December 04, 2018

Protecting the Achilles Heel of Financial Grid Modernization: Storage Sustainability Research

John A. Howes

Managers of the US electric power grid face several significant and interrelated challenges requiring billions of dollars to meet them.

One challenge is to enhance the reliability of a system capable of providing stable, uninterruptible power for an increasingly digitalized economy. A second is to ensure the grid’s resiliency by enabling quick recovery from total system blackouts caused by natural or man-made catastrophes. 

A third is how the grid can be restructured from a system powered mostly by fossil fuels to a “decarbonized” system based on power from renewable energy resources. It is especially complex for a number of reasons, including the growing need for batteries and other energy storage devices to manage the flow of power from intermittent wind and solar resources.

Meeting this third challenge also will require the grid to function as a “two-way” system. This already is seen in net metering, where unneeded power from wind and solar facilities is sent to the utility. Batteries, for example, not only will take power from the grid for electric vehicle drive trains, but they can also be used to send power back to the grid to meet peak demand when the vehicle is idled.

Each challenge is difficult in its own right, but because today’s grid managers must keep their eyes on tomorrow, they must deal with all three simultaneously.

Modernizing the electric power grid on a nationwide basis can reasonably be compared in magnitude to federal mandates that led to the Manhattan project to develop the atomic bomb that ultimately ended World War II and the Apollo program that landed man on the moon.

Utilities will have to issue financial instruments to attract private investment. The process of determining and structuring revenue streams to support such financing, however, will be particularly complex. Will the existing federal and state regulatory structures be able to make such determinations? Will intervention by Congress be required?

The existing regulatory frameworks for wholesale and retail power markets already are being tested to accommodate the greater use of energy storage facilities in a changing power industry.

The Federal Energy Regulatory Commission (FERC) took an initial step when it issued Order No. 841 in early 2018 to open wholesale electric power markets to energy storage resources to manage the variability of power from intermittent resources like wind and solar technologies. Order No. 841 is an important step in financing the accommodation of more power from renewable resources to serve wholesale market needs.

Order No. 841 remains a work in progress. It applies to energy storage facilities up to 100 kilowatts in organized wholesale markets served by independent system operators (ISOs) and regional transmission organizations (RTOs). Major parts of the country, particularly in the west and southeast, are not served by ISOs or RTOs. A key question, therefore, is the extent to which the work being done on Order No. 841 could have an impact in other areas of the country not served by ISOs and RTOs and ultimately retail markets served by state regulatory commissions.

As discussions about whether rebuilding and modernizing the nation’s electric power infrastructure continue, a number of developments are emerging on a state-by-state basis. California and New York, for example, have instituted aggressive mandates on utilities to increase power supply from renewables and accompanying energy storage facilities. They also have initiated development of a grid-based charging infrastructure for electric vehicles.

For state governments to impose such grid modernization mandates on utilities is one thing. Bringing those mandates into reality is another matter entirely. To do so requires the state governments to provide sufficient comfort to investors that an investment in securities can be recovered in a timely manner with a reasonable rate of return. This opens a number of issues that must be addressed up front.

First, if the goal of state mandates is to shift power generation reliance on fossil fuels like coal and natural gas to a new generation system from wind, solar, and other forms of renewable energy, a key issue likely to emerge is stranded investment. How are utilities to deal with investment in current fossil-fueled generation stations that would become stranded if those stations no longer supply power but remain saddled with unpaid debt?

This movement to “decarbonize” the power generation industry by replacing fossil fuels with renewable energy could become the latest major stranded asset issue facing utilities and their regulators. The first came in the 1970s when more than 100 nuclear power plants were canceled before completion. Another came several years later when federal regulators restructured the natural gas industry by separating suppliers from interstate pipelines to bring about pipeline open access.

An additional stranded investment issue emerged in the 1990s as FERC initiated proceedings to allow non-utility generators to enter the wholesale electric power market to compete with vertically integrated utilities that owned generation, transmission, and distribution facilities. In most cases, utilities received sufficient compensation to service debt on their generators that had become uncompetitive. Some utilities subsequently spun off their generation business.

With public sentiment rising to use more renewable energy rather than fossil fuels for power generation, regulators could be asked not only to allow utilities funds to service debt on fossil-fueled generation that would become stranded, but they also could be asked to provide ratepayer-financed incentives for development of generation from wind, solar, and other “clean” resources. Such incentives could take the form of provisions in utility rate bases for funding construction work in progress.

This, however, raises still another important issue. Could the movement toward technologies to deal with air quality problems end up creating new problems? Because many of these new technologies use materials—such as rare earths in windmills and solar panels and specialty metals like lithium in batteries—that are difficult to recycle, could a hazardous waste disposal challenge be created as a result of an effort to combat climate change through decarbonization?

In the case of energy storage, an essential component of any plan to integrate wind and solar power to the grid, the use of lithium-ion batteries, has been increasing. However, because the recycling rate of lithium-ion batteries is less than 5 percent, the question arises of the disposition of batteries when they reach their end of life. While it is possible that some batteries can be reconditioned for use in lower-grade functions, many batteries still could end up in landfills.

Currently, there is no federal requirement that lithium-ion batteries be recycled. (There is a requirement that lead-acid batteries be recycled as part of the US Environmental Protection Agency’s universal waste program.) Several states, including California and New York, require recycling of lithium-ion batteries. But, because a recycling infrastructure to handle them remains inadequate, many lithium-ion batteries from appliances nevertheless end up in landfills or other material recovery facilities that are insufficiently equipped to deal with them. Explosions of lithium-ion batteries from appliances are already increasing and could become an even worse hazardous waste problem if a recycling infrastructure cannot be developed for larger format batteries used in electric vehicles and grid storage facilities.

One pressing need to deal with this challenge is research into the science of recycling. This is being undertaken by a number of national laboratories within the US Department of Energy (DOE). Even though Congress has been unable to agree on specific policies to deal with climate change, lawmakers nonetheless are appropriating significant funding into the safe management of batteries, including battery recycling. A benchmark for recycling exists with lead-acid batteries, in which a superior recycling rate of 99 percent contributes to their low life-cycle cost profile. Lead-acid battery manufacturers accept recycled lead as comparable in quality and price to virgin lead. Can lithium-ion battery manufacturers have the same confidence in recycled materials?

In absence of a nationwide governmental approach to these issues, one development to address them has been the formation of a broad coalition of automakers, electric utilities, clean energy entrepreneurs, public interest groups and environmentalists. These groups have formed the Transportation Electrification Accord to develop approaches to a wide range of scientific, economic, manufacturing, safety, and proper end-of-life management issues arising from the push to cleaner energy. The fact that they are coming together is a hopeful sign. 

John A. Howes

Published: December 4, 2018

John A. Howes, Principal, Redland Energy Group, Washington, DC. The Redland Energy Group provides marketing, policy analysis and business development services to organizations in the private sector energy industry.