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Grid Storage Systems Get $60M Boost from DOE. But Where's the ROI? By Lux Research Aug 24, 2010 - 12:57:49 PM
. By Steven Minnihan
AES, one of the world's largest electricity producers and distributors, received a conditional commitment for a $17.1 million loan from the U.S. Department of Energy (DOE) to construct a 20 MW power storage system in Johnson City, New York, to provide frequency regulation services. A123 Systems will supply the lithium-ion
― a cost that AES will not be able to recoup over the lifetime of the batteries. Additionally, the DOE made a $43 million loan to Beacon Power to construct a 20 MW storage facility using the company's Gen 4 flywheel. The flywheel installment is a better business case due to its longer calendar life, but it still fails to give a positive return on investment.
While frequency regulation does represent one of the best business cases for power storage in the near term, the capital cost for lithium-ion batteries is still too high to receive a return on investment in the New York power market. Frequency regulation in the New York market will yield a net present value benefit of only $225/kW, resulting in a negative return on investment, assuming that the batteries operate for four calendar years, or 1,000 hours of operation. AES has stated previously that it is seeking battery systems that can operate for seven calendar years, which would translate into approximately 2,000 hours of operation, or 8,000 cycles to 90% depth-of-discharge (DOD). A123 has claimed that its batteries have retained 80% of their initial capacity after 7,000 cycles at 100% DOD, indicating that the batteries meet AES's requirements. However, this cycle life is still far from sufficient to offset A123's relatively high capital cost.
Beacon Power's installation makes a better business case because flywheels are not limited by cycle life and are capable of operating 20 years with continual use. Assuming steady pricing for frequency regulation services, Beacon's storage facility will pay back the capital investment in eight years. However, it will never see a positive net present value due to capital depreciation and economic inflation. Ultimately, both storage technologies need a dramatic reduction in capital cost in order to make economic sense. While these investments won't yield a positive return for the financing companies, they are still an important step in developing and demonstrating the technologies at large scale, especially since lithium-ion storage systems are usually less than 2 MW.
Steven Minnihan is an analyst for Lux Research, which provides strategic advice and on-going intelligence for emerging technologies. For more information, visit the Lux Research site.
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