Pumping Up Pump Storage

Optimizing transmission

Jason Makansi | Aug 02, 2012


Allowing multivalue cost recovery for bulk storage similar to treatment enjoyed by transmission project developers under federal regulations could be the final policy piece that unlocks the potential of storage to integrate renewable energy and strengthen the grid.

Large-scale or regional bulk energy storage projects have characteristics similar to transmission projects. On the one hand, they bring a variety of economic and social policy benefits to a multitude of stakeholders and ratepayers, often across multiple jurisdictions.

On the other hand, for this very reason, achieving adequate cost recovery is difficult.

The Federal Energy Regulatory Commission issued Order 1000 in part to address the multivalue and cost-recovery aspects of transmission, in effect allowing the cost of multivalue projects to be allocated, or socialized, across an ISO, RTO or utility footprint. An earlier FERC ruling allows incentive rates for certain transmission projects.

Bulk storage can be advanced by applying these same or similar principles. No one benefits when wind energy has to be curtailed or spilled. All electricity consumers are at risk when higher penetrations of renewable energy cause instability with grid operations.

Because most of the subsidies for wind and solar are federal, all taxpayers suffer when renewable energy is not well integrated into grid operations. Reliability risks are typically felt at the regional level.

Daily and seasonally, wind energy is most available when electricity is least in demand. Solar production more closely aligns with electricity demand, but cloud cover causes minute-by-minute, hourly and even daily fluctuations.

Until other technologies are fully commercial and scaled up, bulk energy storage means today, and for the near future, compressed air energy storage and pumped hydroelectric storage. Its role is best understood as a shock absorber for the grid. Uniquely, bulk storage provides incremental and decremental reserves to the system. That is, it can deliver a few, or hundreds, of megawatts to the grid or absorb megawatts and give most of them back at a later time. Response times can be seconds, minutes or hours, and daily and even seasonal load balancing may be involved.

In addition to its ability to provide ancillary services to the grid such as frequency regulation reliability reserves, bulk storage helps optimize transmission line loading, shifts off-peak and on-peak loads, avoids or postpones transmission upgrades and investment, reduces emissions and helps attain renewable portfolio standards by displacing fossil unit operation.

Other options provide some of these benefits. Fast-acting or flex gas turbine-based units respond faster than earlier models, for example, but can't absorb megawatts. Synchronous condensers absorb megawatts but don't give them back. Demand side solutions inconvenience ratepayers. None of them provide all the elements necessary for regional balancing.

This is multivalue in the truest sense of the word. A new transmission line delivers renewable energy from one area to a dense load center and strengthens reliability of the grid generally. The positive social impact of reliably connecting a wind-rich area with an urban load center accrues to the region as a whole. Bulk storage offers flexible grid optimization benefits to the entire region.

Fortunately, FERC is establishing a policy framework that removes barriers to storage projects. Order 755 supports the use of storage for ancillary services. The notice of inquiry on electric energy storage technologies and ancillary services seeks to determine how storage assets should be treated for accounting purposes. Recently, FERC Commissioner John Norris stated publicly that Order 1000 and the earlier Order 890 emphasize nonwire solutions, a good fit with storage. He noted that there's interest by the commission in having energy storage take advantage of Order 679 and incentive rates.

Published In: EnergyBiz Magazine July/August 2012

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Overnight capital costs

Jack Ellis, Tahoe City, CA

Could you kindly define the term overnight capital costs? Are overnight capital costs different that the capex cost?

Thank you

compatibility of multiple value streams

It has been pointed out that one pumped storage or CAES project can't garner all potential value streams at once. This is true to some extent, but only to some extent. Consider the three streams of firm capacity, ancillary services, and arbitrage. Firm capacity of the peaking variety is most likely going to be provided wth an annual capacity factor of 15 to 20%, most likely during a single season of the year. The time period in which peaking capacity is needed als happens to coincide with the highest value of energy on the market. And, generally speaking, all or nearly all pumping would occurr during the off-peak hours. So arbitrage is naturally compatible with the peaking capacity. Now, regulation services are needed 24 hours a day.  Pumped storage can be available for reg-up anytime that its capacity is not allocated to the firm power contract; it can be available for reg-down anytime it's not generating for its peaking delivery commitment, and also any time during the off-peak period (since pumping can serve as a reg-down capability). We're not talking about 100% of the capacity being available 100% of the time for all of these purposes; rather, enough capacity available during enough times of the year. Using conservative figures for those n order too ensure there is compatibility between services provided,  an economical pumped storage site easily be justified. Particularly when factoring in the 75 year lifetime of a pumped storage project. It's not online readers who need to see the analyses, of course; it's investors and utilities and others who are in a position to recognize the value.

Storage Costs

I'm not sure who posted the rebuttal that characterizd my earlier comment as "unfortunate", but it appears we're going to have to agree to disagree. 

When I mentioned moving dirt and pouring concrete, I was talking about the cost of boring tunnels for the penstocks and building structures to contain the powerhouse and other euipment.  I assumed there would be no need to excavate a second reservoir. 

As a rought rule of thumb, a capital project in the powe industry needs to recover between 12 and 15% of its overnight cost per year from selling services.  For a storage plant costing $1500/kW, that amounts to between $180 and $225/kW/year.  There are few places where the combination of capacity payments and ancillary services payments meet that hurdle.

I don't see how  adding a storage project to a renewable project provides shaped power at a lower cost than combining a bunch of renewable projects and dealing with the residual variability and uncertainty, though my mind might be changed after I finish an upcoming project.

I'm not opposed to storage on their merits.  I just don't think it's any more cost-effective today than it's ever been, which is to say it has always been a bad deal when you look at the costs and benefits quantitatively instead of based on anecdotes and advocacy.  I also think the storage advocates are not doing themselvs any favors by pursuing this multiple value stream approach, because in fact storage can only earn one or perhaps two of those value streams at during any time interval.  If you want to change my mind, show me the numbers (and expect them to be examined in detail).  If you're interested in a simple but revealing analysis of storage I did about a year ago, send me a note at jack@casaraquel.com.

Jack Ellis, Tahoe City, CA

A failing grade - a constructive suggestion

Beyond the criticism I offer this constructive suggestion: specify the service or services PSH is intended to deliver to the power system, establish a process for quantifying the need for such services on an aggregate basis (because we know the system will need far less of it than will individual installations and it would be inefficient to procure too much of it), make sure the market enables full and open competition to provide those services including distributed solutions like end-use thermal energy storage, charge all users an uplift to cover the resulting cost, and let the chips fall where they may. It may turn out that doing nothing (i.e., using the currently available options of curtailing RES or over-committing flexible back-up generation) will be the cheapest solution for awhile, and when alternatives do clear the market it may turn out that PSH and CAES can't compete. Or maybe they will. So be it.

A failing grade

Another journalist posing as an electric power systems expert. As Jack Ellis rightly points out, pumped storage hydro projects have long been and remain far too costly in most applications. They have only ever made any sense as a way to absorb excess production from nuclear plants when demand was low, and that only after the nukes were built and the capital cost sunk. People (and I count myself among them, twenty years ago) have tried and failed to justify economically the cost of greenfield projects involving both the cost of the pumped storage facility and the production source for which the pumped storage service is the solution - it never has made economic sense no matter how much "multivalue cost recovery" you want to cook up. That is compounded by the fact that, contrary to what Mr. Makansi maintains, demand side solutions do not necessarily "inconvenience ratepayers." That reflects the kind of stuck-in-the-past thinking that leads us down these economic dead ends time and time again, to the ultimate detriment of the objective, which is to exploit low-cost opportunities to integrate intermittent renewables reliably and cost-effectively. There are a number of low-cost ways to dramatically reduce the volatility introduced by intermittent supply sources, volatility that is essential to making the economics of PSH work, and among those options are opportunities to store energy and shift electricity consumption on or near customer premises in ways that involve no inconvenience whatsoever to the consumer; many of these applications are non-seasonal and therefore even more useful for the task than pumped storage hydro, which can be seasonably restricted by seasonal run-off patterns. These demand side options, like electric water heaters, commercial chillers and cold-storage facilities, domestic fridges and freezers, electric space conditioning, are pre-programmable, remotely controllable and can be set up in a way that delivers the relevant energy service when and how the customer wants it independently of when the appliance consumes electricity. Because these storage devices are distributed and proximate to load they offer a higher-value storage option. And best of all, these options cost a small fraction of what a pumped storage or compressed air energy storage plant costs. The PSH/CAES industry is heavily invested in promoting the idea that these technologies are crucial to reliable integration of large shares of intermittent renewables, yet those of us who spend our time studying the problem without a commercial agenda know that there are many measures that are far more cost-effective. A full accounting of what such a program would look like can be found in "Meeting Renewable Energy Targets in the West at Least Cost: The Integration Challenge", a June 2012 report prepared for the Western Governors' Association by my organization (The Regulatory Assistance Project) with the aid of a long list of excellent power systems experts. Pumped storage hydro is considered in the report as one possible solution but it is also placed in its proper perspective, which is that it is unlikely to rise to the top tier of cost-effective options anytime in the foreseeable future. Pushing for "multivalue cost recovery" is just another way of looking for a handout from ratepayers for a solution that costs far more than necessary and, in doing so, undermines support for the very development it purports to enable.

Spend Spend Spend misleading rhetoric

While the comments from "spend, spend. spend" sound like reasonable conservative positions on the surface (which I should tend to agreee with), they are not. It could not be more clear that NOBODY knows what fuel prices will be in the future. To confidently state that anyone "knows" what the least cost generation source, to be built today and to remain in service for the next 20 to 40 years is disengenuous. Natural gas prices are perhaps our most unstable of all, and once the multiple LNG export terminals get completed in 2015 you can bet that any gas near them will get exported (at $10.00+ vs. $2.00), driving up our domestic price. Any time you see someone confidently saying that "X" generation source that requires a paid-fuel (which wind, wave, and solar do not), be sure to ask them what that fuel will cost in the 5th, 10th, 15th, and 20th years. If you agree with the assumptions, then you have a valid (for the two of you at least) projection!

perfect timing for bulk storage

Mr. Ellis' comments unfortunately mischaracterize pumped storage and CAES both in terms of cost and value. Pumped storage project costs vary widely from site to site. One does not have to wait for the cost of moving dirt to come down; rather, one has to look for sites that allow for the greatest storage and power with lowest amount of construction. This includes high-head sites that get more power per acre-foot (e.g, the Bison Peak site in Tehachapi with up to 3,000' of head), sites that require only one new reservoir to be constructed (e.g.,the Black Canyon site in Wyoming), or sites that use former mine space (e.g., Maysville in Kentucky and Eagle Mountain in California). These types of projects blow the assumptions off of your $/kWh storage cost. CAES is even cheaper on a $/kWh basis if they use salt-based storage, because the cost of solution mining a salt cavern is relatively low, particularly if the infrastructure is already in place. The newly proposed 300+ megawatt CAES project in Texas will have something like 100 hours of storage capacity at $1,100 per kW. The newer technologies can't even come close to the cost-effective storage capacity of pumped hydro and CAES. Which leads us to the second issue: value. No one who understands bulk storage today emphasizes the arbitrage value first and foremost, since the gap between peak and off-peak has fallen. Rather, the core value is the ability to replace a gas peaker or even combined cycle plant. To do this, you need at least 6 hours of storage capacity, preferably more. Pumped storage sites and CAES easily meet this criterion, while batteries do not. The second value layer is ancillary services - beginning with regulation service but including the full spectrum. The third value layer is arbitrage, which varies from season to season, region to region. The fourth value layer, which applies to some locations, is transmission deferrment or improved load factor. For the most dramatic example of the latter, a single pumped storage plant in Wyoming would improve load factor on new DC lines from 40% to nearly 60%, significantly lowering the delivered cost of wind energy. Another thing that bulk storage does that peakers cannot is dovetail with renewable resources to create an intermediate-scale firm product that is actually lower in cost than the cost of acquiring the renewables plus gas peakers or CCCT separately. Finally, one should keep in mind the lifetime of pumped storage plants: upwards of 60 to 75 years,  or more than double the lifespan of conventional resources. In sum, an economical site (of which there are quite a few strategically located), garnering the three key value streams of capacity, ancillary, and arbitrage, and in some cases transmission savings, is a superior alternative to any conventional resource. Utilities would love to have them, ratepayers will be benefiting, and -- as the article referred to --FERC rulemaking is correcting prior unfairness in the marketplace. The timing is perfect for bulk storage.

Fine Idea, Too Expensive

Storage is a fine idea.  We have something like 30 or 40,000 MW of the stuff spread all over the country.  However the pumped storage and compressed air varieties are expensive, hard to site, and as I have pointed out before, difficult to operate profitably.  I evaluated a number of storage projects earlier in my career and the answer was always the same - high capital costs and insufficient differentials between on- and off-peak prices.

To be cost-competitive, the overnight (capital) cost of storage has to be around $100/kWh of storage capacity.  Today pumped storage and compressed air storage cost upwards of $300/kWh, and the prospects for reductions in the cost of moving dirt and erecting steel and concrete are pretty bleak.  Other storage technologies might someday be available at more reasonable cost but in the meantime, there's no good reason to burden consumers by deploying lots of expensive storage in hopes volume production of very immature technologies will lead to cost reductions.

Jack Ellis, Tahoe City, CA

Spend Spend Spend

It is easy to say good things about energy storage, it is a great thing in fact all fossil fuels are stored energy and are the foundation of the modern world.  However, electrical energy storage is simply a replacement for peaking capacity.  Whether to use storage or peakers should be an economic decision, not one determined by what noncompetitive technology it enhances.


All the rhetoric about socializing cost is a smoke screen to cover doing things that have an unjustifiably large price tag.  Anytime money is flowing someone is profiting and usually trying to further their own interest, often at the expense of the ratepayers.   


Doing right by the ratepayers really isn’t as difficult as we seem to be making it; do a present worth calculation of the of the alternatives and compare it to the overnight costs to see what makes sense and what makes the most sense.  


 Here is a shocker it may be possible that more wind generation in west Texas producing primarily in the off peak is an economic loser just like constructing power lines from South Dakota to New York to harness that wind energy.  If the wind or Nuclear folks need storage to make those technologies useful then the cost of that storage should be included in their overnight costs. 


 If viable, a storage facility will make a profit for investors.  It is an easy concept “Cheap energy in" “Expensive energy out" which creates a margin in the way same as the storage of all commodities.   


The author being a technical expert, I am surprised he makes an incorrect statement about Synchronous Condensers.  Synchronous Condensers (SC) do not destroy energy as the author implies, SC cannot and do not absorb significant amounts of energy.  SC absorb only enough energy to overcome generator friction from bearings and drag, drive the fans on the generator rotor, power the exciters and auxiliary equipment like oil pumps.  SC typically are used to control voltage and VARs by varying field current.  As an added benefit they add mass to the system, like a flywheel, which increases stability by resisting changes in frequency.  They do in fact return energy to the grid when frequency drops and take energy when frequency increases.  The quantities are insignificant but this energy exchange has a stabilizing effect.


The second error is the statements about storage shifting peak loads.  Loads are unaffected by storage it shifts peak generation by storing energy for the load i.e. customers.  What storage does is help make wind generation more viable provided someone else foots the bill for it and the wind generators are compensated at higher prices than was market value during generation. Basically another wind subsidy.