United States: Energy Storage: The Next Revolution In The Energy Industry?

There are many people who believe that energy storage is the "silver bullet" that will facilitate the modernization of the electric grid, including the integration of more energy from renewable sources into the electric system. Although energy storage can be a game changer, there is much that needs to be done to make the contribution of energy storage meaningful.

A December 2013 paper on Grid Energy Storage by the U.S. Department of Energy reported 202 grid storage system deployments in the United States, with a cumulative operational capability of 24.6 GW – which represents only 2.3% of total U.S. electric production capacity. However, an overwhelming 95% of that capacity is pumped hydro, which is a mature technology and exists on a utility-scale. This technology essentially involves pumping water uphill to high elevation reservoirs during off peak periods and when energy demand is high, the water is released to run back downhill through turbines. The remaining 5% represents technologies such as thermal energy storage, compressed air energy storage, batteries, and flywheels. Electrical and chemical storage technologies are still in the development or demonstration stages.

Although the economics of energy storage remain tenuous, the hope is that over time, new technologies and more efficient processes will yield significant cost reductions, akin to the decline the industry has seen in solar manufacturing costs over the last seven years. Only after the cumulative costs of renewable generation and storage match the cost of the baseload power, will renewable energy be considered to be on equal footing.

Because of its potential, energy storage is going to be one of the fastest growing sectors in the energy industry for the foreseeable future. Given the gridlock in our nation's capital, little further federal assistance is likely in the near term, aside from Department of Energy grants. States and power authorities are likely to be the biggest public proponents of energy storage systems in the coming days:

  • Last October the California Public Utilities Commission unanimously approved a mandate that requires the state's big three investor-owned utilities to add 1.3 GW of energy storage to their grids by 2020.
  • The New York market is characterized by similar features, including high demand charges and new storage incentives. The New York Independent System Operator allows energy storage to participate in day-ahead and real-time wholesale markets and was the first in the U.S. to implement rules allowing storage to participate in frequency regulation services.
  • Hawaii Electric, just days after its state's public utilities commission rejected its proposed integrated resource plan, issued a request for proposals for large scale energy storage systems able to store 60 to 200 MW.
  • And late last year the Puerto Rico Electric Power Authority, the island's main utility, released a set of minimum technical requirements aimed at stabilizing the island's grid that govern new power plants. Thus, all new green power projects must include minimum energy storage capabilities.

These initiatives are just the beginning. Much work and investment are being undertaken to develop cost-effective utility and distributed generation scale energy storage systems to ensure consumers an uninterrupted power supply. We are just at the beginning of the next energy revolution.


Jeffrey W. Meyers is the Chair of Stroock's Energy and Project Finance Practice. He concentrates on the development and financing of domestic and international energy projects and the acquisition and sale of interests in energy facilities and companies. Mr. Meyers has worked on energy transactions on five continents, but focuses on North America, Latin America, and the Caribbean. He has extensive experience in project structuring, and drafting and negotiating all operative project documents and financing documents for a broad range of energy projects. His energy transactional clients have included utility affiliates, independent power producers, governments, oil and gas companies, equipment manufacturers, and equity investors, among others.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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