Guest review: Battery energy storage provides 24-hour green energy | Fragments of opinions

Over the past five years, selected catalysts have helped drive tremendous growth in the deployment of battery energy storage systems across the United States, including: the passage of the Inflation Reduction Act (IRA) and related transferable investment tax credits (ITCs); falling equipment costs, influx of cheap ESG debt and equity capital; and increased revenue opportunities for independent system operators (ISOs).

However, the following factors will perpetuate greater near-term uncertainty in real-time energy prices: changing load patterns; a surge in data center workloads related to artificial intelligence; increasing shift to electric vehicles; and phasing out coal-fired power plants as more solar and wind farms come online.

Battery energy storage can benefit from this price volatility while providing ancillary services that protect the grid and lower carbon emissions.

We founded Spearmint Energy with this exact belief: that while the energy transition will be volatile, implementing battery energy storage will help mitigate grid instability, increase system resilience, lower emissions, and reduce overall system costs.

Moreover, we believe that stand-alone battery storage, operated through commercial exposure or contracted revenue, provides an exciting, attractive and distinctive investment opportunity to strengthen the grid and meet the growing demand for clean energy. We believe this opportunity will become even more dynamic as volatility continues.

The state of volatility today

The most volatile periods of the day are generally the morning and evening “surge” at sunrise and sunset, when the rate of change in demand is greater than the rate of change in the available generation supply.

In the hours leading up to sunrise, demand surges, but wind power production declines and solar power cannot yet provide enough megawatts to meet the rising demand.

At sunset, solar energy production declines, peak electricity demand remains high, and wind energy production has not yet increased. For the past 30 years, the grid has covered these volatile periods of high prices by using inefficient, fast-starting and emission-intensive gas- or oil-fired loaders.

Harden: The need to proactively protect your network

In Texas and California, where renewable energy production is highest, and in other ISOs where overflowing interconnection lines are preparing for new connections, political forces are taking more protectionist measures to address the risk of short-term grid variability.

Some are proposing requiring the interconnection of intermittent generation resources with short-term battery storage facilities to get ahead of any emerging issues before they take effect.

These measures, while not taken lightly, reflect the grid’s critical need for more storage. Recent research from Ascend Analytics indicates that for every three renewable generation units installed, one battery storage unit will be required to protect the grid from under- or over-generation and reduce the price impact of unpredictable generation.

Given that the U.S. currently has over 240 GW of solar and wind generation assets installed, it can be concluded from this study that at least 60 GW of battery energy storage will be required to strengthen the country’s existing resource base – and that does not include the additional storage that would be this is needed to strengthen the more than 1,000 GW of wind and solar projects currently underway across the country.

Either way, we have a long road ahead of us. According to the U.S. Energy Information Administration, less than 12 GW of storage was installed in the U.S. in 2022.

Indeed, there has been a huge recent increase in the use of batteries for energy storage, with 10 GW of utility-scale batteries installed in the last three years alone.

However, grid instability is getting worse faster than it is improving, demonstrating that even more near-term development of battery energy storage is needed to ensure grid resilience.

Matching: Hour by hour

As noted above, all jurisdictions face a major problem: they have too much wind power at night and too much solar power in the afternoon, but woefully insufficient generation during the morning and evening ramps. Worse yet, they do not have “green” solutions for the key support services needed to protect the system when it is most vulnerable to attack.

We see battery energy storage as a natural solution to mitigate the variability of these ramps. While it can be argued that the total amount of energy produced in a calendar day is more than sufficient, newer regulatory requirements for hourly “matching” (ensuring that each hour claimed as renewable energy is equivalent to an hour of actual renewable energy used) undoubtedly require battery storage to ensure smooth energy flow within 24 hours.

We believe that untapped storage opportunities will continue to emerge as mission-critical energy consumers, such as “green” corporate data centers, begin to recognize the need to “match” to not only hedge their current exposure to contracted renewables financially and solve the problem of energy shortages on unstable routes, but also meet the demands of users and investors for energy from sustainable sources and in compliance with regulations.

One way storage could directly benefit is through the potential implementation of specific, granular hourly renewable energy certificates (HRECs) as opposed to more “generic” or “vanilla” renewable energy credits.

Claiming a credit for a megawatt produced by nighttime wind or solar at noon, when marginal carbon dioxide emissions are low, is clearly less valuable than claiming a credit during the morning or evening peak hours, when average carbon emissions are much higher.

Implementing a more specialized HREC credit system could provide one possible “tailored” solution to aligning energy demand with lower carbon emissions.

Hydrogen: It’s not just about wind and solar energy

The growth potential for battery energy storage is not limited to its use in wind and solar power plants. While the need for battery energy storage to support wind and solar power generation is well known and widely discussed, very little attention has been paid to the newer use of energy storage to produce green hydrogen, which is another emerging segment of the energy transition that could benefit enormously from increasingly wider use of batteries for energy storage.

Buoyed by higher-than-expected $3 per kilogram ITC subsidies and a global shift in investor sentiment, we are now seeing major oil companies, large private equity investors and multinational utilities rushing to accommodate newly planned or installed wind farms for hydrogen production purposes.

At Spearmint, we believe that green hydrogen is potentially the largest unmodeled storage resource required on the U.S. power grid and will lead to intense competition between the traditional electric grid and the new hydrogen economy.

Solution: storage

We expect the risks faced by solar and wind owners, green hydrogen producers and high-energy consumers to only increase in the face of continued grid volatility, leaving them with no choice but to turn to batteries. This, in turn, will increase the demand for autonomous batteries.

We founded Spearmint with the belief that standalone battery energy storage provides asset owners with the opportunity to achieve attractive risk-adjusted returns while reducing greenhouse gas emissions, increasing grid resilience and reducing the volatility inherent in the increased use of intermittent power generation assets during the energy transition .

The need to “harden” and “match” only increases the need for storage to create HRECs as variability will persist in the coming years.