How giant batteries can help states reduce emissions

WASHINGTON—In Southern California, where an extreme energy shortage has threatened for months to shut off power for millions of homeowners, an unconventional source of electricity is helping to keep the lights on: giant batteries.

Thousands of lithium-ion battery packs—the same kind of batteries that power smartphones and laptops—were installed in massive containers in a handful of spots on the grid earlier this year, from San Diego to Los Angeles. The batteries are now helping power tens of thousands of households.

This kind of quick, mass installation of batteries wouldn’t have been possible in most places. But California had been preparing for years by requiring utilities to connect energy storage to the grid, and funding energy storage projects. Now, as the cost of batteries plummets, officials in other states are looking to follow California’s lead.

State legislatures and utility commissions in about a dozen states considered new laws and rules this year aimed at giving the burgeoning—yet mostly unregulated and undefined—energy storage industry a clear path forward. This includes clarifying rules for who can own storage and how it can be installed, requiring utilities to include storage in their long-term plans, as New Mexico and Washington are considering this year, and even setting targets for how much storage utilities need to buy, as Massachusetts did last month.

States see energy storage as a way to reduce carbon emissions and electricity costs. Energy stored on the grid, for example, can be switched on during times of high demand when electricity is more expensive, such as when people get home from work, eliminating the need for additional power plants to be turned on.

The more states rely on wind and solar, the more they will need to find a way to bottle up some of the energy produced when the sun is shining and the wind is blowing, to be used later when the sun sets and the wind dies down.

“You know you’re going to need it,” said Jason Burwen, policy and advocacy director of the Energy Storage Association. “But regulators just aren’t sure how to treat it.”

Some state initiatives look to give the market a boost. Massachusetts created a new $10 million grant program this year, on top of an initial $10 million investment, for energy storage projects. Oregon clarified that energy storage qualifies for renewable energy financing deals. And Maryland became the first state to create a tax credit for homeowners and business owners who store electricity for later use.

The market is at a turning point, said Ravi Manghani, energy storage director at GTM Research, an energy advisory firm. Costs of lithium-ion battery packs have fallen by about three-quarters since 2011, from $1,000 per kilowatt-hour to under $250, according to the company’s data. Most of this drop was fueled by the increased demand for electric cars, which forced manufacturers to find a way to make cheaper, more efficient batteries. Analysts expect the price to drop in half again from 2016 to 2020.

As costs continue to decline and state officials become more interested, storage installation will skyrocket, Manghani said.

As of last year, 221 megawatts of energy storage had been installed on the U.S. grid. The firm expects that to increase to 395 MW this year and to 2,567 MW by 2022. By comparison, a typical U.S. coal plant has a capacity of 547 MW. On average, a 1 MW battery could power about 500 households, according to Burwen.

“State agency and regulators are waking up and realizing the untapped potential of energy storage,” Manghani said.

The ability to store energy in a cost-effective way has been the turning point for many technologies, such as electric vehicles and smartphones. Storing energy for electricity is not new—hydropower plants, which store energy generated by dams, have been around for generations. But to use that technology, you have to have the space and money to build a dam.

Stored energy can be turned on and off quickly to meet demand and help stabilize the amount of electricity flowing through the grid. But it’s unclear how much these services are worth, making it hard for utilities to know how much they can make from setting up storage capacity. As a result, some utilities have pushed back against requirements that they buy storage.

California enacted the first mandate in 2010, requiring utilities to buy 1,325 MW of storage by 2020. Last year, lawmakers added 500 MW to that target. Oregon also enacted a mandate, with a less ambitious target.

Massachusetts considered setting a requirement, but decided to instead set a target for how much energy utilities should store on the grid. In New York, a bill awaiting the governor’s signature would do the same. Nevada enacted a law to study whether a requirement is in the public’s best interest.