If there’s a recurring theme here, it’s that the hoopla is based on hypothetical use and value when the reality is quite different. 4 Take it from me: don’t drink the Kool-Aid. These Killer Apps Won’t Hunt Let’s ﬁ rst consider capacity as a potential killer app. Capacity is the ability to provide energy on demand. 5 Battery storage is the ultimate in “pure” capacity – if it is charged it provides electric energy at the push of a button. The low end of the range for battery system cost currently runs about $2,000,000/MW. 6 One projection of future capital cost is 4. Most of the analysis in this article is based on PJM Interconnection, L.L.C. (“PJM”) markets. PJM is the transmission operator and market operator for the largest, most sophisticated, and most transparent power grid in the nation. And, as important, it has welcomed rather than resisted energy storage, as acknowledged by the Electricity Storage Association, “PJM has welcomed competition.” http://www.pjm.com/~/media/committees-groups/commit-tees/pc/20131010/20131010-item-03-energy-storage-snapshot-broader-market-potential.ashx (last slide). Thus, if the fundamentals of battery storage cannot make it in PJM they are unlikely to make it anywhere (although it is possible that economics elsewhere could be so different that grid batteries make sense there). 5. Or more literally, “on command.” The command comes from the grid opera-tor when supply becomes tight relative to demand. 6. Brattle Group, “The Value of Distributed Electricity Storage in Texas” (March 2015) (hereafter Brattle Study), http://www.brattle.com/system/ publications/pdfs/000/005/126/original/The_Value_of_Distributed_ Electricity_Storage_in_Texas_-_Proposed_Policy_for_Enabling_Grid-Integrated_Storage_Investments_Full_Technical_Report.pdf?1426377384, page ii, footnote 2, citing fellow consultancy Navigant: “… current storage costs for a four-hour battery are $720–$2,800/kWh depending on the scale of the battery.” Four important notes about capital costs: First, battery capital costs are fre-quently quoted in $/MWh or $/kWh instead of $/MW or $/kW. As Brattle explains (at footnote 35): “Many storage developers quote costs on a per kWh or MWh basis. This represents the capital cost in terms of how much energy it can store, as opposed to the maximum instantaneous power output that would be quoted in kW terms. For example, a 300 kWh device at $350/kWh would have a capital cost of $105,000. The capacity that it can output instan-taneously depends on the energy to power (or kWh:kW) ratio of the device, which we assume to be 3:1 in our study.” So, taking the low-end of the Brat-tle/Navigant per kWh cost of $720, the per kW cost is $2,160 (three times the per kWh cost), and the per MW cost is $2,160,000. Lazard’s Levelized Cost of Storage Analysis also explains this concept in terms of “instantaneous power capacity” (MW) and “potential energy output” (MWh), https://www. lazard.com/media/2391/lazards-levelized-cost-of-storage-analysis-10.pdf (page 1), and has an implied minimum per MW cost of 4:1 lithium battery storage of $2,052,000 (battery with 100 MWh of stored energy times the lowest cost of $513,000/MWh divided by 25 MW of power rating (“capac-ity”), page 21). Second, battery costs are sometimes quoted on a battery stand-alone basis and sometimes on a battery system basis ( i.e. , including what sometimes is called “balance of plant” or “power conversion system”). The latter is substan-tially larger than the former, Brattle Study, footnote 36, and the latter is, of course, what matters. Third, it is not clear if reported unit costs generally include the DC-AC conversion loss factor in battery discharge – if not then nominal capacity 38 P UBLIC U TILITIES F ORTNIGHTLY J ANUARY 2016 $1,000,000/MW – half the low-end of the range for current cost. 7 Let’s assume that this lowball projection of $1,000,000/MW can be achieved. To keep it simple we can pencil in 15 percent per year for pre-tax return of and on capital and for operation and maintenance expenses, 8 for an annualized capital cost of $150,000/MW. In contrast, capacity in PJM’s most recent auction cleared at a base price of $60,141/MW-year, with the highest-cost area in eastern PJM at $82,278/MW-year. 9 So the projection of future battery cost is about twice the highest clearing price in the last PJM capacity auction. That means that a four-fold decrease in the current cost of battery storage would be necessary before it could potentially compete. 10 And that is not the end of the cost comparison. In comparing should be discounted by that loss factor, ballpark 5% (this is a one way loss factor from DC to AC; a round-trip loss factor from AC to DC to AC would be twice that or more). Fourth, battery makers are not bashful about claims for performance of forthcoming batteries. A good compilation is here, http://cleantechnica. com/2015/05/09/tesla-powerwall-powerblocks-per-kwh-lifetime-prices-vs-aquion-energy-eos-energy-imergy/. It’s important to recognize the variables involved: discharge capacity trades off for storage capacity, physical life and cycles vary, efﬁ ciency varies, degradation varies, capital cost varies, etc. Your mileage may vary. Brattle Study, footnote 37, citing “… $350/kWh projection of the installed cost of a battery system,” which would convert to about $1,000/kw, and $1,000,000/MW, at a 3:1 ratio of storage capacity to discharge capacity. Laz-ard’s Levelized Cost of Energy Analysis provides a “next generation” (2017) projection of capital cost at $300/kWh for 6 hours of storage capacity, https:// www.lazard.com/media/1777/levelized_cost_of_energy_-_version_80.pdf, which would be $1,800,000/MW, but its more recent Levelized Cost of Stor-age Analysis, supra, projects a signiﬁ cant capital cost decrease over the next ﬁ ve years, especially for lithium batteries (page 17). For example, PJM uses a 16.2% “levelized annual carrying chart rate” to eval-uate the market efﬁ ciency of transmission projects, http://pjm.com/~/media/ committees-groups/committees/teac/20140410/20140410-market-efﬁ ciency. ashx, slide 14. http://pjm.com/~/media/879A2FA2A1794C7887A98686A70336D2.ashx, page 2. The “Rest of RTO” clearing price of $164.77/MW-day is $60,141/ MW-year and the “EMAAC” (Eastern MAAC) clearing price of $225.42/ MW-day is $82,278/MW-year. PJM capacity prices may increase in the future, but it should be noted that some new natural gas peaking units offer and clear at current prices, http://pjm.com/~/media/markets-ops/rpm/rpm-auction-info/2018-2019-base-residual-auction-report.ashx (page 23). It is also important to recognize that where battery and natural gas peaking units have the same installed capacity cost that natural gas units have the inherent advan-tage of receiving energy market revenues in addition to capacity revenues, and these energy market revenues have ranged from $17,000/MW-year to $51,000/MW-year depending upon the speciﬁ c area in PJM, http://pjm. com/~/media/markets-ops/rpm/rpm-auction-info/2018-2019-bra-planning-parameters.ashx (Net CONE tab). As discussed in more detail later a battery storage unit that attempts to collect energy revenues by discharging at a time of high energy prices runs the risk of being unable to fully perform if called on as a capacity resource. New natural gas peaking units offer and clear at these prices, more than 1,000 MW in the most recent PJM auction. http://pjm.com/~/media/ markets-ops/rpm/rpm-auction-info/2018-2019-base-residual-auction-report.ashx (page 23). www.fortnightly.com 7. 8. 9. 10.