Editor's note: This article completes the Storage Plus series profiling the most exciting energy storage markets in the world. You can find the previous coverage here.
No global storage journey could be complete without a stop at the birthplace of modern grid storage, the United States.
This market kicked things off a decade ago with a regional opening for batteries to deliver fast frequency regulation. Since then, ambitions and opportunities have grown. Several states have committed to decarbonizing their electricity sector, singling out energy storage as a necessary tool for delivering that goal. Solar developers are finding economic cases where slapping batteries on their plants makes the whole thing more valuable. Electric vehicle adoption could soon swamp all the battery capacity installed for stationary grid use.
Many of our readers will be familiar with the broad strokes of these developments. Different insights emerge, however, when viewing a familiar subject with fresh eyes.
My series of foreign market examinations provided a new analytical framework, explaining the rise of storage with variables like geographical constraints, market designs and political milieus. In contrast, we have covered the U.S. market piecemeal, as trends and projects arise.
Stepping back to the national level, it's clear that the U.S. has built the most diverse mosaic of a national market, inventing and testing more uses for storage technology than any of the other nations. That decentralization enhances innovation while hindering the rapid adoption of policies and market structures across state lines.
Frontier thesis
The United States occupies a swath of territory stretching 2,700 miles from the megalopolis of the Atlantic seaboard to the stunningly beautiful, often paradisal climes of the West Coast.
Some 326 million people inhabit this land in a range of dense urban communities, sprawling commuter suburbs and exurbs, and sparse settlements nestled in rural tracts or the human-wildland interface.
The grid lacks the isolation that enhances the value of storage in the U.K., South Korea and Australia. There are many diverse markets within U.S. borders with which to exchange electricity, not to mention ties to Canada in the north and Mexico in the south.
The pre-eminent geographical grid constraint, rather, is just how big an expanse there is to cover. Historian Frederick Jackson Turner famously theorized that the ever-expanding Western frontier sculpted the nation's national character. Westward expansion over sprawling terrain also influenced the shape of the electric grid.
As such, the U.S. has built a patchwork of regional grids rather than a unified national one. Texas functions quasi-independently, with limited interconnection to the rest of the country.
That system worked swimmingly for the decades since an American scientist and inventor first popularized the creation and distribution of electricity. Load was growing, socialized capital was easy for utilities to come by, and greenhouse gases were out of sight and out of mind.
In the last 30 years or so, deregulation broke open monopoly utility control over most of the Northeast and mid-Atlantic, plus Texas. Pollution controls on plants ramped up, followed by attempts to reduce climate changing emissions. Renewable energy plummeted in price and went from a subsidy-taker to a low-price-setter in several major markets.
These changes have stressed the legacy grid unequally. The islands of Hawaii faced grid-balancing challenges sooner than other states, because they have to balance solar production within a small radius. They stopped rooftop solar installations unless they included batteries to self-consume, and the biggest utility announced a 1,048-megawatt-hour storage portfolio procurement in January.
Elsewhere, the intermittent renewables have more routes to take when they come rushing in. The problem is more one of long-term distribution: how to get the wind power from the most productive regions (West Texas, the Midwest, off the coasts), and solar from the Sun Belt (the Southwest, Florida) to the load pockets that need it, when they need it.
Transmission lines incite fierce local opposition and take years to develop. The balkanization of power markets makes interregional exchanges more difficult than they could be. Meanwhile, renewables keep winning contracts, coal and nuclear plants keep retiring, and lawmakers keep refraining from crafting a proper national energy strategy.
First uses
When people talk at a high level about energy storage in the U.S., they tend to frame it as the “holy grail” that will overcome the structural shortcomings of the physical grid and transmogrify sunlight and wind into nighttime power, unlocking a 24/7 clean energy system.
That robust vision is, at best, many years off.
Today’s batteries cannot last long enough to reliably replace gas plants for on-demand capacity. Some advocates for deep decarbonization argue that dominant lithium-ion technology will never be able to balance super-high penetrations of renewables at a remotely feasible price point.
In any case, most storage operating today performs the less flashy but nonetheless useful task of ancillary services, namely, frequency response. The regional grid operator and wholesale market PJM kicked that off a decade ago, but lost steam when market rules updates slashed compensation and jeopardized new project economics.
A growing number of sites in California deliver local capacity to offset gas capacity constraints, like the Aliso Canyon gas leak and gas plant retirements driven by poor economics and state policy.
A smaller number of sites across the country offset more expensive transmission and distribution upgrades.
Recently, battery prices have dropped to the point where they sometimes don’t outweigh the value storage adds to solar plants. A raft of headline-grabbing project announcements will turn into power plants in the coming years.
In the longer term, storage developers and some analysts believe they can make a run at gas plants for capacity. This is vital for closing the circle on a clean grid: Otherwise, “going green” means throwing away gigawatts of midday solar and burning gas when the sun goes down, in the manner of California.
The key obstacle to that vision is the limited duration of batteries, whereas gas plants can crank as long as they have gas to burn.
The penetration of small residential batteries has grown tremendously in the last two years. Now, instead of installing hundreds per year, the U.S. installs thousands. They rarely make economic sense for homeowners, but then again, how many home gadgets do?
The commercial storage market has stayed small and lumpy in recent quarters, concentrated almost exclusively in California, which coincidentally offers the best incentives for small-scale storage. Industry players insist that the demand-management value for businesses is real, and that batteries can really deliver, and in a few years they may prove that elsewhere in the field.
Land of many markets
The first rule of U.S. energy policy is there is no U.S. energy policy. For all practical purposes, decision-making happens at the state level, and in some places at the regional level. Interstate matters go to the Federal Energy Regulatory Commission, sure, but FERC's role is to adjudicate rather than set the vision.
Instead, energy policy falls to the states, which means business models that work for energy storage in one state might have no purchase just next door.
Some states are regulated, with old-school vertically integrated monopolies producing and delivering power, under the supervision of a regulatory commission. To do business there, storage developers have to work with the utilities (see Arizona and North Carolina).
In deregulated markets, utilities manage the wires that deliver the power, but electricity generation is walled off in competitive markets.
There is an upside to all this decentralization, as far as climate change is concerned. When President Trump came to office vowing to bring back coal, he proceeded to demonstrate how little ability the executive branch has to affect sweeping change to power markets nationwide.
In the immediate term, decarbonization will proceed based on state and local policy, as well as the sheer economic competition of wind and solar (with some batteries thrown in too).
Essential U.S. markets to watch
PJM
This mid-Atlantic regional grid kicked off the storage boom with its RegD product, a fast frequency response that batteries were uniquely suited to compete for.
That prize kicked off a boom that led to more than 260 megawatts of cumulative deployments. However, the grid operators later rewrote the rules to dial back the compensation that short-duration batteries get for participating, and new builds all but dried up.
PJM has come to symbolize the dangers of building an industry around a single market rule, which is always susceptible to change. Developers haven't given up on the market completely, though.
California
The shining state by the sea picked up the mantle from PJM, issuing a 1.3-gigawatt-by-2020 storage deployment mandate to its major utilities in 2013. The early work proved prescient when the largest natural-gas leak in U.S. history left Southern California low on that power plant fuel, and the storage industry delivered dozens of megawatts in less than four months to shore up local capacity.
California piled on other policy drivers. The Self-Generation Incentive Program lowers the price customers pay for residential and commercial storage. Regulators started objecting to new-build gas plants when cleaner alternatives, including storage, could work instead.
And last year, the state passed SB 100, which mandates an end to carbon emissions from electricity by 2045. Storage is widely expected to play a major role in that, and developers already cite the law as a reason for focusing on this market.
Arizona
California’s storage record is both impressive and hard to replicate: Few states are as willing to invest the way that state has, or to foot the bill to become an early adopter.
Look instead to Arizona, where the state offers little or no policy encouragement to decarbonize, the energy regulators come from a conservative state political landscape, and the regulated utilities are building gobs of solar and storage because it makes economic sense.
Arizona Public Service, the state’s largest utility, built a landmark non-wires alternative battery to maintain reliability in the remote desert town of Punkin Center; that cost less than half of the traditional wires upgrade. It awarded a peak power contract to First Solar’s solar-plus-battery bid, which beat out conventional gas plants. And just last week the utility announced it will add another 850 megawatts of storage by 2025, through a mix of new builds, retrofits on existing solar plants, and contracting for third-party-owned facilities.
The other utilities, like Tucson Electric Power and the Salt River Project, are pushing ahead too. The state's major solar home population could also turn into a major home battery customer base; APS is testing out a pilot rate for that.
ERCOT
Texas runs a pure energy market, like Australia. It does not pay plants to be online in a pinch; it trusts that a spike in the price per megawatt-hour will incentivize private actors to bring supply to the market.
That’s not great for storage just yet, and very little has been built in this very big market. But, if a developer can figure out how to monetize the swings in the market, there will be fewer procedural barriers to entry than most other states — you don’t need to win a lengthy utility procurement to get started.
New York and Massachusetts
These states have prioritized storage in their clean energy policymaking, laying the groundwork for growth to come.
New York Governor Andrew Cuomo set a storage target of 1,500 megawatts by 2025 and called for an analysis of the oldest and dirtiest peaker plants, in order to selectively replace them with batteries.
One hurdle: The New York City fire department remains cautious about permitting lithium-ion, thus far blocking the dominant battery technology from this major market and load pocket.
Massachusetts recently finalized a solar incentive called SMART, which includes a per-kilowatt-hour adder for generation connected to storage. Governor Charlie Baker proposed and signed a clean peak standard, to ensure a growing share of peak hour electricity comes from clean sources. He also addressed the Energy Storage Association’s annual conference in Boston last year, displaying an unusually sophisticated grasp of storage's capabilities.
These two states are in a race to kick-start a storage economy in the Northeast.
Policy on the horizon
The hot item at FERC right now is Order 841, which called on regional grid operators to create mechanisms for storage to participate in wholesale markets based on its unique abilities, like being able to both charge and discharge. Completion of this effort should open up major new markets for storage to participate in, although the ultimate impacts will hinge on the details of implementation.
The hotter policy in Washington right now is the Green New Deal, which rocketed climate and clean energy policy to the top of the political agenda this year.
The GND resolution calls for a 10-year mobilization to convert the U.S. to emissions-free electricity, while cleaning up industry, agriculture, housing and transportation. The resolution doesn’t address storage head on, but this technology would play a vital role in delivering on the goals (make the sun shine at night, etc.).
No climate agenda will advance while Republicans control the Senate and the White House, which pushes legislative action back to at least 2020. The Green New Deal, though, has already galvanized state and local action.
Los Angeles Mayor Eric Garcetti cited the term earlier this month when he committed to ending natural-gas generation in the city. Cuomo announced a Green New Deal for New York in January, incorporating the concepts of a just transition and carbon-free power. Political pressure is mounting in other jurisdictions too, and several governors came to power in 2018 running on clean energy platforms.
The more jurisdictions go this route, the more customers there will be for technology to make renewables dispatchable, opening up another new frontier for storage.
