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Dharik S. Mallapragada
MIT Energy Initiative, Cambridge, MA
The economics of storage and its role in the energy transition
2
There is growing interest in deploying energy storage for more energy oriented applications,
with continued cost decline for battery storage and policy support
1. U.S. Battery Storage Market Trends, EIA, July 2020;
2. Cole and Frazier, Cost Projections for Utility-scale battery storage: 2020 update
Applications served by US storage assets (2018)1
MW
4 hour grid-scale battery storage cost projections
(Source: NREL2)
3
System value of battery storage in the bulk power system with increasing wind, solar penetration
Mallapragada, D. S., Sepulveda, N. A., & Jenkins, J. D. (2020). Applied Energy, 275, 115390
Value / RevenuesCosts
Energy
Networks
Reserves
Other?
Capacity
$
4
System value of storage increases with renewables penetration but declines with increasing
storage penetration
1. Annualized CAPEX values based on 20 year lifetime and 8.1% discount rate; Battery storage characterized with 90% round-trip efficiency, 100% depth of
discharge and 0% hourly self-discharge rate; 2. Existing capacity includes CCGT and OCGT plants; Annual generation = 233 / 254 TWh. 3. Analysis based
on 7 representative weeks of grid operations
Mallapragada, D. S., Sepulveda, N. A., & Jenkins, J. D. (2020). Applied Energy, 275, 115390
Low cost CAPEX
@ $150/kWh1
Reference CAPEX @ $340/kWh1
South (like Texas)
Marginal value of storage (4hr) : 0 to 40% of peak demand ($/kW/year)
System assumptions
- Peak load = 50 GW3
- Existing capacity = 40 GW2
- Radial network with 3 demand nodes +1 resource node
- Load, renewables resource characterization
5
Capacity and network deferral tends to dominate storage value as compared over operational cost
savings (e.g. Thermal starts, dispatch costs)
Annualized CAPEX values based on 20 year lifetime and 8.1% discount rate
Mallapragada, D. S., Sepulveda, N. A., & Jenkins, J. D. (2020). Applied Energy, 275, 115390
Low cost CAPEX
@ $150/kWh1
Reference CAPEX @ $340/kWh1
South (like Texas)
Contributions to system value of 4 hour
storage ($/kW/yr)
Insight: Renewables + storage projects could monetize storage’s VRE capacity substitution value
6
Role for storage in developing country grids tied to emerging end-uses like AC and EV load growth
1. IEA World Energy Outlook, 2020
2. IEA Future of cooling report, 2018 (Figure 3.9 and Figure
3.10); Data rounded to nearest 10 value as shown in plots.
Region
% of annual
demand
% of peak
demand
India – 2016 10% 10%
India – 2050 30% 45%
US – 2016 25% 30%
China – 2016 8% 20%
Role of space cooling in electricity demand2
Projected electricity demand (TWh): India
IEA Stated Policy Scenarios (WEO 20201)
Summer week , 2050, Baseline AC efficiency
Summer week , 2050, High AC efficiency (IEA2)
7
Key takeaways
- Storage value grows with increasing VRE penetration but declines with increasing storage penetration
- Need for further reductions in storage cost to increase storage penetration
- Storage value from capacity deferral dominates over operational cost savings
- Co-located wind, solar + storage projects allow for implicitly capturing value of storage in capacity deferral
- Not all forms of capacity substitution can be monetized under current regulatory constructs
- Storage role in developing country grids likely tied to new end-uses such as air conditioning and EV deployment
- Market for storage in developing countries like India could be quite large (900 – 2200 GWh) by 2040

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Lightning Talk - Energy: The Economics of Storage and its Role in the Energy Transition

  • 1. 1 Dharik S. Mallapragada MIT Energy Initiative, Cambridge, MA The economics of storage and its role in the energy transition
  • 2. 2 There is growing interest in deploying energy storage for more energy oriented applications, with continued cost decline for battery storage and policy support 1. U.S. Battery Storage Market Trends, EIA, July 2020; 2. Cole and Frazier, Cost Projections for Utility-scale battery storage: 2020 update Applications served by US storage assets (2018)1 MW 4 hour grid-scale battery storage cost projections (Source: NREL2)
  • 3. 3 System value of battery storage in the bulk power system with increasing wind, solar penetration Mallapragada, D. S., Sepulveda, N. A., & Jenkins, J. D. (2020). Applied Energy, 275, 115390 Value / RevenuesCosts Energy Networks Reserves Other? Capacity $
  • 4. 4 System value of storage increases with renewables penetration but declines with increasing storage penetration 1. Annualized CAPEX values based on 20 year lifetime and 8.1% discount rate; Battery storage characterized with 90% round-trip efficiency, 100% depth of discharge and 0% hourly self-discharge rate; 2. Existing capacity includes CCGT and OCGT plants; Annual generation = 233 / 254 TWh. 3. Analysis based on 7 representative weeks of grid operations Mallapragada, D. S., Sepulveda, N. A., & Jenkins, J. D. (2020). Applied Energy, 275, 115390 Low cost CAPEX @ $150/kWh1 Reference CAPEX @ $340/kWh1 South (like Texas) Marginal value of storage (4hr) : 0 to 40% of peak demand ($/kW/year) System assumptions - Peak load = 50 GW3 - Existing capacity = 40 GW2 - Radial network with 3 demand nodes +1 resource node - Load, renewables resource characterization
  • 5. 5 Capacity and network deferral tends to dominate storage value as compared over operational cost savings (e.g. Thermal starts, dispatch costs) Annualized CAPEX values based on 20 year lifetime and 8.1% discount rate Mallapragada, D. S., Sepulveda, N. A., & Jenkins, J. D. (2020). Applied Energy, 275, 115390 Low cost CAPEX @ $150/kWh1 Reference CAPEX @ $340/kWh1 South (like Texas) Contributions to system value of 4 hour storage ($/kW/yr) Insight: Renewables + storage projects could monetize storage’s VRE capacity substitution value
  • 6. 6 Role for storage in developing country grids tied to emerging end-uses like AC and EV load growth 1. IEA World Energy Outlook, 2020 2. IEA Future of cooling report, 2018 (Figure 3.9 and Figure 3.10); Data rounded to nearest 10 value as shown in plots. Region % of annual demand % of peak demand India – 2016 10% 10% India – 2050 30% 45% US – 2016 25% 30% China – 2016 8% 20% Role of space cooling in electricity demand2 Projected electricity demand (TWh): India IEA Stated Policy Scenarios (WEO 20201) Summer week , 2050, Baseline AC efficiency Summer week , 2050, High AC efficiency (IEA2)
  • 7. 7 Key takeaways - Storage value grows with increasing VRE penetration but declines with increasing storage penetration - Need for further reductions in storage cost to increase storage penetration - Storage value from capacity deferral dominates over operational cost savings - Co-located wind, solar + storage projects allow for implicitly capturing value of storage in capacity deferral - Not all forms of capacity substitution can be monetized under current regulatory constructs - Storage role in developing country grids likely tied to new end-uses such as air conditioning and EV deployment - Market for storage in developing countries like India could be quite large (900 – 2200 GWh) by 2040