Two DOE-Funded Pilots Will Test New CES Strategy with Li-ion Batteries

By Jacob Grose

The U.S. Department of Energy recently announced $620 million for Smart Grid demonstration and energy-storage projects. These include two grid storage projects, from AEP in Ohio and Detroit Edison in Michigan, which incorporate community-scale energy-storage (CES) pilots. These CES projects use lithium-ion battery packs similar in capacity to electric vehicle packs (about 50 kWh), placing them in residential areas to smooth neighborhood loads and help integrate distributed solar and plug-in electric vehicles. The goal is to improve local service reliability while also behaving as a single larger energy-storage system by aggregating the systems together through the utility’s data network.

These installations show a new way in which lithium-ion batteries can be used to take advantage of their strengths relative to other storage technologies: they don't require high temperatures, large volumes, or pumps or other moving parts that are challenging for consumers to accept and for utilities to service. If successful, CES projects offer another market for lithium-ion cell manufacturers, like A123Systems and BYD. Both of the DOE grant recipients will use S&C Electric as the integrator that builds the CES systems, with the Detroit Edison units using A123Systems' cells and the AEP units using an undisclosed third-party supplier's cells. S&C was previously the dominant integrator for sodium-sulfur battery installations in the U.S., and this contract will establish it as the leader in CES, as well.

One important challenge for CES is that though the utilities deploying the CES system will likely benefit electrically and operationally, they won't benefit much financially from it. For instance, commonly in the U.S., utilities must categorize grid assets as one of three things – generation, transmission and distribution, or load; since this application crosses these boundaries, determining a rate case that captures all the value the CES system creates is not possible. There is discussion about ways to restructure utility compensation in the U.S. at high levels, such as at the Federal Energy Regulatory Commission, but it's too early to say what the eventual regulations will favor, and currently the value proposition for such systems is unclear. Readers interested in CES should monitor these pilot projects closely to see how much real-world operational benefit is gained, and also monitor associated regulations for signs of progress before committing serious capital to distributed storage.

Jacob Grose is an analyst for Lux Research, which provides strategic advice and on-going intelligence for emerging technologies. Leaders in business, finance and government rely on Lux Research to help them make informed strategic decisions. Through their unique research approach focused on primary research and their extensive global network, they deliver insight, connections and competitive advantage to their clients. For more information, visit the Lux Research site or contact Carole Jacques to become a Lux Research client.

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