California and Texas increasingly rely on storage to balance the grid. Other states will follow.
Wind power and photovoltaics require storage to ensure supply
“The future is already here — it’s just not very evenly distributed.” That observation, from the great science fiction writer William Gibson, often provides a useful framework for thinking about technological change. It certainly seems to be relevant to the fast-evolving US power grid today.
Lithium-ion batteries have long been seen as a key technology for maintaining the stability of electricity grids increasingly reliant on solar and wind power. But until recently, this use case was talked about more as a future prospect than an immediate reality.
This year, however, grid-connected batteries in parts of the US, particularly California and Texas, have started to play a significant role in helping to balance the system, shifting load away from the times of day when the net load is heaviest to times when it is lighter.
In much of the US, batteries are not yet performing that crucial load-shifting role. But California and Texas are pointing the way to the future for other US power markets, and other countries around the world. As the share of variable renewable generation in electricity supply grows, the value of battery storage rises.
California is where the contribution made by battery storage systems is greatest. On the CAISO grid, which serves most of California, output from battery storage last week hit a new record high of 7.5 gigawatts for a few minutes around 7.40pm on May 16. That is actually higher than the record output from wind on CAISO, which hit a peak of 6.4 GW two years ago.
California’s stationary storage capacity has soared in recent years, rising 20-fold from 500 megawatts in 2018 to more than 10.3 GW today, with a further 3.8 GW planned to come online by the end of 2024, according to the state’s energy commission.
The build-out of solar power, which is most productive around the middle of the day and in the early afternoon, has created California’s notorious “duck curve”, with net load lowest during those hours and highest after sunset. Net load on CAISO is often negative, and earlier this month, it hit a new record low of minus 5.3 GW, at around 1.20pm Pacific time on the afternoon of 5 May.
In those circumstances, it makes excellent sense to charge batteries during periods of oversupply and discharge them in the evenings. At those times of peak excess supply, wholesale power prices are often negative.
Business models for stationary storage have typically been based on the provision of ancillary services such as frequency regulation, responding quickly to fluctuating conditions to keep the grid stable, rather than shifting load through the day. Now that is changing.
“In CAISO, we’ve definitely moved from storage being primarily justified for grid services to energy arbitrage: net-load smoothing,” says Chris DaCosta, Wood Mackenzie’s research manager for CAISO and the Western grid region.
A similar shift is emerging in Texas. As in California, output from battery storage on the ERCOT grid in Texas reached a new record this month, discharging about 3.2 GW at around 8pm Central time on May 8. Like California, Texas has been adding new stationary storage capacity at an accelerating pace. In 2022, about 1.17 GW of battery output capacity was installed in Texas. In 2023, it was about 2.66 GW, and this year we expect it to rise again to 3.56 GW.
Storage is the second-largest technology in the queue for interconnection to the grid in Texas, at 37% of the total as of the end of last year, only slightly behind solar. Gas-peaking capacity made up just 1% of the queue, and combined-cycle gas-fired plants just 3%.
Robert Whaley, Wood Mackenzie’s director for North American power, wrote in a note last year: “Storage provides unique characteristics that gas capacity cannot duplicate in the face of a growing duck curve in the [Texas] system.”
Combined-cycle gas-fired plants cannot be held in reserve to run only in the evenings, and peaking plants may not be able to turn on quickly enough if wind output drops suddenly.
In much of the rest of the US, the economics to support load shifting don’t yet line up the way they do in California and Texas. But as other grids become more dependent on solar and wind, that will change.
Falling costs for lithium-ion batteries will also help support the economics of stationary storage, even with the increased tariffs on battery imports from China announced by President Joe Biden last week. The total system price for stationary storage in the US last year was about US$320 per kilowatt hour of capacity. In 2028, we expect that to be about US$265/KWh, including the impact of the tariff.
There are further cost declines on the horizon, thanks to changes in battery chemistry. China’s first major energy storage system using sodium-ion batteries was reported to have come on stream two weeks ago. China Southern Power Grid, which owns the new facility, said the costs of sodium-ion batteries could be cut by 20% to 30% once they go into mass production.
Wood Mackenzie expects battery storage in the US to grow faster than either wind or solar over the coming decade. We think that annual battery storage installations in the US, which were a little under 9 GW last year, could be over 20 GW by 2030.
Lithium-ion batteries and their close cousins, sodium-ion batteries, are far from perfect for energy storage systems. They can generally discharge for only a few hours and are inadequate for uses that require reliable power for longer. Corporate buyers such as Google and Microsoft know they cannot rely on a combination of wind, solar and lithium-ion storage to provide 24/7 clean energy. They are looking at a range of other technologies, including enhanced geothermal, advanced nuclear, low-carbon hydrogen and new battery chemistries.
Ultimately, there is a good chance that some other technology developed specifically for long-duration storage, such as Form Energy’s iron-air batteries, will become the industry standard.
But while lithium-ion may not be the right batteries forever, they are the best batteries for right now. The industry’s rapid growth, led by demand for electric vehicles, has helped drive down costs and made lithium-ion batteries a viable solution for stationary storage. That gives them a lead in the marketplace that will take time for competing technologies to close.
The long-term future of storage may still be difficult to predict. But the short- and medium-term future, with continued dominance and growing sales for lithium-ion batteries, seems clear.
Ed Crooks
Vice-Chair, Americas
Ed examines the forces shaping the energy industry globally
