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Three Reasons Oncor's Energy Storage Proposal Is a Game Changer

Early last week, Texas transmission and distribution company Oncor announced a proposal to install 5,000 megawatts of battery energy storage on the Texas grid.

This article was published in Scientific American’s former blog network and reflects the views of the author, not necessarily those of Scientific American


Early last week, Texas transmission and distribution company Oncor announced a proposal to install 5,000 megawatts of battery energy storage on the Texas grid. The words “game-changing” get thrown around a lot about energy storage projects—usually prematurely. But in this case I think there are some clear reasons why Oncor’s proposed deal could be a game-changing development for grid battery energy storage:

1. Size matters

Oncor’s proposal calls for installing thousands of battery systems ranging from the size of a fridge to a dumpster around the state with a combined power capacity of 5,000 megawatts and a combined energy storage capacity of 15,000 megawatt-hours. These numbers sound big, but what do they mean, really? Let’s put them in context.


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According to the U.S. Department of Energy’s Global Energy Storage Database, there are currently approximately 28,500 megawatts of energy storage operating across the entire United States. Of these 28,500 megawatts, the vast majority (26,600 megawatts) is pumped-hydro energy storage. All batteries combined make up just 540 megawatts, so Oncor’s proposal would increase the total U.S. battery energy storage capacity almost ten-fold—all in one state and on one grid.

Installing so much energy storage on one state’s electric grid could fundamentally change how the grid operator schedules power plants to meet electric demand. According to the Electric Reliability Council of Texas (ERCOT), Texas’s grid currently has a total electric generating capacity of approximately 69,000 megawatts. This amount is enough to provide electricity to every customer on the grid and keep a little capacity in reserve just in case. Oncor’s proposal would place an additional 5,000 megawatts of energy storage capacity into ERCOT, increasing the grid’s instantaneous generating capacity by over seven percent and significantly reducing the burden of meeting peak summer electric demand. Moreover, because batteries can quickly charge or discharge to balance generation with load and renewables, Oncor’s proposal would give Texas’s grid operator the capability to instantaneously increase or decrease total electricity generation by at least seven percent to keep the grid balanced—even with lots of renewable energy installed.

2. A new grid storage business model

You might ask how Oncor could possibly justify a total price tag of $5.2 billion on its ambitious energy storage project. Today, it is very difficult for any form of energy storage to compete with conventional generation in wholesale energy markets. It is simply cheaper to turn on another natural gas plant at peak-demand hours than it is to meet that demand with energy stored in a battery or other device.

Oncor does not dispute this fact. A Brattle Group report commissioned by Oncor shows that if the proposed energy storage were owned solely by an independent power producer participating in Texas’ market, it would not pay off.

The results…show that the wholesale market benefits of storage alone are limited in comparison to storage costs. This discrepancy between benefits and costs is also consistent with the fact that private investments in storage have been minimal to date: the wholesale market value that can be captured is well below current storage costs, which still exceed $500/kWh.

Storage can’t recoup its capital costs in wholesale power generation markets alone—but storage is not simply a generator. By temporarily storing electricity, strategically placed battery storage facilities can help some nodes of the electric grid ride through short-term periods where they would otherwise be overloaded. By doing so, energy storage can help Oncor reduce the amount of money it invests in new transmission lines (which cost about $1 million a mile in equipment alone), reduce the amount it invests in distribution infrastructure (e.g. transformers, substations, etc.), and improve the overall reliability of its system.

To capture both transmission and distribution (T&D) benefits and electricity market benefits from energy storage the Brattle Group proposes a new regulatory framework and business model that enables Oncor to install battery storage for T&D purposes, capture the T&D benefits, and then auction off excess energy storage capacity to qualified electricity market participants on a real-time basis.

To my knowledge, Oncor and Brattle’s proposed business plan is the first practical proposal that overcomes energy storage’s split incentive problem between merchant power generation in the market and T&D infrastructure support.

3. Public finance to match the scale of Oncor’s vision

The incentive between generator-level energy storage applications and T&D applications is split because electricity “unbundling,” which mostly occurred in the late 90s, forced a legal separation between generation companies, T&D or “wires” companies, and electricity retailers, breaking up previously vertically-integrated monopolies. In Texas, the wires companies, which build the power lines we all use, are still monopolies regulated by the state, while electricity generators and retailers are competitive.

Oncor is a wires company. It is a regulated monopoly that owns and operates approximately 119,000 miles of power lines across Texas and over 3 million customer smart meters. When Oncor wants to invest in new transmission lines or new distribution infrastructure, it makes a case to the Texas Public Utility Commission, and then the state decides whether or not to finance Oncor’s request. The state raises money to pay Oncor for new T&D infrastructure through electric “delivery charges” that are added to all retail electricity bills in the state.

Because Oncor is a wires company regulated by the state, it cannot directly participate in the wholesale electricity generation market by law. With its proposed business model, Oncor hopes to capture the T&D benefits of adding energy storage and then auction additional energy storage capacity not in use to independent power producers that can legally offer storage to the wholesale electricity market.

Put together, Oncor argues that the realized T&D benefits plus income from auctioning energy storage capacity to qualified independent power producers justifies its investment in distributed energy storage for the Texas grid. Analysis from the Brattle Group projects Oncor’s proposal would cause the average Texas residential electric bill to fall slightly (34 cents) due to T&D infrastructure savings and income from the proposed energy storage auctions. At the same time, grid reliability and flexibility would increase.

If the Texas Public Utility Commission agrees with this assessment, Oncor could secure billions in capital from the state to make its ambitious project a reality. Oncor already has a notable ally: State Senator Troy Fraser, R-Horseshoe Bay, who chairs the Committee on Natural Resources and led Texas’s electricity unbundling reforms in the 90s. As he told the Dallas Morning News:

If you have power sitting in reserve, that’s a game changer. I think the bottom line is going to be every one of us who are elected has constituents. If I show them a way for their electric bills to go down and reliability to go up, those people are going to like it.

Is an unprecedented energy storage deployment on the horizon for Texas? That depends on the Public Utility Commission. Regardless, I think it is clear Oncor’s proposal has the potential to fundamentally change how we make and distribute electricity in the future.

 

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Robert Fares is a AAAS Science and Technology Policy Fellow at the U.S. Department of Energy Building Technologies Office. The views expressed are his own and do not necessarily reflect the views of the U.S. Department of Energy.

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