120418 Grid-Saver™ Benefits 1

Grid-Saver™ Benefits Assessment Report

LEGAL NOTICE

This report was prepared as a result of work sponsored by the California Energy

Commission (Energy Commission). It does not necessarily represent the views of

the Energy Commission, its employees, or the State of California. The Energy

Commission, the State of California, its employees, contractors, and subcontractors

make no warranty, express or implied, and assume no legal liability for the

information in this report; nor does any party represent that the use of this

information will not infringe upon privately owned rights. This report has not been

approved or disapproved by the Energy Commission nor has the Energy

Commission passed upon the accuracy or adequacy of the information in this report.

COPYRIGHT NOTICE

©2012,

Transportation Power, Inc.

ALL RIGHTS RESERVED

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Figure 1. Artist’s conception of a Grid-Saver™ unit, nominally a one megawatt-hr size.

Grid-Saver™ allows the storage of sufficient electrical energy that significant power can be fed to (or

taken from) the electrical grid to enhance grid stability and to compensate for the inherent fluctuations of

variable energy resources such as wind and solar power. With the use of high speed digital sensing local

corrections of power line voltage can be made nearly instantaneously from battery storage, reducing

fluctuations in grid voltage and frequency. Alternatively, the California ISO1 ADS (Automated Dispatch

System) can be used to command charging and discharging of the Grid-Saver™ such that the grid power

generation system and the spinning reserves are relieved of some of the demands for sudden increases and

decreases of power. Although this is beyond the scope of the present “Phase One” contract, the long term

objective is that small Grid-Saver™ units be used for local use to stabilize the local power distribution

grid and that large units be sited with large variable energy generation resources such that the fluctuations

of wind or due to clouds passing over the array can be quickly compensated, and further, that in response

to CaISO commands the Grid-Saver™ can provide needed ancillary services to the grid, thus earning

revenue in accord with the rules and bidding of the ISO system.

Herein we briefly show the Grid-Saver™ concept, provide a cost estimate, and proceed to a cost-

benefit analysis leading to a detailed description of the developing regulatory and pricing structure. An

artist’s rendering of a Grid-Saver™ unit is shown in Figure 1.

The Grid-Saver™ design will directly address the needs for affordable electrical energy storage,

needed for expeditious implementation of renewable energy as depicted in the recent CEC funded study. 2

1.0 System Description

The Grid-Saver™ concept includes electrical energy storage by means of a large lithium ion battery

system (ESS, Energy Storage System) with automated charging and discharging in response to the needs

of the grid. The objective is to provide fully responsive grid ramping and ancillary services at attractive

cost, as well as active support of renewable energy installations that may benefit by energy storage over

periods of minutes to hours.

Grid-Saver™ System Requirements include:

1 The Independent System Operator monitors and controls the California electrical grid.

2 Andris Abele et.al., 2020 Strategic Analysis of Energy Storage in California, CEC-500-2011-047 November 2011

http://www.energy.ca.gov/2011publications/CEC-500-2011-047/CEC-500-2011-047.pdf

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1. A large (100kWh or larger) lithium ion ESS, using 120 or more large format storage cells.

2. The ESS includes a BMS (Battery Management System) suitable to maintaining the cells at

near equal state of charge and reporting cell condition to a master controller (BCU, Battery

Control Unit).

3. An Inverter-Charger Unit (ICU) suitable to taking power from the battery and putting it on the

grid as AC of correct voltage and phase, and later recharging the battery from available energy

on the grid. This ICU is commanded by the GCU (Grid-Saver™ Control Unit).

4. Communications with the ISO Automated Dispatch System (ADS) suitable for control of the

Grid-Saver™ through the GCU. This final item – ISO communications - is not part of the

present contract, and will be simulated for the contractual testing. However, as the

communications link is essential to the Grid-Saver™ working with the grid, there will be a

limited effort directed towards understanding the limitations imposed by said link and

designing the architecture, insofar as possible, to meet ISO requirements.

Table 1. Summary of Grid-Saver™ System Requirements. Title Function Discussion

Cells Electrical energy storage Choice is Li-phosphate, large format cell, based on safety and lowest cost per kw-hr.

Support structure

Physical support even during earthquake

Structure shall be enclosed in structure such that system is protected from rain and dust

Fuses Protects cells and wiring For truck use 350A fuse in a manual service disconnect, one in each series string. Fuse rated 700Vac (UL), rated for DC use. Higher voltage fuses to be used for Grid-Saver™.

Contactor Opens circuit instantly at any fault

One or more in each series string.

BMS (Battery Management System)

Voltage & temperature measurement, cell balancing

Present system choice uses resistive dissipation, drawing 1 ampere pulses from cells, duty cycle to 70%

BCU (Grid-Saver™ Battery Control Unit)

Communicates with BMS and commands cell balancing, limits cell depletion

Tracks cell condition keeping appropriate cell condition parameters, varying shunt voltage as needed.

ICU (Inverter Charger Unit)

Converts battery DC to AC to grid, and line AC to DC suitable for battery charging

Proposed 250 kW module design is derived from electric vehicle ICU co-developed by TransPower and EPC Power Corp. to minimize R&D costs and maximize economies of scale in production

GCU (Grid-Saver™ Control Unit, independent or ISO connected)

Either controls the Grid-Saver™ unit in accord with self-contained control logic, or in larger cases commanded by CaISO to provide energy as needed, and recharging of battery when solar or line energy available.

Small Grid-Saver™ units may be placed with solar or other alternative energy generators with algorithms designed to store energy and use it advantageously at peak demand times. Alternatively, communicates with ADS (Automated Dispatch System), exercises algorithms to optimize return from sale of energy or charging, commands ICU.

GH (Grid-Saver™ Housekeeper)

Monitors and logs temperature, ADS communication, line voltage

Responsible for assuring Grid-Saver™ environment is suitable for operation. Incorporates alarms for failed communication, line voltage, smoke and temperature alarms. Will call for help giving diagnostic information as needed.

1.1 Energy Storage System – The ESS contains the battery cells, BMS units, and the Battery Control Unit

(BCU).

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Cells – The ESS will use one or more strings of 300 Ah Lithium

Phosphate cells, each cell of nominal 3.2 volts. Present string size is

112 cells (used in the TransPower port truck implementation),

yielding a string of nominal 358 volts. It is expected that strings of

as many as 288 cells will be used in Grid-Saver™ implementation,

yielding a string voltage as high as a nominal 922 volts and

approximately 276kWhr energy storage for such a string. Four such

strings in parallel provide a megawatt hour of electrical energy

storage. Figure 2 schematically represents a pair of strings. The four

string (or more or less) configuration would be similar but with more

strings in parallel. The strings are packaged as modules of 16 cells

mounted in a supporting frame; the frame with cells weighs

approximately 360 pounds. (Note that a megawatt system will weigh

some 13 tons and include some 1152 cells.)

Each string of cells will incorporate electrically driven contactors capable of interrupting currents of

hundreds of amperes, manual disconnects and fuses. Multiple strings will each have these disconnects

and fuses, and in addition must involve sensing hardware and intelligence such that before connection to

the others each string will be of like voltage in order to connect without high currents and damaging

arcing.

Grid-Saver™ operational voltage must be appropriate to interfacing to the electrical grid. The San

Diego area distribution grid has high power lines at 12,000 volts, stepping down typically to 480 volts for

industrial service and 208 volt Y-connection for residences. The voltage choice is reasonably narrowed

to whether one interfaces at the 480 or 208, and for a megawatt of power the higher voltage will likely be

more suitable as even it involves currents of 1200 amperes. The inverter design for 480 VAC output will

have an input of above 480*SQRT(3) or 830 volts, hence the battery system will be of a high voltage

design well above that used on vehicles.

Battery Control – The BCU periodically (typically, every four seconds) interrogates each cell and

saves voltage and temperature information. BCU software will analyze the voltage data and return

commands to the BMS units as to which cells require balancing action and at what voltage the BMS

should shunt current, so as to reduce cell voltage. The BCU software shall dynamically vary shunt levels

during the charge cycle3, and if that is inadequate shall have the capability to shunt current (balancing

cells) during rest and discharge cycles as well.

Further, the BCU shall protect the ESS from over and undercharge.

3 The dynamic balancing algorithm includes:

Measure the strings highest and lowest cell voltages - Vh and Vl while charging.

If the difference between the highest and lowest is over 10 mv, then shunt current from those cells of

voltage over Vl+0.01 (allowing some of the charge current for that cell to be bypassed)

As Vh attains the charging goal (say, 4 volts) the charging current will be reduced such that Vh stays just

below the goal. The bypass current will remain constant, hence becoming a larger portion of the charge

current.

Charging shall be terminated either with a time switch or when the charge power is disconnected.

However, if the lowest voltage cell has not “caught up” with the higher volt cells to the extent that the

difference is below 10 mv, then the balancing action will continue with shunt power being drawn from the

higher voltage cells. This continues until all cells are within 10mv of the lowest.

Figure 2. Illustrating two

strings of Lithium ion cells in

parallel.

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During the charge cycle, as the highest voltage cell approaches Vmax (typically, 3.6 volts) the

charging shall be tapered such as to maintain that cell at Vmax.

During the discharge cycle, as the lowest voltage cell approaches Vmin (typically stipulated at 2.8

volts) the pack current shall be limited such that the lowest voltage cell does not drop below

Vmin.

1.2 Inverter Charger Units – The ICUs incorporate IGBT circuitry

to switch DC power to the AC lines, with appropriate filters such

that the power will constructively add to grid power. The ICU

operation is commanded by the GCU through a Supervisory

Controller incorporated as a part of each ICU.

EPC, a TransPower development partner, is developing

the ICU, a preview picture (of the vehicle unit; the grid application

unit will be similar but with larger inductors) is in Figure 3 at

right. Each ICU unit will switch up to 250kW. The Grid-Saver™

unit illustrated in Figure 1 would have from four to six of the ICU

units.. Each ICU would act together to switch power from the

battery cells to the line.

2.0 Grid-Saver System Architecture

The cell wiring shown in Figure 2 above illustrates a

system architecture with series strings of the lithium ion cells,

expandable to larger batteries by adding more series strings of

cells. This “Paralleled-Series” connection has been used for the

first TransPower electric vehicle applications. In this

configuration each cell is monitored by the BMS system for

voltage and if the voltage is high some of the energy of that cell

alone is bypassed so as to reduce the cell voltage to the end of maintaining relative cell to cell balance.

This automatically controlled balancing is intended to allow the use of cells of slightly different

characteristics while using feed-back control to bring the cell voltages to similar numbers.

2.1 Architecture beyond this CEC Contract

Influences of Interconnection Standards – The above centers on the architecture of the cells

and their connections, but it may develop that the more important architecture is in the planning and

software to meet the needs of the utility and the ISO. In California, the CPUC Rule 21 “Interconnection

Standards for Non-Utility Owned Generation” may be the best indication of the requirements that will be

imposed on electrical energy storage units.

Consistency with ANSI/IEEE 1547, the 2003 “Standard for Interconnecting Distributed

Resources with Electric Power Systems is required in the SDGE Rule 21 interpretation4.

Section J of Rule 21 “Certification and Testing Criteria” details that equipment which

interconnects to SDG&E’s distribution system includes testing to meet UL 1741, and

IEEE 929

4 http://regarchive.sdge.com/tm2/pdf/ELEC_ELEC-RULES_ERULE21.pdf

Figure 3. Interior of an Inverter

Charger Unit.

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Influences of Users and Their Needs – It is apparent that in the new world of the Smart Grid and the

utility built around a complex and responsive communication network, energy storage will take many

forms, ranging from the megawatt size now being developed by this contract (as well as prior work by

such as A123, Beacon Power, and larger systems such as the NAS systems fielded by NGK Insulators)

through hydroelectric pumped storage units. Further, there is need for small systems as well, such as the

50kW Capable “Community Energy Storage” units and 1 MW size storage, both being installed by

SDGE.5 Figure 4 shows EPRI’s conception of Community Energy Storage.

Figures 5a and 5b on the next page show the effect of varying insolation caused by clouds passing

over a 1MW solar PV facility on the SDGE primary circuit. These figures, presented in December 2010

in support of the 2012 SDGE tariff application, were used to support their argument for investment in

energy storage.

5 Described in testimony to the CPUC by Dr. Thomas Bialik, December 2010

http://sdge.com/sites/default/files/regulatory/SDG%26E-11-CWP%20Bialek_Z.pdf

Figure 4. EPRI conception of Community Energy Storage (p168 of ref. 2).

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Figures 5a, 5b. Measurements showing the effect of passing clouds on the SDGE

primary circuit.

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3.0 Cost Estimate

The Grid-Saver™ cost estimate is directed towards large scale implementation of this technology in

the form of 1 megawatt-hr units of 1152 cells at 300 Ah. The arrangement will be in compartments of 16

cells, nominal 51.2 volts per compartment, with each compartment individually replaceable if needed.

The BMS modules would be incorporated with each compartment. It is envisioned that 72 such

compartments would be supplied, possibly in the form of drawers that would slide on rails within a

battery mounting frame, all housed in a 20’ shipping container that would also house the inverters, switch

gear and communication to allow convenient shipment to a site and installation directly to a 3 phase

feeder line of 1500kVa capability.

Table 2 provides preliminary estimates of the market pricing for a Grid-Saver™ system capable of

storing 1 MWh of energy and delivering 1.5 MW of peak power. As indicated, the total estimated price

for such a system is $1.5 million, just over half of which is battery-related. This particular configuration

would have an installed cost to the user of about $1 per watt and $1.50 per watt-hour of energy storage

capacity. These figures will vary depending on the mix of batteries and inverters, and the scale of the

overall system. Extrapolating to a 40 MWh unit capable of 40 MW peak power, TransPower projects a

likely price of about $40 million, which results in the same $1 per watt of peak power but reduces the cost

per unit of energy storage to $1 per watt-hour. A system with 40 MW of peak power but much less

energy storage would cost far less per watt of peak power delivered, perhaps with prices as low as 30-40

cents/watt. The lower limit on energy storage, for systems with large battery packs but with much lower

peak power needs, is on the order of 75-80 cents per watt-hour.

Table 2. Costs for Grid-Saver™ with 1 MWh Storage Rated at 1.5 MW Peak Power

Component Preliminary Pricing

Estimate ($)

Batteries 475,000

Battery integration (modules, BMS, connectors, etc.) 300,000

Inverter-charger units 450,000

Enclosure and mechanical structures 50,000

Grid-Saver control unit and other electronics and wiring 25,000

Integration labor, contingency, and profit 200,000

TOTAL 1,500,000

One should note a wide discrepancy between these numbers and some estimates in the literature. In

particular, the recent CEC Strategic Analysis of Energy Storage in California cites numbers of over

$3000/kW.6 If the present project results in a Grid-Saver™ system with pricing similar to the above

estimate, the ownership cost would appear to be at most half of the estimates quoted in the footnoted

reference. These estimates – circa Q1 2012 – will change as the battery production capabilities change

and experience impacts our designs and production. The expectation would be that prices will drop with

time, but TransPower believes it is prudent to proceed on the basis of these best current estimates.

6 Andris Abele et.al.

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4.0 FERC, CPUC, ISO and Utility Progress Towards a Fair Reimbursement System.

For decades the electrical transmission and distribution networks have depended on rotating reserves

for maintaining line voltage and frequency. In 2005-2006 the California Energy Commission and CaISO

collaborated in an evaluation of high speed regulation using a high speed flywheel system. A 100 kVA

high speed flywheel was located at the Distributed Utility Integration Test Facility (DUIT) in San Ramon,

CA.7 The ISO supplied an ACE (Area Control Error) and frequency signal to drive the flywheel instead

of a traditional AGC (Automatic Generation Control) signal. This faster signal creates many more charge

and discharge cycles for a ten minute period than with conventional generator control and is more

compatible with the operating characteristics of the storage system.

The success of that test and other indications that fast regulation was double or more effective than

the old way led to renewed investment in battery as well as flywheel means of electrical energy storage.

The need for special tariff structures was acknowledged in FERC Order 890, which enjoins all public

utility transmission providers, including RTOs and ISOs, from undue discrimination and preference in

transmission service. This was the impetus to the ISO developing tariff charges structured such that non-

generation resources such as storage could participate in Ancillary Service Markets. More recently,

FERC Order 7558 requires RTOs and ISOs to compensate frequency regulation resources based on the

actual service provided, including a two part payment structure: a capacity payment that includes the

opportunity costs and a payment for performance that reflects the quantity of frequency regulation

service.

CaISO responded quickly to Order 755, in four months a sequence of straw proposals culminating in

a Draft Final Proposal, dated Feb. 13, 2012. The proposal is for:

1. The ISO to continue to pay resources for regulation capacity, noting that that payment includes

opportunity costs.

2. The ISO to pay resources responding to a regulation up dispatch at the real-time Resource-

Specific Settlement Interval (10 minutes) locational marginal price for the energy the resource

provides. Further, when a resource responds to a regulation down dispatch the resource is paid

the real-time Resource-Specific Settlement Interval (10 minutes) locational marginal price.

3. The ISO is adding a “mileage payment” which will be proportional to the cumulative up-down

regulation. The Draft Final Proposal goes into some detail describing how this will be

structured and priced.

4. The ISO is also adding an Accuracy Adjustment, measuring the resources response accuracy.

The accuracy record of the past week will be a multiplier in the payment for the services of

that resource.

Separately but in parallel with the FERC-ISO rulemaking, the CaPUC (Public Utility Commission) is

responding to direction from the California Legislature9 in opening a proceeding to determine appropriate

targets, if any, for each load serving entity to procure viable and cost-effective energy storage systems,

and to by October 2013 to adopt energy storage system procurement targets (if determined to be

appropriate) to be achieved by each load-serving entity by the close of 2015 and of 2020.

7 These notes from a David Hawkins CaISO draft dated 5/28/2008.

8 Issued October 20, 2011

9 Assembly Bill 2514, approved by the Governor and filed with the Secretary of State September 29, 2010.

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These energy storage mandates, or rather the possibility of such, have stimulated constructive

discussion and filing of briefs by parties as disparate as the utilities and the Sierra Club. The utilities have

responded by documenting, to a limited extent, their ongoing investment in storage systems. SDGE, as

noted above, has deployed 50 kWh systems in the distribution system and megawatt sized systems as

well. Their CaPUC testimony indicates SDGE budgeting of $25M and $30M, for storage systems in

2011-2012 respectively. Also worthy of note: the testimony suggests that the average price of storage

was to be $820/kwh.

The ISO proceedings are highly significant, as the opportunity cost and mileage payment structure

will provide the bidding structure and hence affect the profitability of energy storage in the California

electrical system in future years.

4.1 CaISO Non-Generator Resource Market Simulation – The design of the CaISO market system has

progressed to the point of an Implementation Plan10

which sets forth an action list leading to simulation

exercises. The first of these requires a registration (which was due, Dec. 20, 2011) and is for Limited

Energy Storage Resources using REM (Regulation Energy Management). The documentation required

includes:

A 223 item description of the generator characteristics.

IOU ( Investor Owned Utility) tariff approval.

Engaging with the ISO in the form of ISO Grid access, filling out a New Participant Contact

Form, initiating having the NGR (Non-Generator Resource) being included in upcoming model

builds.

Reviewing metering and interconnection requirements.

Scheduling Coordinator agreement.

A training exercise for this simulation was held March 26, 2012, the first simulation exercise is scheduled

for 9 April – 4 May.

5.0 Cost Benefit Analysis

Storage of electrical energy, the most fleeting form of energy, has always been a challenge. In the

past decade the fast development of lithium ion batteries and their unique and favorable properties,

coupled with the development of rotating mass electrical energy storage to unprecedented capabilities, has

led to the consideration of these technologies as one component of the “SmartGrid”. SmartGrid is a high

priority topic with the DOE (US Department of Energy) following being mandated by the 2007 EISA

(Energy Independence and Security Act). The DOE took the lead in distributing ARRA funds in support

of SmartGrid projects, including energy storage funding of $185M.

More recently California Senate Bill 17 of 2009 codified the EISA into California Law as well as

adding some elements such as requiring Smart Grid Deployment Plans of California Investor Owned

Utilities. Defining the benefits (or, for SmartGrid detractors, defining the costs and damage!) has of late

become a major effort, even while the technologies are in development and hence the capabilities in a

10

California ISO Non-Generator Resource Regulation Energy Management Project Implementation Plan – Version

2.0, February 4, 2012 http://www.caiso.com/Documents/Non-

GeneratorResourceRegulationEnergyManagementImplementationPlan.pdf

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state of flux. EPRI (the Electric Power and Research Institute) Report 102034211

, although now two

years old, summarizes some of this work and presents a most comprehensive survey employing both

monetary and non-monetary quantification of the benefits.

Herein TransPower has a much narrower scope, focused only on the benefits of megawatt scale

electrical energy storage systems. The CaPUC and the CEC as well have narrowed the scope, as directed

by the legislature’s AB2514. However, the CEC presentation to the March 9, 2011 Preliminary

Workshop on Energy Storage (by Avtar Bining) made clear the long history of interest of the CEC in

energy storage by a number of technologies starting with pumped hydro. The $13M of matching funds

by the Pier Program for ARRA projects was matched 100:1, including $427M from the DOE, directed

towards 18 projects in Northern and Southern California.

Even within this relatively narrow scope of electrical energy storage by batteries, the Cost/Benefit

analysis involves a complex range of variables for both costs and benefits:

5.1 Ameliorating Factors for Costs – The 2020 Strategic Analysis of Energy Storage in California12

report

details possible financial incentives that may buy down the cost of energy storage systems. Of particular

interest:

1. Investment tax credit: This is subject to Congressional action. Presently it applies to

generation facilities such as wind farms and solar electric systems, but not to storage systems.

For a party with profits to offset and funds to invest, such as banks, the renewable energy tax

credit can effectively reduce the investment cost by 30%.13

Considering the improbability of

any constructive congressional action in this election year, the possible benefits of an

investment tax credit are not included in our analysis.

2. SGIP (Small Generation Incentive Program): The SGIP is operated by the IOUs in carrying

out the direction of the CPUC and certain legislative directives. Incentives are available in

support (on a dollar/watt basis) of renewable and waste energy capture, Combined Heat and

Power (CHP) systems, and emerging technologies that include Advanced Energy Storage

(AES). The SGIP incentive for AES is presently $2/Watt storage unit power. The AES unit

must be able to discharge its rated capacity for 2 hours, hence the incentive is somewhat less

than $1/Wh of rated storage. Rating for 80% depth of discharge, the incentive is 80

cents/rated Wh. Our megawatt-hr system could thus merit a benefit of $800,000 if ready for

deployment.

5.2 Variability of Benefits – Grid-Saver™ can address at least two local markets and a number of larger

markets which are more formally defined through regulatory control by a local ISO :

Small Grid-Saver™ systems could be co-located with intermittent renewable generators, such

as rooftop solar systems, for instance, and smooth the peaks from the output while providing

power as needed to reduce grid demand at critical times. Here the Grid-Saver™ is either local

to the customer, or is part of the utility distribution system and will act in a transparent way to

11

Methodological Approach for Estimating the Benefits and Costs of Smart Grid Demonstration Projects, EPRI

Report 1020342 by Mike Wakefield, January 2010

http://www.smartgridnews.com/artman/uploads/1/1020342EstimateBCSmartGridDemo2010_1_.pdf 12

Andris Abele et.al. 13

http://online.wsj.com/article/BT-CO-20120202-715811.html

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provide a more continuous flow of power on the grid in response to a controlling algorithm

which could either be integral to the Grid-Saver™ or incorporated in a communication device

controlling multiple distributed storage units. Similar such local storage units have been

referred to as “Community Energy Systems” (CES). As noted above, SDGE, in their recent

Rate Filing, indicated that they have been installing 50kW capable local storage units, with

intent to put in 11 in 2011 and 14 more in 2012.

Grid-Saver™ systems of megawatt or larger may be used by the utility to address either local

power flow smoothing or ancillary services. Here again, the local utility SDGE is providing

substation energy storage at the rate of 4MW per year for 2011 and 2012. The total budget for

these units and the 50kW units is $25M and $30M for the successive years. SDGE, in its rate

case, argues the use of these systems “on circuits with high penetration of customer

photovoltaic systems” and “energy storage systems will be strategically located in substations

to mitigate the impact of multiple circuits with PV”. It is interesting to note that the Utility is

pleading for clearance to spend on these systems at the rate of approximately $5.4/watt. Herein

and elsewhere pricing is more commonly in relation to energy stored, $$/watt hour.

Large Grid-Saver™ systems may be grid connected with use of a Scheduling Coordinator

(SC)14

such that they will be used for regulation energy management as directed by CaISO15

.

The rules for this are only in partly in place, as CaISO tariff section 8. As discussed above in

section 4, the CaISO is in process of complying with FERC Order 755, issued October 20,

2011, through a proceeding process labeled “Pay for Performance”. The FERC Order observes

that current compensation methods for regulation service in organized markets fail to

acknowledge the inherently greater amount of frequency regulation service being provided by

faster-ramping resources and that some ISO practices result in economically inefficient

dispatch of frequency regulation resources. The order proposes to ensure that providers of

frequency regulation receive just and reasonable and neither unduly discriminatory or

preferential rates.

The CEC 2020 Strategic Analysis (Ref. 2, above) provides a slightly different breakdown, offering

Scenarios Analyses for:

1. Area and Frequency Regulation,

2. Renewables Grid Integration and

3. Community Energy Storage/Distributed Energy Storage Systems (DESS).

We proceed to look in detail at these and other specific market areas.

A most specific approach is to simply list ways storage could be used and be profitable. The Sandia

report16

provides a series of examples, and quantitative evaluation resulting in their graphical presentation

14

Scheduling Coordinators act for an organization, which may be a utility or may be a trader such as Shell or DTE

Energy Trading, to interface with CaISO to assure transactions meeting ISO rules. 15

California Independent System Operator, which has recently received FERC approval of proposed tariff revisions

that allow direct ISO control of non-generator resources using real-time dispatches to control the resource operating

point to support regulation demands. (FERC Docket ER11-4353-000, issued November 30,2011 and effective

December 1, 2011) http://www.ferc.gov/EventCalendar/Files/20111130145236-ER11-4353-000.pdf 16

Jim Eyer, Garth Corey, Energy Storage for the Electricity Grid: Benefits and Market Potential Assessment

120418 Grid-Saver™ Benefits 13

which we copy and present below. Eyer and Cory discuss in detail twenty-six “Benefits”, the most

notable of which they quantitatively price. Their presentation graphic presents several of these benefits as

having a value above $1000/kW and is shown in Figure 6.

We discuss some of their categories, adding quantitative examples in some cases:

1. Buy at night, sell in the day – This type of arbitrage is commonly done. The pumped hydro

facilities such as those in the mountains north of Los Angeles for instance, daily move water to

make additional power available to the city Department of Water and Power during the day.

Could this be profitable using batteries? Storage round trip efficiencies are reportedly a bit

over 80% for the pumped hydro facilities, a level that batteries can approach. Considering a

simplification of numerous trading opportunities, day prices for wholesale energy tend to be

about $40/MWh , while night time prices range from $10 to $30. (and are occasionally

negative!) Over a 3000 cycle life at 80% charge-discharge the revenue could approach

$100,000. Appropriate siting could totally transform this, for instance retail rates on the

Guide http://prod.sandia.gov/techlib/access-control.cgi/2010/100815.pdf

Figure 6. Eyer & Cory presentation of the benefits of electrical energy storage.

120418 Grid-Saver™ Benefits 14

Island of Hawaii are approximately 40 cents/kWh ($400/MWh), and the large wind farm at the

southern end of the isle reportedly curtails megawatts every night. With the right commercial

agreement at this location the revenue from daily cycling of a one megawatt unit could

approach $1M (for 3000 cycles). For a 1 MWh storage system estimated to cost $1.5M as

discussed in Section 5.0, this level of revenue would not in itself represent a satisfactory return

on investment.

2. Adding to Electrical Supply Capability – To what extent can adding battery storage substitute

for building new generation capability? To the extent that offering local grid support can

alleviate the need for permitting and building new generators, a modest expenditure for Grid-

Saver™ equipment could offset major investment in a generator. This is similar for paying for

demand not used, currently an offering of tariff structures. It is our sense that this feature is of

interest during peak summer days, and may not be appropriate as major commercial users are

ready to offer this service on an occasional basis at a much lower annual cost than is needed

for offsetting battery and inverter.

3. Load Following – Load Following relates directly to the ability to Ramp Up in the morning

and possibly in the summer afternoon as air conditioning demands, and Ramp Down in the

evening. Increasingly, the ramps are impacted by uncertainties related to the use of wind and

solar power (see the plots of Figs. 5a, 5b), which installations are being built up at

unprecedented rates. This capacity can more quickly be derived from storage, and the proposal

is increasing power being drawn from storage as compared to increasing generator heat of a

turbine. Again, this would likely be a once a day use of the battery capacity. However, it

could yield payment both for ramp capacity (regulation up) and for energy. The regulation up

payment is as low as $4 to 8/MWh during recent (January, February 2011, 2012) winter

months, to a monthly

average as high as $20

during spring (when

hydro plants are being

paid for generation

from winter runoff).

This payment adds to

that of the first

example, but still uses

only one cycle per

day. Eyer and Cory

run an analysis of the

cost of gas turbine

powered generation,

which is commonly

used for these

services, and end up

pricing the benefit at

$800/kW. This being

similar to the cost of

Figure 7 - 2011 Regulation Up/Regulation Down Pricing (Courtesy

of Mike Ferry)

120418 Grid-Saver™ Benefits 15

Grid-Saver™, and being a massive market¸ more detailed analysis will be appropriate at a

later time.

4. Area Regulation. The individual home, store, or factory has wide variations of power demand

as lights, motors and electric heaters are turned on or off, and one can imagine that the larger

community is demanding power from the summation of all these sources. Hence the load

following referred to above – slowing climbing for all of California from the 4am demands

through the morning increases to a peak of some 30,000 MW mid-day, and then again peaking

after dark only to fall as the community darkens – is accompanied by relative small

perturbations about the mean, but relatively small is megawatts and larger (depending on the

size of the community one includes in the local grid). Area regulation acts to respond to these

ongoing perturbations, maintaining frequency and voltage – quality of service – with response

times in seconds or at most minutes. Here the large generators are of service only in that they

have inertia and this rotational momentum is a kinetic energy reserve that can be quickly be

converted to electricity, but then quickly that rotational velocity must be maintained by adding

turbine power (steam or whatever). The capacitive (or flywheel) energy storage is ideally

poised to provide these services to the extent that energy management is available, avoiding

total depletion or over charging.

The rules for rewarding these services are in flux, with mileage payments definitely a part of the new

paradigm as stipulated by Order 755 and the following tariffs now being developed by ISOs. Fair pricing

is ordered by FERC, and based on the experimental results that fast regulation control (by flywheel or

battery energy storage) is more than twice as effective as rotating mass means, it appears that reliable and

reasonably priced electrical energy storage will be an active part of the new developing electricity

infrastructure. It appears too early to do useful analysis of how these payment rules will develop or even

how much mileage will be asked of battery storage devices. It may be useful to recollect that fast energy

storage was found to be twice as effective as older means of area regulation. Will the remuneration

reflect this?

5.3 Overview of the Ancillary Services (AS) Market and the Developing Market Software – The California

ISO in recent years has procured four ancillary services (AS) in day-ahead (DAM) and real-time markets

(RTM).

Regulation up – provided by grid synchronized generators which can quickly add power to the

grid after receiving automated signals from the ISO. (must be synchronized and be able to

receive AGC (Automatic Generation Control) signals, and to be able to deliver the AS award

power within 10 minutes) Supplies bid a given amount of available energy and are paid for that

amount, even if none is demanded.

Regulation down – the ability to decrease power output at guaranteed rate. An hourly payment

is made to online generators that can guarantee this ability.

Spinning reserve – keeping generators running at reduced power, just to be ready for immediate

response. The supplier is paid to keep the bid MW available to ramp up within 10 minutes.

Non-spinning reserve – generators paid to be ready to start on command. (also, in newer

tariffs, demand contracted to shut down on command).

120418 Grid-Saver™ Benefits 16

5.3.1. Recently Implemented Changes in Modeling and Control of the California Electricity

Market – Subsequent to the total meltdown of pricing in the California electricity market in 2000-2001

(due to exercise of market power by Enron and other suppliers which artificially restricted supply) the

CaISO has developed increasingly effective means of controlling the California electricity market. In

2009 and again in 2011 the CaISO implemented major redesign of California’s electricity markets.

In April 2009 CaISO incorporated use of a full nodal model of the California network with

capability to reflect the physical power system and market conditions and limitations. Nodal

pricing, focused on the limiting constraints of the transmission grid, result in locational

marginal prices which represent the additional incremental cost of serving the next increment of

demand at each of some 3000 distinct nodes. The day- ahead market bidding allows a supplier

to separate his bids so as to be separately reimbursed for start-up costs, for operating at

minimum loads (for spinning reserve) and for energy supply. The supplier can simultaneously

bid for energy supply (ES) and ancillary services (AS), with the ISO to calculate and accept an

optimized combination of ES and AS. An example is given: The supplier with a 100MW

generator can bid 90MW of energy at $20/MW and 20MW of spin at $5/MW. The ISO may

award 90MW energy and 10MW spin, or 80MW energy and 20MW spin (or any combination

which may not exceed 100MW), if that much AS is required. Other higher bids being

required to make up the needs for the Day Ahead Market, the settle prices of $50 (energy) and

$5 for spin, resulting in the settlement of $90*50 +10*5=$4550. Had the choice been to accept

the full 20MW spin services, the supplier would have been awarded $4000 for the energy, plus

$100 for the spin services PLUS compensation for the lost opportunity of providing the

remaining 10MW of energy bid at the difference between the award price of $50 and the

suppliers bid price of $20, or a total of $4000+100+300 or $4400.

Convergence bidding, a virtual bid scheme intended to narrow the gap between the day ahead

and real time market by allowing any creditworthy entity (even if they do not own physical

means of generating electricity) to buy or sell in the day ahead market was implemented at the

start of February 2011. The virtual bids allow the generating entities to hedge their bids. The

intent is that this should allow CaISO a narrower spread between the Day Ahead and Real Time

prices. Although the market developed to some $20 million of transactions per quarter in mid-

2011, it fluctuates greatly month to month, and significant differences still exist between the

day ahead bids and the real time pricing. The differences between the hour ahead and near term

bidding is even larger, as the average absolute real-time price has been over $10 over the hour

ahead price nearly all months.17

The net effect of the convergence bidding appears to be

constructive, as evidenced by net revenues paid out to bidding entities which dropped to $9M in

Q3 and then to $2M in Q4. There continue to be issues and evolution of the rules for the use

of virtual bidding, particularly with respect to energy imports and “inter-tie” resources.

In August 2011 CaISO implemented day ahead AS bidding using “dynamic ramp rates”,

introducing software which removed artificial constraints and better represented the operating

characteristics of generators which ramp at differing rates at varying power levels. Quoting

from the Q3 report on Market Issues and Performance: “Dynamic ramping of ancillary services

takes into account both energy schedules and operational ramp rates, leading to more effective

17

Refer to Fig. 1.4 of the Q3 report for 2011. http://www.caiso.com/Documents/QuarterlyReport-

MarketIssues_Performance-November2011.pdf

120418 Grid-Saver™ Benefits 17

ancillary service procurement. Indeed, both the quantity of ancillary services procured and the

prices of ancillary services in real-time dropped significantly in August from previous months

after deployment of the new dynamic ramp rate feature.”

On October 7, 2011, the CaISO submitted proposed tariff revisions to FERC (which were

approved December 12 and implemented the following day) implementing a flexible ramping

constraint in its real-time market process. CaISO indicated it had experienced insufficient

ramping capability, that is, it was unable to adjust the power output of committed resources fast

enough to match real-time supply with real-time demand.18

The shortages in ramping

capability were a result of the CaISO scheduling process which optimized to meet a scheduled

forecast which did not have any allowances for weather changes or other changes from the

expected scenario. Due to lack of ramping capability CaISO had been relying on regulation

capacity and operating reserves, most particularly during the morning and evening load

increases. They explain that CaISO operates two real-time market processes: the real-time unit

commitment process that runs every 15 minutes, and the real-time dispatch process that runs

every 5 minutes to dispatch available resources to economically meet the load. It had been

experienced that spinning and non-spinning reserves and regulation service procured in the 15-

minute real-time unit commitment process do not provide sufficient ramping capability and

flexibility to meet actual conditions that arise in the 5 minute real time dispatch interval.

The implementation of this Flexible Ramping Constraint is being used “to procure upward ramp

capability from committed, flexible generation resources and proxy demand response resources that are

not designated to provide regulation or contingent operating reserves, and whose upward ramping

capability is not committed for load forecast needs.” CAISO notes that its on-going Renewable

Integration Market and Product Review Phase 2 stakeholder initiative is addressing the creation of a new

flexible ramping product with bid-based pricing.

The Q4 2011 Report on Market Issues and Performance (issued February 2012) closes with a review

of early experience with the new “Real-Time flexible ramp constraint performance”. It is noted that the

total payments to units providing flexible ramping capacity during the month of January 2012 totaled

around $2.5 million, compared with a monthly average payment of $1.2M for spinning reserves resources

for the same period. (It is noted that FERC appointed a settlements judge to adjudicate on the cost

allocation methodology. This proceeding is continuing, likely into May 2012.) The flexible ramping

“shadow price” in January peaked the week of January 10 at an average of $44.9519

, dropping as the

month progressed to $30.95 the last week of January.

This CaISO evolving software design appears to be increasingly efficient at distributing the

generation resources and assuring electricity delivery with minimal incidence of shortage.20

Further

changes are in planning stages, particularly related to the use of energy storage. Two proceedings,

Regulation Energy Management and Pay for Performance, are particularly of interest. A third

18

FERC Order on Docket ER12-50-000, issued December 12, 2011 http://www.caiso.com/Documents/2011-12-

12_ER12-50_FlexiRamporder.pdf 19

Per MW, we presume! 20

The meltdown of service last Sept. 8 was due to events which occurred outside of California, and service was

restored by morning. There were no scarcity events in February, and the costs achieved lows of $0.19 for AS and

peak hour electrical energy prices averaged below $30/MWh (3 cents/kWh)

120418 Grid-Saver™ Benefits 18

proceeding, a Market and Product Review related to Renewable Integration was in process and has also

resulted in significant changes in market rules.

5.3.2. Pending Changes Regarding Renewable Integration – The CaISO has been making changes,

starting in 2010, to implement the integration of renewables stipulated by the upgraded Renewables

Portfolio Standard. Although there was confidence that integration of 20% renewables into the California

grid was supportable, it was judged that further market design changes were needed to accommodate 33%

renewables. Early changes included modifications to AS guidelines to support non-generating resources,

such as energy storage, which included

1. Removing resource type restrictions and reducing the minimum rated capacity to 500kW,

2. Reducing the minimum continuous energy requirement from 2 hours to 30 minutes for real-

time Regulation Up/Regulation Down (Spin/non-spin is also 30 minutes, but the Day-Ahead

Regulation requires a full hour commitment).

In September 2010 the CaISO initiated Phase 1 of a formal Renewable Integration Market and

Product Review, specifically focused on short term solutions for accommodating variable energy

resources (VER), but in fact opening up the considerations to a wide range of changes in practices

including how to accommodate the CaISO’s increasing need for dispatchability. One key focus was in

revising the PIRP (Participating Intermittent Resource Program21

) to incorporate a staged approach to

lowering the negative bid floor. Federal energy tax credit incentives, renewable energy credits, and other

factors pay wind and solar energies to produce power even when the state does not need more electricity.

The prior bid floor of -$30/MWh was not a sufficiently strong incentive to curtail output, and the

increasing amount of VER compounds the issue. CaISO states:22

“price responsive curtailment of

renewable resources is a more efficient solution to economically meet downward-flexibility requirements

which will continue to increase as more variable energy resources are added to the system.” Hence the

Board approved new floor level is -$150/MWh, and this will automatically be lowered to negative

$300/MWh next year.

A CaISO White Paper was issued on the expected impact on the PIRP suppliers and the market23

and

the CaISO Market Surveillance also commented with a final opinion24

. Generally, it is expected that

contractural commitments of vintage installations will prevent curtailment despite the incentive of

significant negative pricing, and that thus there will be pressure for new contract form to emerge.

5.3.3. Regulation Energy Management – While the list of changes implemented in the past three

years, above, focus on the modeling, the disparity between forward and real time markets, the

restructuring of the regulatory mechanism to allow the generators to deliver the needed ramping

(increasingly due the increasing amounts of variable energy resources), and appropriate incentives to

attain curtailment when too much power is going to the grid, there are also the beginnings of major

changes in process in the ancillary services regulatory structure. These stem from the demonstrations of

21

PIRP dates back to 2002 as a joint development of the Governor’s office, AWEA, CEC, CPUC and IOUs directed towards

supporting investment into renewable energy enterprises by waiving some of the CaISO market rules and adding limited

forecasting capabilities and data telemetry. 22 Draft Final Proposal, Renewable Integration: Market and Product Review, Phase 1, Nov. 4, 2011

http://www.caiso.com/Documents/DraftFinalProposal-RenewableIntegrationMarket-ProductReviewPhase1.pdf 23 http://www.caiso.com/Documents/WhitePaper-

PotentialImpacts_LowerBidPriceFloor_Contracts_DispatchFlexibility_PIRPResources.pdf 24 http://www.caiso.com/Documents/MSC_Final_Opinion_RenewableIntegrationMarket-ProductReviewPhase1.pdf Final

Opinion on (Renewable) Integration by Market Surveillance Committee.

120418 Grid-Saver™ Benefits 19

the possibilities of modular fast response energy storage, and the pressures to use these new technologies,

in addition to the large facility investments in pumped hydro or even compressed air energy storage,25

in

combination with the ISO expectations that variable energy resources will increase the need for regulation

capacity.

In 2008 FERC issued Order No. 890 which required that regional transmission organizations (RTO)

and independent system operators (ISO) allow non-generation resources (including demand response, but

particularly including flywheels and battery sysems) to provide ancillary services when technically

capable. CaISO subsequently made tariff revisions to facilitate the provision of ancillary services by non-

generator resources (accepted by FERC in September 2010) as noted above under 7.3.2. CaISO then

(August 2011) requested more extensive changes to allow greater participation by non-generator

resources in the ISO’s AS market. Key is the design and implementation of regulation energy

management (REM), which will enable the ISO to manage the non-generating resource by controlling its

operating set point through the ISO’s energy management system with the objective of maintaining the

resources preferred operating point.26

When a resource has a physical MWh limit, the ISO will observe

this constraint during real-time dispatch.

FERC approved the CaISO request, and staff has issued an implementation plan including a sequence

of market simulations for participants to exercise and test the new software. The plan is that REM will go

into operation in the CaISO system late in November 2012, following the completion of these market

simulations.

5.3.4. Pay for Performance – As a result of FERC Rule 755 the concept of Pay for Performance has

led the CaISO to approve regulatory tariff changes27

stipulating payments to frequency regulation

resources based on:

a. A payment for capacity reserved for regulation services, and

b. A payment for performance based on the amount of frequency regulation provided by

resources accurately following the automatic generator control (AGC) dispatch signals

provided by the ISO

There also may be a payment for net energy added to the grid, which is made at the real time energy

price.

25 As fast as the ISO systems can be adapted to these new possibilities, the commercial realities are pressing. In recent months:

Altairnano, one of the early demonstrators of battery storage on a utility scale, has been saved only by purchase by a

Chinese firm. The public stock has dropped to well below a dollar.

Beacon Power, founded in 1998 with innovative flywheel technology intended for telecom backup has operating utility

storage systems in the 20MW scale. It has filed for Chapter 11 reorganization and recently received some additional

funding.

A123, an American battery firm, has placed utility scale systems starting in 2008. It has also aggressively pursued

automotive projects with more success than most, but that has not been reflected in the market perception of the firm.

It has recently had failures in automotive battery packs, is faced with a recall program and a $50M writeoff, a stock

price under a dollar and lawsuits from disappointed institutions.

As of April, 2012 the shakeout of the battery supplier community is a sobering reminder of the commercial difficulties attendant

on implementing large scale technological shifts where there is substantial infrastructure involvement without a strong national

commitment. 26

From CaISO filing of 22 Aug. 2011 to Secretary Bose of FERC 27 http://www.caiso.com/Documents/DraftTariffLanguage-PayforPerformanceRegulation.pdf Also see the Market Surveillance

Committee Opinion of March 7, 2012 http://www.caiso.com/Documents/MSC-FinalOpinion-Pay-for-

PerformanceRegulation.pdf and the proposal as amended http://www.caiso.com/Documents/Addendum-DraftFinalProposal-

Pay_PerformanceRegulation.pdf

120418 Grid-Saver™ Benefits 20

The major change here is the proposed addition of the payment for performance “mileage payments”,

of mechanisms to track the accuracy of the response of a resource, and of limiting the payment by a factor

incorporating the accuracy record of the resource. The term mileage payments refers to the “distance”

traveled as the resource responds to repeated increase-decrease commands, or as the ISO words it “the

absolute change between AGC set points between 4 second intervals”. To make up an example:

T=0 AGC commands increase and Grid-Saver™ responds from 0 to 1 MW from storage to grid

[mileage of 1MW]

T= 1minute, AGC commands 0 power, and Grid-Saver™ ceases providing power. [adding to

prior 1MW up, total mileage is 2MW]

T= 1minute + 20 seconds, AGC commands -1MW [total mileage now 3MW]

Note that in the first two of these the Grid-Saver™ responds.. if in the third there is a failure to

respond, the AGC total mileage of 3MW differs from the Grid-Saver™ output. The ISO proposes to

measure the accuracy of the resource’s response to AGC as the absolute value of the difference between

the AGC set point and actual telemetry for each 4 second regulation interval. The accuracy will be

reflected in an accuracy percentage value which can range from 0 to 100%. The amount of payment

received will be the mileage (commanded by AGC) times the mileage marginal clearing price times the

resources accuracy.

5.4 Historical Valuation of Ancillary Services – The CaISO Department of Market Monitoring

issues analysis reports weekly, monthly, quarterly and annual Market Issues and Performance Reports, (of

which the 2010 issue28

is the most recent annual available). The 2010 cost of Ancillary Services (AS)

was just under $0.4 per MWhr of load served, but still totaled $84M total (California ISO ancillary

services cost). These monies covered Regulation Up, Regulation Down, Spinning Reserve and Non-

Spinning Reserve.

Figure 6.1 of the report on the year 2010 illustrates the progress made in recent years with Ancillary

Service costs dropping from $0.96/MWh (2.4% of the wholesale energy cost) in 2006 to $0.38 (just under

1%) in 2010. More recent results are further dramatically improved, to $0.22 in January 2012 and $0.19

for February 2012.29

(The average prices paid in February were $4.07/ for Regulation Up, $4.35 for

Regulation Down, $1.43 for Spinning Reserve and $0.17/MW for Non-Spinning Reserve.) Certainly

some of these decreases are due to the very low natural gas prices, but it appears that the CaISO has also

notably reduced the AS costs through their continued market redesign.

It is notable that the cost of ancillary services peaks during the spring, when hydro plants are using

the run-off to provide electricity rather than regulation, and during the summer, when high demand makes

the operation more critical (as illustrated in Fig. 7).

One might expect continued success in reducing the AS cost, especially with the increasing

availability of designed to serve tools such as flywheel storage, battery systems, and the recent attention

on designing the ISO system to provide fast response systems. However, the increasing amounts of solar

and wind add to the task such that it is not clear that the cost can continue to come down.

28

http://www.caiso.com/2b66/2b66baa562860.pdf 29

CaISO Market Performance Report February 2012

http://www.caiso.com/Documents/MarketPerformanceReport_February.pdf