WILL A REGULATORY ANOMOLY THWART THE NEXT “KILLER APP” FOR ADVANCED BATTERIES?
Written by James Greenberger on July 07th, 2010
Despite the attention that automotive applications for advanced batteries have received over the past several years, it is entirely possible that the next “killer app” for advanced batteries will be something slightly more mundane: community energy storage (CES). CES describes the installation by utilities of relatively small, 75-100 kWh, stationary batteries in individual communities downstream of substations and near the consumer. Current specifications for CES systems envision the use of lithium-ion batteries of a type that may be similar to what is used in automotive batteries, though other battery chemistries, such as advanced lead acid, might also be suitable. A quick back-of-the-envelope calculation indicates that widespread deployment of CES batteries by utilities in the United States would create a multi-billion dollar market—potentially larger than the market for automotive batteries.
CES would appear to have benefits for everyone. For utilities, CES would promise greater stability and reliability for local distribution systems. In particular, CES would facilitate the safe recharging of large numbers of EV’s and PHEV’s by consumers at any time of day, since power generated at times of low demand could be stored locally and used by consumers on demand. For consumers, CES would offer freedom from worry about time of day charging and not having a vehicle fully charged and ready to go when needed. (For all the talk about smart grid, consumers may strongly prefer to keep the consumer side of the meter dumb). For automobile companies, CES offers an opportunity to increase substantially the volume of automotive grade Li-Ion batteries manufactured each year. Greater volumes mean lower costs. Perhaps even more significantly, CES systems may be able to use advanced batteries that have been removed from vehicles after their useful driving life. If such a secondary market were to develop, the cost of advanced automotive batteries could be reduced dramatically.
One of the most important potential benefits of CES systems is their ability to act, when aggregated, as bulk storage, in much the same way as bulk storage technologies such as sodium sulfur batteries, pumped hydro storage and CAES. As the FERC noted in Western Grid Development LLC, 130 FERC ¶ 61,056 (2010), storage can be a substitute for transmission assets. Power storage can be managed to reduce transmission congestion thereby reducing the need for additional investment in new transmission lines and equipment. The significance of the Western Grid Development order is that it raised the possibility that storage assets could be subject to FERC jurisdiction and utility investments in such assets recovered through favorable cost-of-service rates from all that receive a benefit.
The problem with Western Grid Development, from the standpoint of CES, is that the order applies only to bulk storage technology—specifically to large 10 to 50 MW sodium sulfur batteries. CES systems, by contrast, are of much smaller size and are located about as far down into the distribution system as you can get without hitting a consumer. By law, the FERC has no jurisdiction over facilities used in local distribution. If FERC takes the position that rate recover rules do not apply to CES assets because they are located in the distribution system and benefit distribution, utilities investing in CES facilities may be unable to recover their costs from persons outside their own rate bases that nevertheless benefit from the bulk storage capabilities that the utilities’ CES facilities provide.
This regulatory anomaly poses a series challenge to deployment of CES. A utility that wants to acquire bulk storage capability may be more inclined to invest in bulk storage assets rather than in CES because cost recovery for bulk storage assets under FERC jurisdiction may be easier and more favorable. This would be a bad result for utilities and consumers. Utilities and consumers would likely benefit more from storage facilities that provide both bulk storage and distribution benefits rather than just bulk storage benefits alone. It would be a worse result for automobile companies and battery companies, which hope to sell into and benefit from a vibrant CES market. And it would be worst of all for the country, which desperately needs to do anything it can to bring down the cost of advanced automotive batteries so that the stranglehold of petroleum can be broken.
The FERC should permit utilities that invest in CES to recover a portion of their investments in those systems on the same favorable, cost-of-service basis that would be available to utilities investing in bulk storage facilities. It would be a shame if a regulatory anomaly thwarted a new stored energy “killer app” that would benefit advanced battery manufacturers, auto companies, utilities and consumers alike.
