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Will Energy Storage Replace Peaker Plants?

  • March 20, 2018

Last week at the New York Battery and Energy Storage Technology Consortium’s annual meeting (NY-BEST), EnergyWatch partner Andy Anderson participated in a panel to discuss the monetization of behind-the-meter energy storage technologies, covering how to optimize procurement strategies and operations to maximize the value of storage (and how to evaluate pro formas, model tariff rates, cash flow, and value streams).  Much of the conference discussed utility scale, front-of-the-meter storage, and of particular interest is the ability of energy storage to potentially replace peaker plants.  When energy demand is peaking and the grid is stressed, it often relies on its natural gas and oil-fired peaker plants.  However, as energy storage systems continue to advance and gain popularity, many experts are analyzing whether increased storage deployment could begin to replace these aging, polluting peaker power plants.  Several states, including New York, have taken legislative action to deploy more energy storage.  Researchers are finding that, like renewable energy, energy storage could also be a clean, reliable improvement to electric grids.  Read on for more about the benefits, challenges, and future of energy storage.

How can energy storage help?

In the next decade, the United States needs to add nearly 20GW of peaking capacity to the grid to remain reliable.  If technology continues its current path, energy storage has the capability of replacing nearly half of that.  For example, the California Energy Commission has begun reconsidering the construction of the gas peaking plant in Oxnard after speculation that it would be more expensive than deploying more energy storage.  This suspension is making way for energy storage or other clean alternatives to meet this capacity need.  For cities like New York, who are looking to achieve their clean energy goals, energy storage could effectively put them on a path away from operating aging power plants, allowing them to cut greenhouse gas emissions by over 75%.*
Another benefit from increased energy storage could be lowering costs for customers, as running and maintaining peaker plants is very expensive.  A report published by Strategen Consulting found that electricity customers in New York City are currently spending over $268 million annually on sustaining older plants that are only turned on a few hours out of the year.  Without even a fraction of these costs, customers could see reductions in their prices thanks to energy storage deployment replacing the need for peaker plants.

What does the future hold?

As renewable energy penetration increases, meeting the grid’s peak load becomes more attainable for energy storage, thus creating competition with natural gas-powered peaker plants.  Recent reports suggest that 10GW of natural gas peaker plants are at risk through 2027, while more aggressive analysis shows little future for peaker plants after 2020.  While energy storage still remains an expensive alternative for some cases, a report published by the University of Minnesota shows that even right now, the net cost of energy storage and solar power is cheaper than a natural gas peaker plant, shown below:

energy storage vs peaker plants


These types of numbers have major manufacturers of gas turbines, like GE and Siemens, making changes to their business as customer preferences evolve away from fossil fuel based energy sources.  Data continues to show that as technology rapidly advances for storage, it can meet the cost of gas in nearly four years.  In ten years, energy storage will economically beat a peaker plant in every case:

energy storage vs natural gas

However, outside of peaker plants, the United States is still expecting a large amount of natural gas production in the future.  But there is no doubt that energy storage can act as “a strategic hedge against the risk of future natural gas price increases”, disrupting the peaker plant market.