reforming the

Energy Vision (REV) proceeding, which would create a marketplace for the buying

and selling of distributed energy.

Utilities see opportunity in new technologies, but there is no proven model yet for investment and cost recovery. Renewable Portfolio Standards are the biggest drivers of utility investments in

renewables. The greatest

challenge for the utility industry

may be its greatest opportunity.

The vast majority of utilities see

distributed energy resources as an

opportunity. The sentiment is near

universal across the country. The

numbers never dipped below 70%

in any region we surveyed. It’s


clear that utilities want to find ways to incorporate distributed energy into their

business models rather than letting competitors own the sector. But while there is

clearly money to be made in distributed energy for utilities, there are operational

hurdles to overcome, policy

disputes to settle and no proven business model in sight. Of the utilities that see

an opportunity, the majorities are not sure how to build a business model around

distributed energy resources. For the most part, utilities favor the more traditional

approaches of partnering with independent third-party vendors and making

regulated investments. Nearly half of the utilities surveyed are willing to try the new

and more daring approach of buying power from customer-sited distributed

energy.

Energy Storage Services and Benefits The evolution of battery storage extends back to 1990 and much technological

advances have been made leading to the commercialization we are experiencing

today. One of the Ancillary Services listed below, Black Start, which provides an

active reserve of power and energy within the grid can be used to energy T&D lines

and provide station power to bring power plants on-line after a catastrophic failure

of the grid.

Electric Storage Services and Benefits Bulk Energy Services Distribution Infrastructure Services

Electric Energy Time-Shift (Arbitrage) Distribution Electric Supply Capacity Upgrade Deferral

Voltage Support

Ancillary Services Customer Energy Management Services Regulation Power Quality

Spinning, Non-Spinning Reserves Power Reliability Voltage Support Retail Electric Energy Time-Shift

Black Start Demand Charge Management Islanding

Transmission Infrastructure Services Transmission Upgrade Deferral Transmission Congestion Relief

Credit: Sandia Labs


Energy Storage Services and Benefits

Service System Size Target Discharge/ Duration

Minimum Cycles/Yr.

Function Characteristics Benefit

Bulk Energy Services Arbitrage 1-500 MW <1 hour 250+ Time-shifting Variable

operating cost affects round-trip

efficiency

Support PV and Wind Generation

Supply Capacity 1-500 MW 2-6 Hours 5-100 Defer Central Station

Generation

Location Specific Flexible duration; market

mechanism

Ancillary Services Regulation 10-40 MW 15 mins-1 HR 250-10,000 Regulation Rapid Response:

fast ramp rate Access to and response to either ISO

signals Spinning Reserve

(Synchronized) Non-Spinning & Supplemental

Reserve

10-100 MW 15 mins-1 HR 20-50 Spinning Reserve can be used for generation

shortfall

ES for reserve capacity does not discharge at all; services used for

transmission outage

Maintain frequency for the grid; discharge

only when needed

Voltage Support 1-10 MVAR N/A N/A Offsets reactive efforts

Enables transmission

system stability

Can allow multiple VAR

support resources near

large loads Black Start 5-50 MW 15 mins-1 HR 10-20 Provides

power after a system failure

Useful in the case of a catastrophic

event

ES can provide charging current

and start-up power

Load Following 1-1000 MW 15 mins- 1 HR N/A Can be used to firm

renewable resources

time shifting capacity

Requires access to the ISO’s AGC

Used to meet contractual

market bidding obligations

Transmission Infrastructure

Upgrade Deferral 500KW-10 MW 2-8 HRS 10-50 Delays necessity to

upgrade

Reduces immediate cost

External equipment life extended (i.e.:

transformers and underground

cables) Congestion Relief 1-100MW 1-4 HRS 50-100 Discharges

during congestion

Reduces and/or eliminates

congestion-related costs

May only require a few hours of

support per year

Transmission Stability Damping-

Sub sync Resonance Damping

10-100MW 5 Sec-2 HR 20-100 Increase dynamic stability

Real and/or reactive power modulation at

sub-synchronous frequencies

Allows for higher levels of series compensation.


Energy Storage Services and Benefits

Service System Size Target Discharge/ Duration

Minimum Cycles/Yr.

Function Characteristics Benefit

Distribution Infrastructure Services Upgrade Deferral 500KW-10MW 1-4 Hours 50-100 Delays

upgrade investments,

allows for replacement of stressed

components

Delays costs: extends the

system’s operational life by

years

ES can provide distribution

benefits with limited or no

need to discharge

Voltage Support 500KW-10MW 1-4 Hours 50-100 Delays upgrade

investments, allows for

replacement of stressed

components

Delays costs: extends the

system’s operational life by

years

ES can provide distribution

benefits with limited or no

need to discharge

Customer Energy Management Services (Behind the Meter) Power Quality

(Power Reliability) 100KW-10MW 10 sec-15 mins 10-200 Monitors

quality and discharges to

smooth disturbances

Protects customers from future quality

issues

Protects sensitive processes and

loads at the customer’s site. Can be treated as demand side charge for either

customer or electric utility.

Retail Energy Times-Shift

1kW-1MW 1-6 Hours 50-250 Charge during off-

peak, discharge on-peak

when costs are elevated

End-Users reduce their overall energy costs

Time of Use (TOU) options available for prevailing

wholesale price

Demand Charge Management

50 kW-10MW 1-4 Hours 50-500 Reduction of demand

during peak periods

specified by utility

End user reduces overall costs by

reducing demand during peak

periods

Demand charge offset available for customers.

Credit Sandia Labs


Applications and Configurations of Energy Storage Systems Energy storage allows flexibility to utilities and 3rd party technology providers

allowing the location of storage, specific to batteries to in the “load pocket” or

adjacent to a substation.

Credit: Convergent E+P


North America Power Market Applications According to GTM Research for electricity systems, the main likely benefits of

increased deployment of energy storage can be grouped under four headings:

1. Peak capacity: This is the ability of stored energy to be provided to the

system during peak hours. In such a scenario, storage would effectively be

replacing a peaking gas-

fired plant. The storage

technology used for such a

role would need to be able

to ensure 100% availability

at peak times.

2. Time shifting: This is the

ability of energy to be stored when produced during low-cost hours (for

example, during the night when demand is low or when the wind speed is

higher or the sun is stronger) and then provided to the system when prices

are higher. Although in certain cases this could look similar to the peak

capacity provision function, it is of lower priority with regards to system

needs and is of particular value for energy systems with high renewables

penetration, which could cause power prices to even be negative (generators

paid to stop producing) depending on the weather conditions.

3. Spinning reserve/ancillary services/back up supply/frequency regulation: This

is the ability of storage to be used for grid services such as providing

emergency supply if some generation capacity becomes unavailable or

balancing short-duration imbalances.


4. T&D investment deferral/T&D support: This is the ability of battery storage to

offload transmission or distribution lines and therefore delay or potentially

even cancel (depending on the load growth scenario) the need for an

upgrade or replacement of the existing T&D capacity as well as improve

overall transmission stability.

Which Rechargeable Battery Technology Is Best Suited to Storage? Lead-acid, lithium-ion, sodium-sulfur (NAS), and Redox flow batteries are

rechargeable batteries that can be used for energy storage. Currently, lithium-ion

and Redox flow batteries are the leading candidates to become mainstay storage

batteries.

Currently, lead-acid

batteries are widely used by

industry as storage

batteries: in offices,

factories, and base-stations

as backup power sources or

during cuts to consumption

at peak demand periods.

But lead-acid batteries

place a heavy burden on

the environment, while their cost is unlikely to decline significantly as the

technology is mature, and charging/discharging is slow. Different battery

technology is needed for power system storage batteries. Lithium-ion batteries are

probably the best option, in our view. Depending on the materials used, they can

have a long lifespan, be extremely safe, and cope with small changes in power


output. Lithium-ion batteries is the technology most likely to be used for storage

batteries because a certain level of production know how and cost competitiveness

has already been acquired in the development of consumer electronics and auto

batteries and they

can easily be

adapted for

various

applications.

There is huge

potential for

lithium-ion

batteries to be

developed for

office and

residential use

because of their compactness and simplicity.


Energy Storage Market Research and VC Funding Battery storage is a new technological advancement that can tie together all the

other disruptive changes that are seen in the energy markets, both on the

commodity front (coal, oil, gas)

and on the utilities end, over the

past decade. On the one hand,

storage is going to create a new

revenue stream for technology

companies, but on the other it

could permanently alter the

utilities’ business models, with very

negative repercussions for conventional power generation and end-user supply,

only partially offset by new opportunities for regulatory asset based/ rate based

growth and energy

services

development.

We estimate that a

reduction in system

costs of battery

storage to

$230/MWh, which is

possible within 7-8

years, combined with


solar generation, would make self-consumption financially attractive in a number of

developed economies. That should further accelerate development lowering

system costs toward $150/MWh, thus eliminating subsidies. We estimate up to a

240GW global market for energy storage by 2030 (>$400 billion), excluding car

batteries. (Credit: GTM Research)


Methods for Evaluating Electric Storage Depending on the targets that battery storage will be utilized to achieve, as well as

the installation cost of each storage unit, battery storage can be located on any part

of the value chain: generation, distribution and end-customer. According to a 2000

report from the Sandia National Laboratories and sponsored by the US Department

of Energy, “if storage were very inexpensive and efficient, it would all be located at

customer sites”. However, this would assume adequate space in each house, a

larger number of storage units than under other scenarios, and substantial costs

associated with the maintenance of the multitude of decentralized storage units. As

such, the optimum mix according to the report would be for storage to be located

primarily at the distribution level, which resonates to us.

The sharp drop in installation costs for renewables and particularly solar is starting

to marginalize conventional generation in certain parts of the world and particularly

Europe. It has also started raising expectations about the full de-carbonization of

electricity markets, with Germany already having an ambitious target in place to

reach 55-60% power generation from renewables by 2035 and 80% by 2050. These

two factors of 1) increased growth in renewables and 2) reduced utilization of

conventional generation have brought storage technologies to the forefront of

recent discussions on the future of electricity markets. As a market for storage

grows, we expect that costs will show a similar path to that of renewables, creating

a virtuous circle of increased deployment and lower system costs.


Storage Business Models

Credit: Sandia Labs


Storage Decision Diagram

Credit: Sandia Labs

Credit: Sandia Labs


Storage Batteries: A Third Growth Market The Department of Energy (DOE) believes storage batteries will be the third major

driver of demand for

rechargeable batteries after

the consumer electronics and

auto battery markets. Storage

batteries are being

incorporated into renewable

energy systems and smart

grids. In Japan, power

shortages became a serious

national issue after the March

2011 disaster and interest in storage battery systems as a way of stabilizing power

supply is increasing. The market for storage batteries is embryonic and unlikely to

affect investment behavior any time soon, given its small size. However, the long-

term potential is substantial. In our view, and as the market gathers real momentum,

we expect large benefits for related companies.

Tesla – Power Wall – Home Battery Storage


Storage Economics and Synergies Depending on the targets that battery storage will be utilized to achieve, as well as

the installation cost of each storage unit, battery storage can be located on any part

of the value chain: generation, distribution and end-customer. According to a 2000

report from the Sandia

National Laboratories,

sponsored by the US

Department of Energy,

“if storage were very

inexpensive and

efficient, it would all be

located at customer

sites.” However, this

would assume adequate

space in each house, a

larger number of

storage units than under other scenarios and substantial costs associated with the

maintenance of the multitude of decentralized storage units. As such, the optimum

mix according to the report would be for storage to be located primarily at the

distribution level, which resonates to us. The estimated overall nameplate capacity

in the US will rise modestly from 1,090GW in the end of 2013 to 1,115GW by 2020.

Within that, however, the contribution from renewables (wind and solar) should rise


from 5% to 13.5% as particularly coal plants and less so nuclear and gas lose market

share. By 2030 we forecast renewables (excl. hydro) to rise to 20% of US power

generation capacity. This is a bit more aggressive than the EIA 2014 Energy

Outlook, which calls for renewables to be 17% of US generation capacity by 2030

under its reference case. Adding also Canada, Figure 10 below shows our

expectations for the North American fuel mix by 2030.

In a 2010 report prepared by Sandia National Laboratories for the US DOE Energy

Storage Systems Program, each

possible application of electricity

storage is analyzed for its maximum

potential. The highest potential is

identified in the areas of time-of-use

energy costs management,

transmission congestion relief, load

following and renewables energy time-shift and capacity firming.

There is, however, substantial overlap between each potential application for

electricity storage; for example, transmission congestion in the future could well be

driven by increased penetration of renewables, both of which issues could be

addressed with electricity storage systems. Therefore, summing the potential for

each application would give us an exaggerated figure for the size of the storage

market in North America. Moreover, individual states in the US have their own

electricity systems, which have different rules (e.g. capacity vs. energy markets),

targets (e.g. renewables penetration), demand profiles (e.g. residential vs. industrial

usage) and generation mixes. CA regulatory move to spur batter storage could set


a new precedent in other US states. The most seen non-overlapping potential is in

transmission support and renewables integration. Combined, the estimated market

potential of 47GW for energy storage requirements by 2030. This is towards the top

end of the 30-55GW range that the IEA estimated for 2050 in its “Prospects for

Large-Scale Energy Storage in Decarbonized Power Grids” working paper in 2009,

but we think the faster penetration of renewables since then justifies that increase.

Furthermore, the IEA report was focusing solely on storage as a method of

renewables integration.

On these numbers, 22GW of those storage needs can be covered by the existing

hydro pumped storage capacity, leaving 25GW or 173GWh of daily storage needs

(assuming 7 hours’ utilization) that could be addressed by battery systems by

2030E.


Global Department of Energy (DOE) Storage Database

The DOE Global Energy Storage Database provides free, up-to-date information on grid-

connected energy storage projects and relevant state and federal policies.

Website: http://www.energystorageexchange.org


Credits

- Department of Energy – Energy Storage Database - GTM Research - Greentech Media - Utility Dive - Deloitte - Energy Resources Group - Sandia Laboratory - ABB – The Future of Energy Storage Beyond the Batteries - Convergent Energy + Power - Citibank GPS – Global Perspectives and Solutions - Citi – Energy Darwinism II – Energy Storage Game Changer for Utilities

2015 Altran Battery Storage White Paper

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