SAND97-1275/2 Distribution -...

SAND97-1275/2 DistributionUnlimited Release Category UC-1350

Printed September 1997

Battery Energy StorageMarket Feasibility Study–

Expanded Report

Steve KraftFrost & Sullivan

2525 Charleston RoadMountain View, California 94043

Abbas AkhilEnergy Storage Systems Analysis and Development Department

Sandia National LaboratoriesP.O. Box 5800

Albuquerque, New Mexico 87185-0613

Abstract

Under the sponsorship of the U.S. Department of Energy’s Office of Utility Technologies, the Energy Storage Sys-

tems Analysis and Development Department at Sandia National Laboratories (SNL) contracted Frost & Sullivan to

conduct a market feasibility study of energy storage systems. The study was designed specifically to quantify the

battery energy storage market for utility applications. This study was based on the SNL Opportunities Analysis per-

formed earlier. Many of the groups surveyed, which included electricity providers, battery energy storage vendors,

regulators, consultants, and technology advocates, viewed battery storage as an important technology to enable in-

creased use of renewable energy and as a means to solve power quality and asset utilization issues. There are two

versions of the document available, an expanded version (approximately 200 pages, SAND97-1275/2) and a short

version (approximately 25 pages, SAND97-1275/1).

CONTENTS BATTERY ENERGY STORAGE MARKET FEASIBILITY STUDY

iv

Acknowledgments

Sandia National Laboratories would like to acknowledge and thank Dr. Christine E. Platt of the U.S. Department ofEnergy’s Office of Utility Technologies for the support and funding of this work. We also gratefully acknowledgeall of the contributing utilities, electricity providers, product suppliers, regulators, industry advocates, and profes-sional and academic associations who responded to the survey.

The principal investigator for this study was Steve Kraft from Frost & Sullivan. The Frost & Sullivan team includedDavid Coleman and Ken Herbert.

We also wish to thank the following individuals for participating in a review panel that provided valuable technicalcomment before the final study was published.

Review Panel Members

Mr. Mike HingaDelphi Energy and Engine Management Sys-tems

Mr. Bob FlemingAC Battery Corporation

Mr. Gene CookYuasa-Exide

Mr. George HuntGNB Technologies

Dr. Rajat SenR.K. Sen and Associates

Mr. Paul KlimasSandia National Laboratories

Dr. Philip C. SymonsSymons/EECI

Mr. Howard LowittEnergetics

Mr. Steve EckroadElectric Power Research Institute (EPRI)

Mr. Carl ParkerInternational Lead Zinc Research Organization(ILZRO)

Mr. Richard SchweinbergSouthern California Edison

Ms. Denise ZurnNorthern States Power

Mr. Bradley JohnsonPotomac Electric Power Company (PEPCO)

Mr. Jon HurwitchSwitch Technologies

BATTERY ENERGY STORAGE MARKET FEASIBILITY STUDY CONTENTS

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Contents

1. Executive Summary ...................................................................................................................................... 1-1Project Overview.................................................................................................................................. 1-1Goals of Study ...................................................................................................................................... 1-1Study Parameters.................................................................................................................................. 1-1Selection of Respondents ..................................................................................................................... 1-2Surveying Process ................................................................................................................................ 1-3Writing and Analysis ............................................................................................................................ 1-4Assumptions and Risk Assessment....................................................................................................... 1-4

Economic Assumptions ................................................................................................................. 1-4Deregulation of the Electric Power Industry ................................................................................. 1-4Network Reliability ....................................................................................................................... 1-4Electricity End-User Markets ........................................................................................................ 1-5

Summary of Major Findings................................................................................................................. 1-5Perceptions of BES ....................................................................................................................... 1-5BES Market Opportunities and Forecasts ..................................................................................... 1-8

Conclusions and Recommendations ................................................................................................... 1-10Conclusions ................................................................................................................................. 1-10Recommendations ....................................................................................................................... 1-12Market Summary......................................................................................................................... 1-13

2. Battery Energy Storage Industry Overview............................................................................................... 2-1Project History...................................................................................................................................... 2-1The Current BES Market...................................................................................................................... 2-1The Future BES Market ....................................................................................................................... 2-1Existing BES Technologies.................................................................................................................. 2-2

3. Market Definitions and Methodology ......................................................................................................... 3-1Market Definitions................................................................................................................................ 3-1Market Feasibility Study Contact List and Methodology ..................................................................... 3-1

4. Electricity Provider Industry Perspectives on BES ................................................................................... 4-1Electricity Provider Responses............................................................................................................. 4-1Outline of This Chapter ........................................................................................................................ 4-1General Opinions of BES ..................................................................................................................... 4-2Perceptions of BES Technology........................................................................................................... 4-2Organizational Structure and BES Procurement...................................................................................4-4BES Versus Other Advanced Storage Technologies ............................................................................ 4-5BES Versus Central Energy Storage Technologies .............................................................................. 4-6BES Versus Generation Technologies.................................................................................................. 4-7Industry Comparisons of Other Generation and Storage Options to BES ............................................ 4-7Deregulation's Impact on the BES Market ........................................................................................... 4-8BES Applications ............................................................................................................................... 4-10BES and Ancillary Services ............................................................................................................... 4-10Additional BES Applications Important to Respondents ................................................................... 4-12Additional BES Applications Important to the Electricity Provider Industry..................................... 4-12Desired BES Technical and Product Characteristics.......................................................................... 4-12Estimates of Load Growth and Transmission and Distribution Expansion......................................... 4-14Estimates of the BES Market.............................................................................................................. 4-15Projected Effects of Lower-Cost BES Technology ............................................................................ 4-17

5. Supplier and Consultant Perspectives on Battery Energy Storage .......................................................... 5-1Introduction .......................................................................................................................................... 5-1


vi

Contents (Continued)

List of Contributing Suppliers and Consultants.................................................................................... 5-1Products and Services Offered to BES Market..................................................................................... 5-1Future BES Supplier Product and Service Offerings............................................................................ 5-2Vendor Perspectives on Other Energy Storage Technologies .............................................................. 5-2Barriers to BES Acceptance ................................................................................................................. 5-3BES Customer Segmentation ............................................................................................................... 5-4BES Customer End-Use Applications .................................................................................................. 5-6Barriers to BES Acceptance Among Electricity End Users.................................................................. 5-7Electricity End-User BES Market Estimates ........................................................................................ 5-7End-User Battery Technology Preference ............................................................................................ 5-8Competitive Analysis............................................................................................................................ 5-9Vendor Perspectives On Existing BES Projects................................................................................. 5-10BES Manufacturing Developments .................................................................................................... 5-11BES Marketing Developments ........................................................................................................... 5-11

6. Regulatory Agency and Industry Group Perspectives on Battery Energy Storage ................................ 6-1Introduction .......................................................................................................................................... 6-1List of Contributing Regulatory Agencies, Industry Advocates, and Professional/Academic Associations......................................................................................................................... 6-1Chapter Structure.................................................................................................................................. 6-1Regulatory Agency, Industry Advocate, and Professional/Academic Opinions of BES ...................... 6-1Regulatory Agency, Industry Advocate, and Professional/Academic Promotion of BES .................... 6-2Benefits of BES.................................................................................................................................... 6-3Estimates of Load Growth.................................................................................................................... 6-3BES and Deregulation .......................................................................................................................... 6-4Industry Feedback on BES ................................................................................................................... 6-4

7. Study Assumptions and Risk Assessment.................................................................................................... 7-1Explanation of Assumptions and Risk Assessment .............................................................................. 7-1Study Assumptions ............................................................................................................................... 7-1Industry Deregulation........................................................................................................................... 7-1Network Reliability .............................................................................................................................. 7-2Electricity End Users............................................................................................................................ 7-2

8. Conclusions and Recommendations ............................................................................................................ 8-1Conclusions on the BES Marketplace .................................................................................................. 8-1

Challenges to BES and the BES Industry...................................................................................... 8-1Improving BES Cost, Life Cycle, and Maintenance...................................................................... 8-1Increasing BES Energy Density .................................................................................................... 8-1BES Market Targeting and Segmentation ..................................................................................... 8-2The Level of BES Education......................................................................................................... 8-3Technology Bias Toward Generation............................................................................................ 8-3Organizational Obstacles to BES Procurement ............................................................................. 8-3Communications in the BES Marketplace..................................................................................... 8-4

Recommendations for SNL .................................................................................................................. 8-4Focus on Potential BES Applications and Products ...................................................................... 8-4Strengthen BES Industry Partnerships...........................................................................................8-5Focus on Lower-Cost, Higher-Density Battery Technologies ....................................................... 8-6Facilitate Clearer Communications within the BES Industry ........................................................ 8-6Perform Studies of Electricity End Users and Cooperatives ......................................................... 8-8Closing Remarks ........................................................................................................................... 8-8

BATTERY ENERGY STORAGE MARKET FEASIBILITY STUDY CONTENTS

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Contents (Continued)

Appendix A: Electricity Provider Questionnaire................................................................................................ A-1

Appendix B: BES Vendor Questionnaire .............................................................................................................B-1

Appendix C: Regulator/Advocate/Professional Organization Questionnaire .................................................. C-1

Appendix D: Battery Energy Storage Applications List .................................................................................... D-1

Figures

1-1 Applications Identified by Electricity Providers (30 Companies), 1996.................................................. 1-6

4-1 Applications Identified by Electricity Providers (30 Companies), 1996................................................ 4-11

Tables

1-1 BES Market: Organizations Contacted By Type (U.S.), 1996................................................................ 1-2

1-2 BES Market: Individuals Contacted by Utility Type and Job Title (U.S.), 1996.................................... 1-3

1-3 Applications Identified by Electricity Providers (30 Companies), 1996.................................................. 1-6

1-4 BES Market Predictions by Electricity Providers (U.S.), 2000, 2005, and 2010..................................... 1-9

1-5 BES Market Predictions by BES Suppliers and Consultants for Electricity End Users (U.S.), 2000,2005, and 2010 ........................................................................................................................................ 1-9

4-1 Opinion Survey Results: Likelihood of BES Deployment Predicted by U.S. Electricity Providers(37 Companies), Years 2000, 2005, and 2010......................................................................................... 4-2

4-2 Applications Identified by Electricity Providers (30 Companies), 1996................................................ 4-11

4-3 Estimate of Capacity Additions and Load Growth (in Megawatts): Provided by Electricity ProviderSample (21 Companies), Years 2000, 2005, and 2010.......................................................................... 4-15

4-4 Extrapolation of Capacity Additions and Load Growth (in Megawatts): Electricity Provider Industry(U.S. and Puerto Rico), Years 2000, 2005, and 2010........................................................................... 4-15

4-5 Mean Estimated Percentage of New Capacity Additions Being Met by BES: By ElectricityProviders (21 Companies), Years 2000, 2005, and 2010....................................................................... 4-16

4-6 Estimated BES Capacity Additions (in Megawatts): By Electricity Providers (21 Companies),Years 2000, 2005, and 2010 .................................................................................................................. 4-16

4-7 Extrapolation of BES Capacity Additions (in Megawatts): Electricity Provider Industry(U.S. and Puerto Rico), Years 2000, 2005, and 2010............................................................................ 4-16

4-8 Estimated BES Market (in Dollars): Electricity Provider Industry (U.S. and Puerto Rico),Years 2000, 2005, and 2010 .................................................................................................................. 4-16

5-1 BES Market: Supplier and Consultant Estimates of the Electricity End-User Market(in Megawatts) (U.S. and Puerto Rico), Years 2000, 2005, and 2010..................................................... 5-8


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Acronyms and Abbreviations

BES battery energy storage

BESS battery energy storage system

CAES compressed-air energy storage

DOE U.S. Department of Energy

DSM demand-side management

DVR dynamic voltage regulator

EMC Electric Membership Cooperative

EPRI Electric Power Research Institute

ESA Energy Storage Association

ESS Energy Storage Systems

FERC Federal Energy Regulatory Commission

ILZRO International Lead/Zinc Research Organization

IOU investor-owned utility

IPP independent power producer

IRP integrated resource plan

ISO independent system operator

NRECA National Rural Electric Cooperative Association

NUG nonutility generator

PREPA Puerto Rico Electric Power Authority

PV photovoltaics

R&D research & development

RFP request for proposal

SCE Southern California Edison

SDG&E San Diego Gas & Electric

SMES superconducting magnetic energy storage

SNL Sandia National Laboratories

T&D transmission & distribution

UPS uninterruptible power supply

VAR volt-amp reactive

VRLA valve-regulated lead-acid

BATTERY ENERGY STORAGE MARKET FEASIBILITY STUDY EXECUTIVE SUMMARY

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1. Executive Summary

Project Overview

Battery energy storage (BES) consists of modernbattery and electronics technologies used in stationaryapplications. BES is now being applied to the needsof the electric power industry. In these applications,BES can be used to increase system reliability, im-prove power quality, defer capital investments, andimprove the economics of power generation and en-ergy consumption. Currently, the BES market is in adevelopmental stage, as are some of the battery andpower conditioning subsystems integrated into BESsystems.

Sandia National Laboratories (SNL) and the U.S.Department of Energy (DOE) are developing BEStechnology and encouraging its commercialization.This study is a part of those development efforts.

To better orient BES development efforts to the needsof the BES marketplace, SNL began developing therequest for proposal (RFP) for this study in 1995,coordinating RFP development with the Energy Stor-age Association (ESA). Release of the RFP to thepublic occurred in Fall 1995.

Among the bidders on the RFP distribution list wasFrost & Sullivan, a market research and consultingcompany. In March 1996, Frost & Sullivan was offi-cially retained by SNL to conduct this study, withresearch commencing in May 1996.

Goals of Study

SNL had three principal goals in conducting thisstudy. The first was to gather BES industry percep-tions, especially among utilities and nonutility gen-erators (NUGs), referred to in this report as"electricity providers." Additional perspectives werealso gathered from BES suppliers and suppliers ofBES components, utility regulatory agencies, andelectric power industry trade and advocacy groups.

The perceptions gathered were to include informationon desired product features, comparisons of BES withother electricity storage and supply options, and manymore qualitative topics. The qualitative findings pro-vide the most interesting results of this study.

The second major goal of this study was to generatean estimate of the electricity provider BES marketthrough 2010. Specifically, this forecast was to in-clude estimates of BES market activity for the years2000, 2005, and 2010. These forecasts were derivedfrom information gathered from the electricity pro-vider sample and are year-on estimates (as opposed tocumulative) for 2000, 2005, and 2010 only. There-fore, these estimates do not measure any market ac-tivity occurring in years other than 2000, 2005, and2010.

The third major goal was to provide SNL and theDOE with valuable input into its Energy StorageSystems (ESS) program management efforts. TheESS program strives to improve its customer orienta-tion, and the results of this study were expected to beof significant aid in that direction.

Study Parameters

This study was limited to the estimation of the BESmarket at the electricity provider level. Because ofresource limitations, a more thorough research of theBES market among end users of electric power, suchas large industrial and commercial customers, was notundertaken.

End-user estimates are included in the study, butthese are based on BES supplier organizations' per-ceptions. A market study of BES demand at theelectricity end-user level may be undertaken in thefuture, and such a study is recommended to SNL laterin this report.

The study forecast period is another important pa-rameter. The decision was made during the writing ofthe RFP that this study should provide BES marketestimates through 2010. This would give SNL andthe rest of the BES industry a chance to review fore-casts in time to develop the technologies, organiza-tions, and infrastructure needed to serve and improveforecast future BES demand. The RFP for this studyrequested year-on BES market estimates, not cumu-lative estimates.

An additional parameter was the number of inter-views that could be completed using allocated

EXECUTIVE SUMMARY BATTERY ENERGY STORAGE MARKET FEASIBILITY STUDY

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resources. For this study, 60 to 80 interviews withmember organizations within the BES communitywere expected, and 68 were completed.

Geographically, this study was limited to the U.S.BES market. All of the organizations contacted forthis study were asked about their activities in the U.S.market. Their operations outside of the United Stateswere excluded. The market penetration estimatesgiven later in this study include only activity in theUnited States and its territories, such as Puerto Rico.They do not include any figures for BES export fromthe United States to foreign markets.

Selection of Respondents

SNL and Frost & Sullivan decided through mutualconsultation on the organizations to be contacted forthis study. As stated earlier, these organizations in-cluded utilities, NUGs, BES suppliers, regulatoryagencies, and other organizations whose actions in-fluence the BES market. Table 1-1 shows the break-down of the 68 organizations that were ultimately

contacted. More specific information on the organi-zations included can be found in a later chapter of thisreport.

Table 1-2 shows the individuals contacted at electric-ity provider companies for this study by job title andtype of electricity provider. Table 1-2 shows that theelectricity provider sample is relatively "engineering-heavy." This is partly due to the nature of the inter-viewing process. Many of the electricity providersinterviewed had existing contacts with SNL or theESA, and these people provided the initial point ofcontact for Frost & Sullivan in its research efforts.Because BES is a developing technology, and SNL isa research and development organization, most ofthese existing contacts tended to fit into technicalvocations such as engineering.

Efforts were also made during the study to draw inputfrom other departments within the electricity providerorganizations. These contacts account for the numberof planning and marketing personnel in the sample.

Table 1-1. BES Market: Organizations Contacted By Type (U.S.), 1996

Organization Type Number Contacted

Electricity Providers 38

Investor-Owned Utilities (IOUs) 24

Independent Power Producers (IPPs) 5

Municipals 2

Cooperatives 3

Federal, State, or District Utilities 4

BES Suppliers 11

BES Consultants 6

Regulatory Bodies 6

Electric Power Industry Groups 6

TOTAL 67


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Table 1-2. BES Market: Individuals Contacted by UtilityType and Job Title (U.S.), 1996

Utility Job Title Number Contacted

IOUs: Chemist (1)Engineer (5)Engineer (Manager) (1)Engineer (Senior) (5)Engineer (Senior Research) (2)Integrated Resource Planner (3)Manager of Advanced Market

Development(1)

Manager of Conservation (1)Power Quality (1)Product Development Manager (2)Technical Analyst Coordinator (2)

Municipal Utilities: General Manager (1)Mechanical Engineering (1)

ElectricCooperatives: Assistant Manager (1)

Engineer (1)Engineer (Planning) (1)

Federal, State, andDistrict Utilities: Assistant Head, Planning and

Research Division(1)

Engineer (Principal) (1)Manager of Electric Transporta-

tion(1)

Project Specialist (1)

IPPs: Director of Technology Re-search and Development

(1)

Manager of Power Systems (1)Project Marketing Manager (1)Vice President (1)

Power Marketer and IPP: Development Director (1)

Surveying Process

Frost & Sullivan relies on primary research to gatherthe data for its reports. The BES study was no ex-ception. This report was based on information gainedfrom primary research contacts made during the sur-veying process or in other activities related to theproduction of the report. Secondary research of pre-existing information sources provided little more thananswers to technical questions related to BES andbattery technologies.

Specifically, the surveying process for the study en-tailed Frost & Sullivan analysts contacting organiza-tions that had been placed on the contact list on the

basis of consultations with SNL and the ESA. In thecase of most of these companies, an initial individualcontact had been identified based on that individual'spast involvement with BES or with SNL.

Once contacted, these individuals were apprised ofthe nature of this study and asked who at their organi-zation would be best able to provide a response thatcould be used in the preparation of this report. Inmany cases, the initial contact provided a response,but, in other cases, the contact referred the researchteam to another contact or group of contacts. Thisprocess continued until a viable respondent wasreached at each organization.


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At this time, the respondent was faxed the properquestionnaire or interviewed over the telephone.Three basic questionnaires were developed, aimed atthree distinct groups within the BES industry: BESsuppliers and consultants, electricity providers, andregulatory bodies and industry groups. The question-naires were developed by Frost & Sullivan in con-junction with SNL.

Writing and Analysis

Upon receipt of the interview results, transcription ofthe results was performed if necessary. After tran-scription, the results were collated and analyzed byFrost & Sullivan analysts. At that point, the writingof the report began.

Assumptions and Risk Assess-ment

All market research or forecast studies contain someform of assumption, whether implicit or explicit.These assumptions can have a dramatic effect on theoutcome of a study.

Additionally, assumptions are affected by factors thatare difficult or impossible to predict. In this report,these factors are referred to as "risk assessment"items. This section of the executive summary de-scribes both the assumptions and the risk assessmentitems for this study.

Economic Assumptions

The three principal economic assumptions used inthis study are that normal economic cycles will con-tinue, normal load growth patterns will apply, andper-kilowatt BES costs will continue decreasing.

Frost & Sullivan defines normal economic cycles asperiods of economic expansion punctuated by occa-sional recessions or periods of stagnation. This is thehistorical pattern of the U.S. economy over the last50 years, with expansions lasting 3 or more years andrecessions lasting 18 or fewer months.

The second major assumption is the continuation ofhistorical levels of load growth. In times of expan-sion, load growth is roughly 1.5% per year. If thisnumber were to increase or decrease significantly, acorresponding effect on the need for BES would oc-cur.

Decreasing per-kilowatt BES costs constitute the lastmajor assumption of this report. This assumption isfound in the parameters Frost & Sullivan used toframe the questions asked in the electricity providerquestionnaire found in Appendix A of this report. Inshort, Frost & Sullivan and SNL expect theper-kilowatt price of BES to decrease in constant1996 dollars from between $700 and $1,100 in 2000to between $400 and $600 in 2010.

Not every organization in the BES industry agreeswith this assumption. However, during the course ofthe study, Frost & Sullivan found evidence that pricereductions of this magnitude are already under way.

Deregulation of the Electric PowerIndustry

The biggest variable affecting the electric power in-dustry in the United States is the advent of deregula-tion. Currently, deregulation is occurring in isolatedstates with high electric costs. Even though some ofthese states are very large, most of the U.S. electricitymarket is still regulated.

This may change rapidly. Not only are individualstates in the United States examining deregulation,but national deregulation bills have been introducedin the U.S. Congress. If pending national legislationwere passed, the entire U.S. electric power marketwould be deregulated by 2003.

The effects of deregulation depend on many vari-ables, including the recovery of stranded costs andthe success the current group of electricity providershas in making the transition into a deregulated envi-ronment. The outcome of these issues should influ-ence the BES market in the new deregulatedenvironment.

Frost & Sullivan received much conflicting informa-tion on the specific effects of deregulation on theBES market. Some respondents said that deregula-tion would force expensive BES systems out of themarket. Others stated that a greater appreciation forcustomer service and storage-based economic op-portunities would enhance BES's attractiveness.

Network Reliability

Another impact of deregulation has been the concernover the reliability of the transmission and distribu-tion grid in the United States. Two serious disrup-tions of the western grid in the summer and fall of


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1996 caused significant economic side effects andraised some public safety concerns. Fortunately, theworst of these disruptions happened on a weekend,which reduced the potential losses and associatedrisks.

If disruptions continue or increase, more pressure willlikely be placed on electricity end users and providersto implement technologies to improve power quality.In such a case, BES demand will likely increase tomeet power quality needs.

Electricity End-User Markets

As previously stated, electricity end-user marketswere not included in this study. Despite this exclu-sion, BES suppliers view electricity end users as theirmajor existing market. To reflect this, Frost & Sulli-van incorporated BES supplier estimates of the end-user market into the market penetration estimatesfound in the Market Opportunities and Forecasts sec-tion of this report.

Summary of Major Findings

Perceptions of BES

The perceptions of the present and future roles forBES differ significantly depending on the group ororganization. This section covers the various per-spectives provided by the three distinct BES industrygroups surveyed for this study: electricity providers,BES suppliers and consultants, and industry groupsand regulators.

Electricity Provider Perspective

The electricity providers’ perspective can be bestcategorized as cautiously optimistic. On the whole,electricity providers see roles for BES, especially indistributed generation and power quality, but theyexpressed significant concerns about BES costs, lifespan, maintenance, and energy density.

In the future, electricity providers expect to increasetheir use of BES, but they would like to see the short-comings of the technology addressed and believe thisis necessary before widespread deployment of BESbecomes possible. As a result of concerns about thetechnology’s shortcomings, BES is not currently

viewed as competitive with most generation tech-nologies. In particular, electricity providers expectcombustion turbines to provide better functionalityover time than BES. Interest in fuel cells was high,and batteries received considerable support becauseof their modularity, responsiveness, and especiallytheir environmental friendliness.

BES fares favorably when compared with mostplanned and existing storage technologies, although itis not viewed by the sample as a central station tech-nology. Central station storage technologies, such aspumped hydro and compressed air energy storage(CAES), were viewed as too environmentally de-structive or too geographically limited. However,respondents with existing pumped hydro units do notsee BES replacing those units. Also, some electricityproviders viewed their current amount of storage asadequate because of their existing pumped hydro re-sources.

Compared with advanced storage technologies, BESis viewed favorably as well. BES has a greater stor-age capacity in terms of hours of storage than super-conducting magnetic energy storage (SMES) orflywheels. SMES and flywheels are also less devel-oped than BES, making potential customers morehesitant to support these technologies. Some elec-tricity providers in the sample, however, viewed fly-wheels as a lower-cost option over the long term.

During the survey process, respondents were ques-tioned four times on the potential applications forwhich they might use BES. Table 1-3 and Figure 1-1illustrate some of the responses to this question. Theresponses are arranged alphabetically in the figure,but an examination of the chart shows that powerquality and reliability were the most commonly citedapplications for BES.

Additionally, electricity providers were asked aboutthe use of BES to provide the ancillary services nec-essary to maintain power system reliability on an on-going basis. However, no significant responses werereceived on this subject. Deregulation appears to nothave advanced enough to create more than an aca-demic interest in the provision of ancillary services.Furthermore, a few respondents seemed to feel thatthe provision of these services has never been aproblem in the past and is unlikely to become so inthe future.


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Table 1-3. Applications Identified by Electricity Providers (30 Companies), 1996

ApplicationTimes Application

Mentioned

Area/Frequency Control 3Black Start 1Customer Demand Peak Reduction 5Distribution Facility Deferral 6Emergency Shutdown Power 1Frequency Control 1Frequency Regulation 2Generation Capacity Deferral 5Generation Dispatching 4Load Conditioning 1Load Following 1Load Leveling 10Out of Step Prevention 1Peak Reduction 2Power Quality 14Reliability 12Renewables 5Spinning Reserve 8Transmission Facility Deferral 5Transmission Line Stability 2Transmission Stability Enhancement 2Transmission Volt-Amp Reactive (VAR)

Support2

Uninterruptible Power Supply (UPS) 10Voltage Regulation 7

Voltage RegulationUninterruptible Power Supply (UPS)

Transmission VAR SupportTransmission Line Stability

Transmission Stability EnhancementTransmission Facility Deferral

Spinning ReserveRenewables

ReliabilityPower Quality

Peak Reduction

Out of Step PreventionLoad Leveling

Load FollowingLoad Conditioning

Generation DispatchingGeneration Capacity Deferral

Frequency RegulationFrequency Control

Emergency Shutdown PowerDistribution Facility Deferral

Customer Demand Peak ReductionBlack Start

Area/Frequency Control

0 2 4 6 8 10 12 14

Times Application Mentioned

Figure 1-1. Applications Identified by Electricity Providers (30 Companies), 1996.


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The final issue addressed was that of organizationalstructure and BES procurement. Respondents wereasked which departments within their organizationswere responsible for BES procurement. The resultsare as follows:

• Investor-Owned Utilities (IOUs):– Generation

- Energy Supply Planning- Financial Studies- Fossil Generation- Fossil/Hydro- Integrated Resource Planning- Mechanical Engineering- Power Supply Planning- Research and Development (R&D)

– Transmission and Distribution- Customer Services- Distribution Engineering- Energy Services Company (ESCO)

(for pertinent IOU)- Engineering- Grid Customer Services- Marketing Commercial/Industrial

Departments- Substation Engineering- Technical and Construction Ser-

vices- Transmission and Distribution

(T&D)- Transmission Engineering

• Municipal Utilities:– Board of Directors– Bulk Power Business Unit– City Council– Generation Business Unit

• Electric Cooperatives:– Board of Directors– Engineering– General Management– Production

• Federal, State, and District Utilities:– Distribution Planning– Operations and Finance Senior Execu-

tives– Planning– Planning and Research Division– Power Operations– Power Quality– R&D– Transmission and Power Supply

• Independent Power Producers (IPPs):– Executive Department– Contracts Department

• Power Marketer and IPP:– Development Department– Engineering Department

Respondents were also asked how deregulation oftheir utility might affect departmental responsibilitiesfor BES procurement. Responses indicated muchinterest in deregulation as an economic event butshowed little appreciation or awareness of possibleorganizational changes that might result.

BES Supplier Perspective

In addition to electricity providers, BES suppliers andconsultants working in the BES industry were con-tacted to obtain their views on the BES market. Inparticular, they were questioned on their view of ex-isting BES projects and which markets they serve.

Currently, BES products in the marketplace are basedon either flooded lead-acid or valve-regulated lead-acid battery technologies. In the near future, through2000, most BES suppliers do not expect to move todifferent battery technologies, although they expect tofurther refine their power conversion technologies.

Also, no true BES integrators currently exist in themarketplace. This is a disadvantage because it placesmore pressure on BES customers to obtain the inte-gration services they need or perform them in-house.Few BES suppliers contacted in this study believedthey would make the transition to full-service inte-grator by 2000. Instead, most companies viewedthemselves as suppliers of components or developersof BES technologies.

The competitive structure of the BES industry isfairly rigid. Most of the BES suppliers contactedwere divisions, subsidiaries, or business units of largebattery and electrotechnology manufacturers. Assuch, these organizations have a great deal of poten-tial resources behind them although they do not oper-ate in a core business of their parent organization.

The remaining small, independent companies aretechnology developers, not BES suppliers. Thesecompanies are not marketing organizations and do notmaintain extensive contacts with potential BES cus-tomers.


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Supplier and consultant perceptions of the BES mar-ket were mixed. Depending on the organization con-tacted, perceptions of the market varied from fairlypositive to very negative. Patterns were difficult todetect, although BES manufacturers were more posi-tive about the industry than most consulting organi-zations.

Perceptions of BES technology also varied widelybetween those that felt that existing BES technologywas adequate and those that felt it was inadequate.As expected, those that supported existing BES tech-nology tended to be organizations that were not ag-gressively developing advanced batteries and powerconditioning equipment. Most respondents agreedthat further advances in power conditioning and util-ity connection equipment could be made.

BES suppliers and consultants also provided Frost &Sullivan with their estimates of the BES market in2000, 2005, and 2010. These estimates are discussedin more detail in the Market Opportunities and Fore-casts section of this report.

Other Industry Perspectives

Regulatory agencies and industry groups provided theother industry perspectives in this study. Input fromboth types of organizations provides important sup-porting information to the conclusions reached in thisstudy.

The responses received from regulatory agencies in-dicate that they do not have an established position onBES. Regulatory agencies receive little informationor feedback from utilities, BES suppliers, or otherorganizations and do not view BES as a major issue.When they do receive information, it is primarilyabout combustion turbine and renewable technolo-gies.

Moreover, the regulatory agencies stated that as thepower industry deregulates, they will likely stop sup-porting BES technology to the extent that they havein the past. They will probably hesitate in the futureto encourage utilities to deploy specific technologiesand participate in particular programs. Instead, mar-ket-based solutions focusing on economic costs andbenefits will likely prevail, and the prospects ofregulatory agencies using their influence to championBES deployment are minimal.

The other industry groups that Frost & Sullivan con-tacted during this study were various organizationswith an interest in the electric power industry and the

use of BES. Examples of such organizations are theNational Rural Electric Cooperative Association, theEnvironmental Defense Fund, and the National Asso-ciation of Utility Regulatory Commissioners. Theseindustry groups had more specific perceptions of BESthan the regulatory agencies.

Many of the groups viewed BES as an important ena-bling technology to facilitate the use of renewableenergy or to solve power quality and asset utilizationissues. These groups tended to be more focused onBES and maintained personnel that attempted to keeptrack of developments in BES markets and technolo-gies.

BES Market Opportunities and Fore-casts

BES Market Definitions

As stated earlier, this report was restricted to a studyof the U.S. market for BES. For purposes of thisstudy, the U.S. market consists of the 50 states andPuerto Rico. In addition, this is a study of the BESmarket among electricity providers, with informationon electricity end-user BES markets provided by BESsuppliers and consultants.

In all, 21 electricity providers returned enough infor-mation for Frost & Sullivan to use their responses inestimating BES market penetration and activity in2000, 2005, and 2010. These 21 electricity providersrepresent between 27 and 33 percent of the U.S.electric power industry's 1994 capacity in terms ofmegawatt-hours sold, megawatt-hours generated,revenues from electricity sales, and generating capac-ity. Thus, even though the number of utilities mayseem small compared to the industry as a whole, thesecompanies make up a large proportion of the U.S.electric power industry.

The responses from the 21 utilities were compiledand extrapolated to the U.S. industry as a whole. Theextrapolation used a formula based on the percent-ages of industry output and capacity. These resultswere then deflated to counteract the natural tendencyof respondents to exaggerate future behavior. Suchexaggeration has been encountered by Frost & Sulli-van in the past and is especially prevalent in studiessuch as this, with long forecast periods.

A similar extrapolation method was used to compilethe electricity end-user BES demand estimates thatFrost & Sullivan received from BES suppliers and


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consultants. These figures are presented with theelectricity provider estimates (Tables 1-4 and 1-5) togive a clearer picture of the entire BES market in agiven year.

BES Market Penetration Estimates

Table 1-4 shows the estimated penetration of BES inthe electricity provider industry. Sales are projectedto climb from about $24 million in 2000 to about$287 million in 2010.

Table 1-5 shows the estimated penetration of BES forelectricity end-users. These results are based on pro-jections given to Frost & Sullivan by BES suppliers.BES revenues in this segment are forecast to be about$372 million in 2000 and about $434 million in 2010.

Primary Market Drivers

The principal drivers of the growth anticipated inBES market penetration among electricity providersand end users include the following:

• Power quality• Distributed generation• Technological advances in BES

• Improving customer focus of electricity pro-viders

• Environmental benefits of BES• Fuel supply issues• Increasing use of renewables

Power quality was already identified by respondentsas the major application for BES. This applicationwill probably become even more important as elec-tronics are increasingly used in businesses and globalcompetition places a greater emphasis on avoidingdowntime. BES is already used in this application inthe form of existing uninterruptible power supply(UPS) systems and serial power systems.

Distributed generation is another driver of the BESmarket. BES's modularity makes it more appropriatefor deployment in distributed sites. Although notmany distributed generation projects are currentlybeing conducted, the number of these projects shouldincrease in the future.

Respondents expect technological advances to occurin BES. Addressing some or all of the technology'scurrent shortcomings should make BES more attrac-tive compared to other options.

Table 1-4. BES Market Predictions by ElectricityProviders (U.S.), 2000, 2005, and 2010

Year MW ($ Million)

2000 27 242005 215 1292010 573 287

Note: All figures are rounded.

Table 1-5. BES Market Predictions by BESSuppliers and Consultants for ElectricityEnd Users (U.S.), 2000, 2005, and 2010

Year MW ($ Million)

2000 496 3722005 805 4432010 965 434



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Currently, most electricity providers function in aregulated monopoly environment in which customersare allotted by geographic location. This is differentfrom the future deregulated environment, where elec-tricity providers will probably have to be more cus-tomer-focused to survive. This customer focusshould include efforts to address local power qualityand reliability issues, areas in which BES can serve aconstructive role.

BES is a technology that does not produce noise orharmful emissions. It can be used in settings and en-vironments where current generation technologieswould be difficult or impossible to site. Electricityproviders cited these benefits as some of the majoradvantages of BES.

Another advantage of BES cited by electricity pro-viders is the elimination of fuel supply issues associ-ated with generation technologies. This is becauseBES, by definition, does not require fuel.

Growth in the use of renewable energy should alsodrive the BES market. BES can be used in conjunc-tion with renewable energy sources to "firm" electricpower delivery from these sources. For example,BES could store power generated from solar genera-tion to maintain a constant power output even atnight.

Conclusions and Recommenda-tions

Conclusions

Frost & Sullivan has based the following conclusionson the responses obtained from organizations andindividuals interviewed for this study and from inter-actions with the BES community related to this study.

BES Cost Reductions Desired

The first and foremost conclusion of this study is thatan overwhelming consensus exists among the elec-tricity providers surveyed that significant reductionsin BES costs are needed.

In particular, issues pertaining to the capital cost ofBES are considered paramount. Currently availableper-kilowatt BES costs run two to three times the per-kilowatt cost of combustion turbines. Although thetwo technologies are not directly comparable, theyare similar enough in the minds of electricity provid-

ers that the disparity in cost reduces market interest indeploying BES systems.

Maintenance costs are also of interest to electricityproviders. These costs include not only the actualcosts of maintaining a BES system but the perceivedcosts as well. These perceived costs can best bethought of as the "headaches" that respondents expectfrom a BES system. For example, several electricityproviders said in their responses that even though theorganizations had no direct experience with BES,they had heard that the maintenance issues associatedwith maintaining the batteries in a BES system madethe cost prohibitive.

As stated earlier, significant BES cost reductions areone of the assumptions of this study. Although alarge proportion of the BES supplier community doesnot share SNL's expectation that these cost reductionscan be realistically delivered, evidence uncovered inthe study indicates that significant downward pressureon BES prices has already begun.

BES Performance Improvements Desired

The results of the survey also show that electricityproviders desire improvements in BES energy den-sity, maintenance characteristics, and life span.

These technical issues are secondary to BES costissues, although they are important in their own right.Energy density affects capital cost and the use of BESin some applications and sites. Maintenance issuescenter on improvements in BES battery technology.To better offset high capital costs and be more com-petitive with other distributed generation technolo-gies, current expected BES life spans of 6 to 10 yrmust be improved.

BES Market Targeting and Segmentation

Results of this study indicate that potential BES mar-kets are not currently targeted or segmented. Thisaffects both product and technology development.The BES industry seems to be trying to develop BESmarkets across a wide range of applications eventhough markets may not actually exist.

The area of ancillary services demonstrates this dy-namic. Responses to queries about the need for BESin ancillary services indicate that the electricity pro-vider sample views ancillary services neither as anarea of concern nor as a potential market for BES.Almost no feedback was received from electricityproviders on ancillary services, even when they were


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directly questioned on the subject. Despite this, theBES community is expending considerable intellec-tual energy on this area.

Despite the lack of responses, it cannot be assumedthat utilities have not given any thought to the ancil-lary services issue. This is especially true given thatmany of the electricity providers surveyed are indus-try leaders within the U.S. electric power industry.As such, their opinions on this subject are likelybased on sound data and cannot be dismissed.

On the product side, the lack of targeting spreadsBES marketing efforts thinly over a broad array ofapplications and prevents BES from better penetrat-ing applications where it has been more successful.The only truly targeted product available in the BESmarket is AC Battery's PQ2000 system, designed toprovide cheap, short-term, backup power to ride cus-tomers through a 10- to 15-second outage. Otherproducts still suffer from trying to be all things to allpeople, therefore pleasing nobody.

BES Educational Efforts

Despite the fact that this study concentrated on elec-tricity providers, organizations, and individuals withpast involvement in BES projects or forums, the sur-vey of the BES-related educational level of the or-ganizations revealed that respondents were notentirely knowledgeable on recent developments inBES.

An example of the level of education is shown by thehigh number of individuals that mentioned load lev-eling as a BES application in Table 1-3. Studies con-ducted over the past several years have shown thatload leveling is a marginal BES application at best.Clearly, educational efforts within the BES commu-nity must be enhanced.

Bias Toward Generation Technologies

A significant bias toward generation technologies wasalso found within the electricity provider industry.Often, respondents made comments that equated BESto generation technologies, usually leading to nega-tive perceptions of BES compared to these technolo-gies. In reality, BES is not a generation technologybut a complementary storage technology. This biastoward generation technology is largely an educa-tional issue. However, other dynamics are at work.

Electricity providers were questioned on what theirpreferred electricity supply options might be in the

future and what would happen if BES were to matchthe cost of these preferred options. Even in thissituation, some respondents stated that they wouldcontinue to favor more "familiar" options over BES.However, other respondents expressed a dramaticallyheightened interest in BES under such circumstances.

Organizational Obstacles to BES Procure-ment

The organizational structures of both electricity pro-viders and BES suppliers create some barriers to BESmarket penetration.

On the utility side, the need to coordinate and fundBES purchases among disparate customer service,transmission, distribution, generation, and engineer-ing business functions creates serious problems forBES manufacturers and technology developers. De-velopers and suppliers must identify and contact keydecision makers and then develop and maintain rela-tions over the sales or development cycle. These areextremely difficult tasks given the opaque nature ofmany utility organizations.

On the BES supplier side, the existing group of sup-pliers is largely made up of large battery and electro-technology companies that receive a minute portionof their revenues from the BES market. The BESunits of these companies compete for resources withother company units that are more related to the corebusiness of those firms. This makes large BES de-velopment expenditures difficult to justify and leadsto a situation in which BES suppliers try to make ex-isting products and technologies fit the new BESmarket, often without success.

Communications in the BES Industry

The results of this study indicate that communicationswithin the BES industry are inadequate on severallevels. Specifically, the low level of BES knowledgeand education exhibited in many of the responsesgathered during this study shows that educationalcommunications within the BES community need tobe improved.

Also, significant impediments to clear and under-standable communication between BES suppliers anddevelopers and electricity providers exist. This isprobably more important than the educational issuebecause it significantly affects the fundamental way inwhich many industry parties relate to and perceiveeach other. These communications difficulties may


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be hindering the proper development of the BESmarket.

Need More BES Innovation

The BES industry suffers from a lack of innovation interms of products, marketing, communications, edu-cational efforts, and technology. Results of this studyshow that marketing and product development effortsneed to be more tightly focused; educational andcommunications efforts need to be expanded and im-proved; and new technologies need to be developed,especially on the battery side of the industry.

Some BES projects have been successful. The PuertoRico Electric Power Authority (PREPA) system isforemost among them. The PREPA system was cho-sen over combustion turbines, which seem to be thegreatest threat to BES's success. However, even inthe PREPA case, the utility itself had to perform theproject integration, using equipment from severalmanufacturers, including some that will not offerthose products in the future.

The result is a successful system, but one that no BESsupplier is likely to provide to customers. Becausenobody but PREPA has "ownership" of the product inuse at PREPA, no organization is marketing it. Thisis the case even though the PREPA frequency regula-tion/spinning-reserve application is one that manyutilities in the United States need and might be inter-ested in.

Both SNL and the ESA are being more aggressive inexpanding their industry outreach for both communi-cations and educational efforts. BES prices are fal-ling, and some promising developments in variousadvanced battery technologies have been made.More effort must be undertaken, but progress is beingmade on many fronts.

Recommendations

Improving BES Economics, Storage, and En-ergy Density

Listed in this section are the major issues that elec-tricity providers raised when discussing their misgiv-ings about BES. Frost & Sullivan recommends thatevery effort be made to upgrade battery performancein terms of hours of storage and energy density. Also,reducing capital and maintenance costs is a majorissue that should affect BES purchases at the utilitylevel. Applications for current BES technology exist,

but the costs are too high to take advantage of most ofthem. Frost & Sullivan expects that meeting the fulldemands of the electricity provider industry willprobably entail developing a new generation of BEStechnologies. Therefore, BES developers and suppli-ers should examine the feasibility of such develop-ment and whether they want to be a part of such aneffort.

Improving Communications Within the BESCommunity

The previously discussed communications problemswithin the BES industry are complex and stem fromthe rivalry between various vendors and developersand the technologies they are backing. Also contrib-uting to some of these problems are the nature andorganization of the utility industry and of BES sup-pliers.

While realizing the constraints, Frost & Sullivan rec-ommends that SNL make greater efforts to expand thelevel of communication within the industry and dis-courage some of the dissonance and acrimony occur-ring in some parts. With a developing technologysuch as BES, the dissonant environment may confuseand alienate potential customers and other importantparties.

Strengthening Industry Partnerships

Frost & Sullivan recommends that SNL strengthen itsindustry partnerships to achieve the long-term goalsthat SNL has identified for itself. Past BES projectshave been affected by the partners having incompati-ble or unidentified goals.

The decommissioning of Southern California Edison's(SCE’s) Chino facility left much of the electricityprovider industry with a negative perception of BES.Had greater efforts been made to synchronize goalsamong the various parties with stakes in the Chinofacility, the results might have been more positive forthe BES industry.

In the future, Frost & Sullivan recommends that SNLspend more time and effort identifying and synchro-nizing its goals with those of its partners. This shouldlimit some of the negative consequences stemmingfrom projects such as the Chino project.


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Focusing on BES Applications and ProductDevelopment

Current BES marketing and development efforts aretoo broad in focus. Marketing and development needto be more narrowly focused to gain better efficien-cies and produce better results. Frost & Sullivan rec-ommends that SNL accurately identify theapplications that need to be served by BES and de-velop technologies and programs needed to servethose applications. In addition, SNL should selectand encourage partners to take advantage of thosetechnologies and programs in the development offocused products for the BES industry.

Performing Additional Market Research

Commercializing a developing technology is difficult.In the case of BES, this difficulty is heightened by theturmoil within the U.S. electric power industry andthe pressure for results that many important BES re-search and development organizations, includingSNL, are experiencing. Given these factors, Frost &Sullivan recommends that SNL and its partners per-form additional research to understand the market.

The following topics seem promising areas for marketresearch:

• BES demand in electric cooperatives• BES demand among electricity end users

• Identification of high-priority BES applica-tions

• Identification of project opportunities for theplacement of BES systems

• Identification of key decision makers at tar-get companies

• Identification of desired BES product fea-tures

In particular, the studies of the electricity end userand possibly the cooperative markets appear to bevaluable. However, there also appears to be no short-age of potential research topics.

Market Summary

The BES market is currently developmental, and be-cause of the factors that have been discussed in thisexecutive summary, the industry faces significantchallenges. Nonetheless, the results of this study in-dicate that a market for BES at the electricity pro-vider level does exist. This market is currently self-perpetuating at the national level, but at a lower thandesired level of activity.

Projects such as those currently in place or planned inPuerto Rico and Alaska should continue into the fore-seeable future. With the development of better BEStechnologies and the resolution of concerns and is-sues, the BES market has the potential to be signifi-cantly larger.


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Intentionally Left Blank

BATTERY ENERGY STORAGEBATTERY ENERGY STORAGE MARKET FEASIBILITY STUDY INDUSTRY OVERVIEW

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2. Battery Energy Storage Industry Overview

Project History

In March of 1996, Frost & Sullivan contracted withSNL to perform a market feasibility study on BES.The goal of this study was to determine the market forBES in the U.S. electricity provider industry. Thismarket measurement was made for the years 2000,2005, and 2010. The study also gathered industryperspectives on the development, competitiveness,deployment, and applications of BES.

The nature of the study was defined by the resourcesavailable, and it was decided not to devote any re-search effort to studying the potential market for BESat the electricity end-user point-of-use level. At thislevel of the BES market, UPS applications predomi-nate, although customer demand peak shaving is alsoa possible application.

The ultimate goal of the study is to guide the DOEand SNL in their research into BES technologies.Currently, SNL’s ability to support BES research isbeing reduced by budgetary pressures, necessitatingmarket research both to identify research prioritiesand to justify increased investment in BES research.

The Current BES Market

As of the summer of 1996, four major BES projectswere in operation in the United States and PuertoRico, with an additional project being installed inMetlakatla, Alaska. The four operational BES proj-ects, in the order in which they were installed, and theorganizations using them are listed below:

• Crescent Electric Membership Cooperative(EMC)

• Delphi (formerly Delco), Muncie, Indiana

• PREPA

• GNB Resource Recovery, Vernon Facility

SCE’s project in Chino, California, was decommis-sioned in mid 1996 after eight years of operation.San Diego Gas & Electric Company decommissionedits small BES demonstration system in 1995.

The BES industry is emerging from the developmen-tal stages of BES technology to a product commer-cialization stage. Evidence is mounting that BEStechnology will likely be commercially successful inelectricity end-user applications. As of the fall of1996, AC Battery was tracking nine projects for itsPQ2000 product, and GNB/General Electric is pur-suing commercialization of its system, as are otherBES system vendors.

At the utility and power producer level, the future ofBES is a little more mixed. The management atPREPA is very pleased with the operation of its20-MW system, installed in late 1994. PREPA plansto acquire more systems in the future but must waituntil after 2000 because of the need to add new gen-erating capacity in the interim. Other utilities withspecialized geographic needs, such as MetlakatlaPower & Light and Golden Valley Electric Associa-tion, are purchasing systems, but the number of utili-ties with similar needs is low within the highlyinterconnected grid of the lower 48 contiguous states.

Currently the majority of the utility and power pro-ducer industry views BES as having several crucialshortcomings: high capital cost, comparatively shortlifespan, low energy density, and maintenance con-cerns. However, they also cite several potentialstrengths that BES possesses, including operationalflexibility, favorable environmental characteristics,and modular construction.

The current market conditions strongly indicate thatfor the present, very little BES is going to be de-ployed at the utility level. Other technologies providemany of the same applications that BES can and at alower price and with a longer lifespan.

The Future BES Market

Responses gathered from the surveys show that utili-ties and electricity providers maintain a distinct inter-est in distributed generation technologies. Greatercompetition for customers, congested T&D corridors,more favorable distributed generation economics, andincreasing power quality concerns are all factorspushing the electric power industry in this direction.

BATTERY ENERGY STORAGEINDUSTRY OVERVIEW BATTERY ENERGY STORAGE MARKET FEASIBILITY STUDY

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Responses also indicate that electricity providers donot view BES as being competitive in central stationapplications. In such applications, other storagetechnologies—such as pumped hydro and com-pressed-air energy storage—are preferred.

These results indicate the best hope for BES at theutility level is the advent of widespread distributedgeneration. Currently, there is a great deal of interestin the concept of distributed generation among utili-ties and power producers, but plans for large-scaleuse of distributed generation are still in the formativestage. Eventually, as distributed generation technolo-gies become more polished and plans are better de-veloped, rapid growth in the deployment ofdistributed generation will likely occur.

Distributed generation's reliance on small, dispersedpower plants located at or near load centers is whatmakes BES a potentially valuable distributed genera-tion technology. Since most load centers are indensely populated areas, the use of technologies suchas diesel generating sets and microturbines can createnoise and air pollution problems. BES has neither ofthese disadvantages.

BES also benefits from its modular construction andoperational flexibility. BES systems are already indevelopment for use in shaving peak loads at over-loaded substations. These systems might eventuallybe moved from substation to substation as needed,relieving system bottlenecks and deferring expensivesubstation and distribution upgrades. The operationalflexibility of BES allows it to respond with extremerapidity to sudden spikes and dips in local load, usu-ally created by industrial customers using machineryand manufacturing processes.

Another possible future BES market is the use of BESin conjunction with renewable energy sources, suchas wind power and photovoltaics. A characteristic ofrenewable sources is their lack of predictable avail-ability at any given time. BES can be applied to storeenergy from renewable sources during periods whenconditions favor production, then dispatching thestored electricity at periods when it is needed. In thismode, BES can significantly increase the value ofrenewable energy resources.

Existing BES Technologies

At the request of SNL, the battery technologies thatwere covered by this study were limited to four bat-tery chemistries; flooded lead-acid, valve-regulated

lead-acid (VRLA), sodium/sulfur and zinc/bromine.Each of these technologies has particular strengthsand weaknesses, but only the two lead-acid technolo-gies are currently available in the BES marketplace.The zinc/bromine and sodium/sulfur technologies arestill under development.

Flooded lead-acid batteries are by far the most devel-oped of existing battery technologies. Basically, thisbattery technology is the large-scale application of atechnology similar to that found in automobile bat-teries. While flooded lead-acid batteries are manu-factured in large numbers for many uses, and theiroperating characteristics and technology are well un-derstood by both manufacturers and users, they haveseveral key limitations.

The first of these limitations is that some floodedlead-acid batteries require relatively frequent mainte-nance to replace water lost in operation. This reducesthe economic benefits of using flooded lead-acidbatteries. The second significant limitation is thatflooded lead-acid batteries are relatively expensivecompared to other nonstorage options.

This would not be a major concern if flooded lead-acid technology were more developmental, like theother battery technologies discussed in this section.Developmental technologies usually experience dra-matic decreases in price as demand, production infra-structure, and production know-how rise. However,flooded lead-acid batteries have been in widespreadproduction and use for so long that further reductionin battery cost because of improvements in these ar-eas is unlikely to occur.

Also, because of their use of lead, flooded lead-acidbatteries are extremely heavy. This reduces theirportability and increases construction costs for thefoundation and pad that the BES system must beplaced on.

The strengths of flooded lead-acid batteries centeraround their relatively long life span and the familiar-ity of the technology. This allows flooded lead-acidcustomers to better justify their acquisitions and am-ortize the cost of their BES systems over a longerperiod. All of the existing BES projects in the U.S.have used flooded lead-acid technology, with the ex-ception of the most recent GNB facility in Vernon,California, which uses VRLA.

The second most developed BES technology is oxy-gen-recombinant VRLA. VRLAs use the same basicelectrolytic technology as flooded lead-acid batteries,

BATTERY ENERGY STORAGEBATTERY ENERGY STORAGE MARKET FEASIBILITY STUDY INDUSTRY OVERVIEW

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but these batteries are sealed with a valve and the acidelectrolyte is immobilized. This eliminates the needto add water to the cells to keep the electrolyte func-tioning properly or to mix the electrolyte to preventstratification. The oxygen recombination and thevalves of VRLAs prevent the venting of hydrogen gasand the ingress of air into the cells.

VRLA is currently a relatively expensive technology,costing significantly more than flooded lead-acid.Also, VRLA's expected lifespan is shorter than theexpected lifespan of a flooded battery, further in-creasing the levelized cost of the system. However,advances are being made in both of these areas asVRLA technology improves and becomes better un-derstood.

VRLA's major advantage over flooded lead-acid cellsis the dramatic reduction in the maintenance that isnecessary to keep the battery in operation. Also,VRLA cells are smaller than flooded cells, reducingthe size and weight of the battery, although VRLA-based systems are not portable.

Sodium/sulfur batteries were at one time a majorbattery technology for BES applications. However,BES vendors no longer view sodium/sulfur batteriesas a feasible battery storage option. Sodium/sulfurbatteries rely on sealed unipolar cells that are com-bined into modules that are then combined into abattery. These cells must be hermetically sealed, be-cause sodium/sulfur batteries must operate at an in-ternal temperature of 320 to 360°C for optimalefficiency.

Sodium/sulfur batteries are transportable, have a highenergy (charging) efficiency, and can operate veryflexibly. However, the thermal management prob-lems of keeping the battery at the correct operatingtemperature can be severe if the battery is not oper-ated frequently. If the battery is operated at a lowtemperature (below 250°C), sodium/sulfur batteriesare susceptible to damage. Also, because the batterycells are hermetically sealed, it is impossible to serv-ice individual cells without shutting down the entiremodule.

Zinc/bromine batteries are the last of the four majorBES technologies. Zinc/bromine batteries use aflowing aqueous zinc bromide electrolyte with zincand bromine as the active materials. During chargingthe zinc bromide is electrolyzed, with metallic zincbeing deposited on the negative electrode, while the

bromine produced at the positive is stored in externaltanks.

The advantages of zinc/bromine battery technologycenter around four areas: low cost, modularity, trans-portability, and flexible operation.

Some experts think zinc/bromine batteries will be theeasiest of the battery technologies to produce. Be-cause of the nature of the reactants and the lack of ahigh operating temperature, cells can be constructedfrom molded plastic and carbon materials. There isevery reason to believe that once production ofzinc/bromine batteries is perfected, production costsfor this technology will be the lowest of any of thefour BES battery technologies being discussed in thissection.

Zinc/bromine batteries are also very modular in con-struction and maintenance and are highly transport-able. These attributes should make zinc/brominebatteries well-suited for transmission and distributiondeferral applications, where batteries might be trans-ported from substation to substation or load center inorder to provide the local capacity needed to deferexpensive T&D upgrades. The modular nature ofzinc/bromine batteries also significantly eases main-tenance of the individual battery modules.

Another major advantage of zinc/bromine batteries istheir flexibility. Zinc/bromine batteries can be dis-charged completely without damaging the cells. Thisgives zinc bromide cells a decided advantage over thelead-acid technologies.

The major disadvantages of zinc/bromine batteriescenter around the maintenance requirements, includ-ing upkeep of pumps needed to circulate the electro-lyte, and the low electrical efficiency. Also, the zincdeposited on the electrode during the charging proc-ess must be completely removed periodically.

In short, the battery technologies covered in this studyfall into two categories: first-generation BES tech-nologies that in a utility system would be restricted toniche roles, or second-generation technologies thatare in need of further development before commer-cialization. However, survey results do indicate thatthere is a viable role and market for BES in the elec-tric power industry. Current shortcomings of avail-able battery and BES technologies must be resolvedto reach this viable market.

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MARKET DEFINITIONSBATTERY ENERGY STORAGE MARKET FEASIBILITY STUDY AND METHODOLOGY

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3. Market Definitions and Methodology

Market Definitions

The central purpose of this study is to quantify theU.S. grid-connected BES market in the years 2000,2005, and 2010. This long forecast period was cho-sen in order to provide SNL with time to adjust itslong-term research efforts to meet the projected needsof the BES industry.

The market quantification is to be provided both interms of megawatts of BES capacity and in terms ofdollar value. Consideration was given to quantifyingthe number of hours of storage capacity, but survey-ing energy provider personnel in these terms oversuch a long forecast period was felt to be too impre-cise.

For purposes of this study, the United States market ismade up of the 50 states of the United States and theisland of Puerto Rico. Puerto Rico was included be-cause of its unique role in the BES market—it is cur-rently home to the highest-power BES facility in theworld. The U.S. market figures presented includepurchases of BES within the United States but do notinclude any estimates of exports of BES productsfrom the United States to other nations.

Market Feasibility Study Con-tact List and Methodology

This study is the product of primary research con-ducted on several different classes of organizations,all of which are important members of the electricpower industry and are expected to have a significantimpact on the BES market. In total, 67 organizationsprovided responses for this study. The types of or-ganizations responding included:

• BES suppliers

• Consultants

• Electric utilities

• Energy industry advocates

• IPPs

• Power marketers

• Professional and trade organizations

• Regulatory bodies

For purposes of this study, the electric utilities, IPPs,and power marketers were combined into one group,titled "energy providers," and were surveyed using aquestionnaire geared towards their particular role inthe BES market (see Appendix A).

Consultant and BES supplier organizations were alsosurveyed using a second questionnaire (see Appen-dix B) designed to gather their perspectives on theBES market. Similarly, energy industry advocates,regulatory bodies, and professional and trade organi-zations were surveyed using a separate questionnaireto gather their input on BES (see Appendix C).

Most of these surveys were prequalified in advance ofthe actual interview/data gathering process. Contactsat target organizations were contacted to determinetheir role in promoting or procuring BES systems orwere identified in advance through industry organiza-tions.

At the energy provider level, the types of personnelcontacted varied quite widely. This approach wastaken to solicit new viewpoints about BES other thanthose from the research and development staff per-sonnel that have traditionally made up the core of theelectricity provider customer base for BES informa-tion dissemination.

Personnel contacted for this study worked in areassuch as:

• Resource planning

• Generation planning

• Transmission and distribution planning

• Transmission and distribution engineering

• Senior and line management

• Power quality

• Marketing

• Conservation and demand-side management

• Transmission management

• BES product development

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• Project analysis

• Environmental affairs

In addition to these, numerous utility and IPP re-search and development personnel also provided re-sponses for this survey.

In surveying the BES vendor community, Frost &Sullivan contacted a variety of corporate managementfigures and consultants to provide input for this study.Most of the management contacts were senior manag-ers or business managers in either BES companies orsubsidiaries or divisions of large multinational firms.

Consultants tended to be more engineering-orientedby their very nature, although a few had moved intomanagement within their firms.

With regulatory bodies, trade and professional or-ganizations, and advocates, surveying was aimed

either at analysts or program managers involved inrenewable energy and batteries, or, in the case ofregulators, at managerial personnel within electricutility regulatory groups or divisions.

This, of course, meant that, in the advocates and tradeorganizations, contacts were surveyed who wereknowledgeable about BES, while in the regulatorybodies discussions were held with contacts who werelargely uninformed on BES.

The actual surveying was conducted over the tele-phone, except in the case of the energy providers,most of whom were prequalified and then faxed theirquestionnaires. This was necessary because of thesize and complexity of the electricity provider ques-tionnaire. Once the questionnaire responses werecollected and compiled, they were incorporated intothis document by Frost & Sullivan analysts.

ELECTRICITY PROVIDERBATTERY ENERGY STORAGE MARKET FEASIBILITY STUDY INDUSTRY PERSPECTIVES ON BES

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4. Electricity Provider Industry Perspectives on BES

Electricity Provider Responses

The primary goal of this study was to determine thecondition of the BES market in the electricity pro-vider industry. To achieve this, Frost & Sullivan sur-veyed 38 electricity provider organizations:

• IOUs:– American Electric Power– Boston Edison Company– Central & Southwest– Commonwealth Edison– Delmarva Power– Detroit Edison*– Duke Power– Entergy– Florida Power & Light– Hawaii Electric Light– Indianapolis Power and Light– Niagara Mohawk Power– Northern States Power*– Northeast Utilities– PacifiCorp– Pacific Gas & Electric*– Potomac Electric Power Company*– Public Service of New Mexico– San Diego Gas & Electric*– Southern California Edison*– Southern Company Services– Texas Utilities*– Union Electric Company– Virginia Electric and Power Company

• Municipal Utilities:– Los Angeles Department of Water and

Power– Metlakatla Power & Light

• Electric Cooperatives:– Chugach Electric Association– Corn Belt Electric Membership Coop-

erative– Golden Valley Electric Association

• Federal, State, and District Utilities:– New York Power Authority– PREPA*– Salt River Project*– Tennessee Valley Authority

• IPPs:– Calpine Energy– Edison Mission Energy (subsidiary of

Edison International)– Foster-Wheeler USA– Kennetech Windpower

• Power Marketer and IPP:– Enron

The asterisk (*) denotes that the organization is anESA member.

As can be seen from this list, the electricity providersthat were surveyed for this study come from all sec-tors of the electric power industry, from traditionalutilities to organizations involved in developing elec-tric power businesses such as energy marketing.Gaining this kind of diversity in the industry samplewas the intent of both Frost & Sullivan and SNL.

This diversity is intended to define potential differ-ences in the perception of and demand for BESamong different classes of electricity providers. Also,the survey results reflect differences in the econom-ics, organizational structure, and mission of theseorganizations, leading to a better understanding of theviewpoints and needs of each of these differentclasses of electricity providers. This would be ex-tremely valuable to both SNL and the BES suppliercommunity.

These electricity providers were surveyed using aquestionnaire developed jointly by Frost & Sullivanand SNL (see Appendix A). Because of the com-plexity of the survey and the nature of the informationrequested, it was necessary to prequalify survey con-tacts and to fax them copies of the questionnaire.

Following this, Frost & Sullivan analysts followed upwith survey respondents to answer their questionsabout the questionnaire and to retrieve responses byeither telephone interviews or fax and mail responses.

Outline of This Chapter

Each of the following sections in this chapter dis-cusses the response to one of the questions on theelectricity provider questionnaire. There are 16 sec-tions in total. These sections are:

ELECTRICITY PROVIDERINDUSTRY PERSPECTIVES ON BES BATTERY ENERGY STORAGE MARKET FEASIBILITY STUDY

4-2

• General Opinions of BES• Perceptions of BES Technology• Organizational Structure and BES Procure-

ment• BES Versus Other Advanced Storage Op-

tions• BES Versus Central Energy Storage Options• BES Versus Generation Options• Industry Comparison of Other Generation

and Storage Options to BES• Deregulation's Impact on the BES Market• BES Applications• BES and Ancillary Services• Additional BES Applications Important to

Respondents• Additional BES Applications Important to

the Electricity Provider Industry• Desired BES Technical and Product Char-

acteristics• Respondents' Estimates of Load Growth and

Transmission and Distribution Expansion• Estimates of the BES Market• Effects of Lower-Cost BES Technology

Each of these sections summarizes the questionnaireresponses received on the relevant question, in addi-tion to drawing conclusions from and discussing theresults.

General Opinions of BES

To gauge the respondent organizations' generalopinions of BES, the first question posed asked re-spondents to characterize their interest in deployingBES in numerical terms. Responses were given on ascale of 1 through 10, with 10 indicating the greatestlikelihood and 1 the lowest likelihood of deployingBES.

The answers provided by this process were averagedand then rounded to the nearest hundredth of a deci-mal point; the results are shown in Table 4-1.

These results show that respondent interest in de-ploying BES will likely gradually increase over theforecast period of this study. However, responsesvaried widely, with the greatest interest shown bythose electricity providers currently engaged in aproject or that employed BES. Furthermore, IOUshad a lower overall opinion of BES than other typesof electricity providers.

Perceptions of BES Technology

The next question solicited opinions on current bat-tery storage technology and yielded 33 separateopinions out of the total of 38 electricity providerscontacted. The general tone of the responses was asfollows:

• Positive responses: 4• Negative responses: 20• Neutral responses: 9

Respondents' negative opinions of BES usually cen-tered on cost—citing the high cost of the BES system.These opinions were based on the consideration ofboth competing technologies and return on invest-ment. Additionally, cost was sometimes viewed rela-tive to the benefits derived from its use. As stated byone utility:

Either cost needs to come down or value ofprotection against an outage has to go up—BES needs to improve cycle life and reli-ability of valve regulated batteries.

The opinions on BES given by electricity providersoften incorporated formal and informal cost-to-benefit analysis.

Table 4-1. Opinion Survey Results: Likelihood of BES Deployment Predicted byU.S. Electricity Providers (37 Companies), Years 2000, 2005, and 2010 (on a scale

of 1-10)

2000 3.142005 4.302010 5.27


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To illustrate this point, and to show the difficulty ofweighing BES value at one particular company, anIPP interviewee stated:

A strength and weakness is the complexityof incorporating the numerous abilities of aBES into a specific project. BES are still asignificant incremental cost to a power gen-erator project. To optimize the use of thiscapital expenditure much effort needs to begiven to sizing and design. Even then, thecapacity of payment received for stored en-ergy is unlikely to cover the BES cost.

Although technological opinions commonly pointedback to cost, performance profiles were anothercommon reference point for opinions. Interviewsshowed that contributors were aware of BES per-formance deficiencies, which included replacementfrequency for cells, inadequate cell life, and low en-ergy density.

When phrased as possible areas of improvement, re-spondents mentioned the need for improved cyclelife, improved energy density, and rectifying batteries'susceptibility to deep cycling. In addition to battery-specific components, system components that werementioned as being in need of improvement includedthe power conditioning system. Rarely, though, wasthis mentioned; respondents' perceptions generallyfocused on battery-specific characteristics.

Although many people were aware of the overridingcost factor associated with BES, other opinionsformed a consensus that held BES as being techno-logically feasible and adequate for its applications. Inaddition to the negative perceptions, many quicklypointed out positive factors about BES, such as envi-ronmental friendliness, multiple benefits, and theability of BES to fit in niche applications.

In opposition, some electricity providers stated thatBES would not constitute a proper fit at their com-pany, or that competing technologies could provideequal or better service. One utility respondent re-plied:

[BES is] not a cost-competitive option andnot needed right now. Gas turbines are"very cheap" right now and offer consider-able flexibility.

As in the case of many other respondents, this personalso pointed out:

On a small scale, power quality benefits atcertain locations [are a strength of BES].Could be merged with PV or various renew-ables to improve reliability/capacity onceboth technologies are much more cost effec-tive.

In regard to the BES energy profile, one utilitypointed out that the BES system offers:

Too little energy storage....[We] need 2 to4 MW for 8 to 12 hours for distribution sys-tem or grid deferral.

This respondent offered concrete figures as a basisfor the utility's opinion. This provision of concretefigures was not often found in other responses.

One person brought to light use of BES in distributedresource applications, stating:

[Dollars per kilowatt] price [is] too high as adistributed resource for long term T&D de-ferral. Modularity is promising, but sizemay be a limiting factor.

The depth to which electricity providers immersedthemselves in technology comparisons varied. On theissue of BES technology perceptions, the majority ofpeople surveyed did not indicate the frequency oftheir company's technology knowledge refreshmentrate.

Impressions accumulated during interviews indicatethat companies maintain a relatively current workingknowledge of BES performance and profile charac-teristics. These impressions are supported by the factthat electricity providers reviewed existing technolo-gies when reviewing their integrated resource plans(IRPs).

As one utility pointed out:

It is a technology we review regularly to de-termine its economic value in comparison toother peaking-type technologies. It is notcurrently competitive with other conven-tional peaking technologies.

In conclusion, respondents seemed versed on the in-terrelation between the overall system, its cost, theadequacy/deficiency of its components, and compo-nent costs. Areas that BES needs to improve such asimproved cycle life and improved energy density areknown to the respondents.


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Organizational Structure andBES Procurement

Based on information collected during a preliminaryphase of this project, Frost & Sullivan discovered thatthe departmental location of surveyed respondentsvaried. Essentially, using a rule of thumb to locate anelectricity provider's BES specialists proved unreli-able.

The following is a list of the job classifications of theindividuals that were asked questions for this study.In parentheses are the number of respondents in eachtitle/description category:

• IOUs:– Chemist (1)– Engineer (5)– Engineer (Manager) (1)– Engineer (Senior) (5)– Engineer (Senior Research) (2)– Integrated Resource Planner (3)– Manager of Advanced Market Devel-

opment (1)– Manager of Conservation (1)– Power Quality (1)– Product Development Manager (2)– Technical Analyst Coordinator (2)

• Municipal Utilities:– General Manager (1)– Mechanical Engineering (1)

• Electric Cooperatives:– Assistant Manager (1)– Engineer (1)– Engineer (Planning) (1)

• Federal, State, and District Utilities:– Assistant Head, Planning and Research

Division (1)– Engineer (Principal) (1)– Manager of Electric Transportation (1)– Project Specialist (1)

• IPPs:– Director of Technology Research and

Development (1)– Manager of Power Systems (1)– Project Marketing Manager (1)– Vice President (1)

• Power Marketer and IPP:– Development Director (1)

Responsibilities for BES procurement varied betweencompanies, although common trends did emerge. Inalmost all companies, the responsibility of BES pro-curement was shared by several different depart-ments.

Departments involved in the procurement of BES atindividual companies are categorized in this discus-sion by electricity provider type (that is, IPP, IOU,cooperative, or others). Most department titles werementioned repeatedly in the course of all interviews;each department title is listed here for representationand brevity:

• IOUs:– Generation

– Energy Supply Planning– Financial Studies– Fossil Generation– Fossil/Hydro– Integrated Resource Planning– Mechanical Engineering– Power Supply Planning– R&D

– Transmission and Distribution– Customer Services– Distribution Engineering– Engineering– ESCO (for pertinent IOU)– Grid Customer Services– Marketing Commercial/Industrial

Departments– Substation Engineering– Technical and Construction Serv-

ices– T&D– Transmission Engineering

• Municipal Utilities:– Board of Directors– Bulk Power Business Unit– City Council– Generation Business Unit

• Electric Cooperatives:– Board of Directors– Engineering– General Management– Production


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• Federal, State, and District Utilities:– Distribution Planning– Operations and Finance Senior Execu-

tives– Planning– Planning and Research Division– Power Operations– Power Quality– R&D– Transmission and Power Supply

• IPPs:– Contracts Department– Executive Department

• Power Marketer and IPP:– Development Department– Engineering Department

In most interviewee responses, the procuring depart-ment or departments were those that would utilizeBES. Secondly, through the course of this study arelatively frequent dilemma has surfaced. Althoughthe dilemma has been discussed in other chapters, itwould be appropriate to further highlight it here.BES can be used by generation, transmission, anddistribution. Often, the capital purchase of a BESsystem can only be justified by its ability to servemultiple purposes; however, cooperation by thosethree departments is often a barrier to BES procure-ment.

Procurement in the future may change for severalreasons. Contributing factors may include mergersand acquisitions, legislation, and deregulation. As afactor influencing the procurement of BES, deregula-tion was selected as another topic for response in thispart of the questionnaire. This was intended to gaugeelectricity provider impressions of deregulation andits influence on BES procurement.

Surprisingly no respondents gave any concrete re-sponses as to how deregulation would affect BESprocurement from the organizational standpoint cov-ered in this section. Instead, most respondents feltthat existing in a deregulated environment would haveeither no effect on the organizational aspects of BESprocurement, or they provided answers discussing theeconomic and systemic effects of deregulation. Thesediscussions of economic and systemic effects havebeen moved to the section of this chapter dealing withderegulation's impact on the BES market.

BES Versus Other AdvancedStorage Technologies

Advanced storage technologies mentioned duringFrost & Sullivan interviews included SMES, superca-pacitors, and flywheels. Most respondents recog-nized these three technologies as energy storagetechnologies and competitors of BES. However, themajority of electricity providers interviewed for thisstudy viewed BES as a superior storage technologycompared to other advanced storage technologies.Technologies mentioned that are not technically"advanced storage technologies" included CAES andpumped storage hydro.

As the discussion turned to comparative analysis,respondents did not mention CAES and pumped stor-age hydro as frequently as SMES and flywheels. Thisis presumably because utilization of CAES andpumped storage hydro is limited to certain geographicregions. Because of geographic restrictions attachedto these two storage options, respondents generallydiscounted these technologies as competition forBES.

Although BES received positive opinions when com-pared to other advanced technologies, factors sup-porting BES were quite diverse.

One common thread was that BES is more familiartechnology than flywheels or SMES. As noted inother sections of this study, BES has been demon-strated in Chino, Vernon, Puerto Rico, and severalother places. Flywheel and SMES projects on thescale of demonstrated BES systems are virtually non-existent. Secondly, BES is regarded as being maturecompared to flywheels, SMES, or any of the otheradvanced technologies. One IOU pointed out that,irrespective of cost, confidence in other advancedstorage technologies is low.

Opinions directed at technical issues pointed out thatmost competing advanced storage technologies haverelatively low storage capacity compared to BES. Inaddition, empirical demonstration of BES systemsmay help BES develop more rapidly, allowing thevalue of the technology to be realized sooner than forother technologies. One electricity provider alsopointed out that BES systems should have lower op-erating expenses than SMES.

One IOU thought that BES could provide peak loadrelief on the T&D system as well as load leveling andT&D deferral. SMES and flywheels have lacked


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sufficient demonstration of their performance in thoseareas. Furthermore, another IOU thought the overalldeficiencies with other advanced storage technologieswere split between their unavailability and cost. Incontrast, this second IOU's opinion held BES as areliable, low-cost, and currently available technology.

An additional IOU stated:

We can buy integrated BES or SMES—notflywheels or [supercapacitors]. At this time,[we] would buy on price and applicationbetween BES and SMES.

Counter to many positive comparisons made for BESagainst other advanced storage technologies, severalrespondents offered negative individual assessments.

One electricity provider stated:

Flywheels have a greater potential due to itshigher round trip efficiency.

In conclusion, many see BES as a familiar technologycompared to advanced storage technologies. Othertechnologies such as flywheels, SMES, and superca-pacitors are advancing, but there is a lack of provendemonstration projects and awareness. BES receiveda favorable opinion with approximately 65 percent ofcontributing electricity providers. On the other hand,15 percent of the electricity providers held negativeopinions. The remaining respondents were splitequally between neutrality and no response.

BES Versus Central EnergyStorage Technologies

As in the case of BES when compared to advancedenergy storage technologies, discussed above, mostelectricity providers viewed BES positively whencompared to central energy storage technologies—CAES and pumped storage hydro. The positiveopinions of BES compared to CAES and pumpedstorage hydro were usually substantiated by one ortwo supporting facts given by each electricity pro-vider. Some electricity providers offered no opin-ions.

CAES and pumped storage hydro are preferred overBES when the geography of a region is suitable forCAES and pumped storage hydro. For example,electricity providers such as Southern CompanyServices can use CAES, whereas at Golden Valley,CAES is not an option. In many cases, geographic

constraints obviating the utilization of CAES andpumped storage hydro by many electricity providerswere factored into their responses.

Most opinions in this discussion demonstrated aware-ness of geographic siting limitations of CAES andpumped storage hydro. BES, alternatively, can belocated near a load center, and a large number ofelectricity providers noted this fact. Another valueattributable to BES is its "instantaneous response"capabilities, as indicated by several electricity pro-viders.

Multiple electricity providers cited geographic avail-ability as a factor limiting the employment of CAESand pumped storage hydro. One electricity providerexpanded this topic to include economics:

CAES and pumped hydro are not modularand therefore are not cost-effective in thelower power levels (one to ten megawatts) inwhich we have interest.

This response was offered by an IPP.

A renewable type of application was also offered fora comparison of BES and central storage options:

Our organization has spent some six monthsanalyzing various storage options for ourintermittent solar electricity. We believethat BES and pumped storage [hydro] arethe only two cost-efficient choices availablein today's commercial market.

Before this discussion moves to opposing arguments,a comment made by one electricity provider shouldbe mentioned. The person stated that even if pumpedstorage hydro was available, economics of peakpricing may preclude its use. This person stated thatin that provider's service territory, the value ofpumped storage hydro was not viable enough to offsetthe on-peak-to-off-peak pricing differential. Thiscomment was supported by two similar opinions.

The two most prevalent arguments against BES whencompared to CAES and pumped storage hydro weresize and maintenance. Compared to the two selectedtechnologies, dissenting opinions of BES also alludedto its lack of storage capacity in terms of hours ofstorage.

Further, once installed, several people pointed outthat maintenance is greater for BES than it is forCAES or pumped storage hydro. However,


4-7

respondents agreed on the greater environmental im-pact of CAES and pumped storage hydro.

In conclusion, BES is generally viewed as having aquicker response than CAES and pumped storage.Geographic location is a major factor that limitsCAES and pumped hydro deployment. In addition,BES is viewed favorably with regard to its transport-able properties (others lack modularity), though thenumber of hours of storage is a limiting factor com-pared to the other two technologies.

BES Versus Generation Tech-nologies

Electricity providers interviewed for this study of-fered their opinions on BES versus generation tech-nologies at both dispersed and central generationsites. Technologies popularly held as generationtechnologies used at both sites included gas turbines,diesel generators, and fuel cells.

Approximately one-half of the respondents inter-viewed by Frost & Sullivan offered negative opinionsof BES in a central or dispersed generation setting.Respondents did not view BES as a primary electric-ity supply technology. Respondents held relativelyclear opinions on the roles to which BES is most ap-propriately suited. The generation technology over-whelmingly preferred in central generationapplications was combustion turbines, while dieselgenerators, and, in the future, fuel cells and microtur-bines were cited as being the leading contenders indistributed generation.

At a central generation facility, BES is regarded ashaving value for applications such as spinning re-serve. As stated by one IPP:

It is for back-up and peaking. GTs [gas tur-bines], diesel, and fuel cells can also be usedfor backup and peaking, but the capital costsand fuel hassles exceed that of BES.

Furthermore, this opinion was supported by an elec-tricity provider:

BES is a more economic option than gasturbines and diesel generators in such appli-cations as spinning reserve and frequencyregulation. However, battery storage ismore expensive for supplying peak loadingdemands.

Responses from electricity providers indicate thatopinions are largely split on whether BES is moreeffective than other central generation technologiesfor peaking.

One electricity provider supported this idea:

They could be a good complement to thesegeneration technologies. BES has the en-ergy capacity to allow discharge for severalminutes. Under unscheduled outage condi-tions, a BES could provide continuity ofservice while one of these technologies arestarted and brought on line.

Considerable attention was given to fuel cells. Takencollectively input from respondents indicates that fuelcells are viewed as a technology competing with BESat generation and distributed sites. One opinion isincluded to support this claim:

Gas turbines [are] much more reliable andefficient. Fuel cells could eventually be-come the most rapidly growing generationsource. Diesel generators [are] too expen-sive to operate and environmentally notfriendly.

The next opinion also included BES and fuel cells,but here the respondent gave his opinion on distrib-uted applications. This person stated distributed siteswould favor fuel cells and BES because of noise andemission concerns. He added that gas turbines util-ized for central generation or larger dispersed appli-cations would be difficult to beat in cost.

In conclusion, BES is not viewed as a generationtechnology, though it has value for spinning reserve,frequency control, and load leveling at the generationsite. As a distributed resource technology, BES isviewed as being cleaner, environmentally friendly,and offering power quality services unmatched byother technologies.

Industry Comparisons of OtherGeneration and Storage Optionsto BES

The ensuing discourse centers on the generation andenergy storage technologies perceived by the con-tributors as providing superior performance whencompared to BES.


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Technologies offered by interviewees for purposes ofthis discussion included combustion turbines (13),fuel cells (7), pumped storage hydro (6), flywheels(4), CAES (4), SMES (2), conventional hydro (2),diesel generators (2), combined cycle (1), microtur-bines (1), dynamic voltage regulators (DVRs) (1),and photovoltaics (PV) (1).

The technologies listed above are ranked by the num-ber of times they were mentioned as being a technol-ogy more favorable than BES. In some responsesmore than one technology was mentioned. Combus-tion turbines were cited as a technology superior toBES more often than the other technologies listed.Additionally, fuel cells were thought of as being bet-ter than BES by a small handful of respondents.Combustion turbines, which were mentioned fre-quently, are the only technology viewed as having aclear advantage over BES.

One utility, in regard to combustion turbines, stated:

Currently, combustion turbines are superiorto all other sources of capacity in the analy-sis we have performed. [The local IOU] isnot currently concerned with energy sourcesin the near term. As long as natural gasprices remain moderate, storage does notappear to be a viable alternative to combus-tion turbine based generation for peak ca-pacity.

Another prominent IOU stated:

Gas turbines, diesel generators, hydro, andpumped hydro are technologies which pro-vide superior performance in meeting spin-ning reserve, frequency regulation,generation dispatch, and other system oper-ating considerations.

Several respondents pointed out that selection andsubsequent employment of technology dependslargely on the application.

One IOU stated that the situation:

Depends on the application. For dispersedgeneration emergency backup applications,leasing diesel gensets looks attractive whencompared to other options.

A different person from the same IOU provided addi-tional input:

50 MW+ [megawatt plus] gas turbines [are]also [used] for seasonal peak demand.

One expanding IPP offered insight into the potentialfor developmental generation and storage technolo-gies:

Fuel cells will most likely be the first newtechnology to compete. Kinetic power islow tech enough to be a competitor in thevery near future.

Kinetic power, meaning flywheels, was not frequentlyaddressed as a strong competitor in the responsesreceived for this section. SMES and CAES were alsomentioned by several contributors but not by a ma-jority of them.

In conclusion, it is important to stress that bothclasses of applications, generation and energy storagetechnologies, were included in this discussion. Theoccurrence of technologies and arguments madeagainst BES were individually selected to cover arange of views. To say that nobody thought pumpedstorage hydro was superior to BES is erroneous—actually six electricity providers said pumped hydrowas superior to BES.

Additionally, many electricity providers stated theirbelief that more than one technology was superior toBES. Approximately one third of electricity provid-ers, in aggregate, offered no opinion to this discus-sion, or stated that no technology was superior toBES.

Deregulation's Impact on theBES Market

Even though the full effects of deregulation have notbeen experienced completely by all electricity pro-viders, general perceptions of and speculations on itsimpact have already been formed by the electricityproviders surveyed. The immediate response to theuncertain fallout of deregulation has resulted in twogeneral types of answers—first, the observation ofcost and its impact, and second, the arrangement, orvertical rearrangement, of the industry with the intro-duction of power marketing and separate generationand wire companies.

As stated previously, questioning respondents on de-regulation caused some themes to emerge, cost beingthe main one.


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One electricity provider, while agreeing that cost is anissue to be dealt with in a deregulated environment,also offered the opinion that cost is not the sole factorbehind procurement:

Deregulation will cause the commodity priceof energy to drop. And it will close the gapbetween on peak and off peak price. Thiswill hurt BES on pure economic justificationfor installation. [We] believe that BES's ap-plication is not necessarily a pure economicdecision. Reliability and convenience arethe key factors.

One electricity generator stated that deregulation willforce his company to focus on least-cost technologiesand alternatives at a company-wide level. BES, stillbeing an eligible technology for deployment by acompany, would have to prove its value to the elec-tricity provider.

This is the same scenario that currently exists in therelatively regulated environment, but it will likelybecome even more critical after deregulation.

Expanding on this theme of cost, one IOU stated:

Minimization of cost (maximizing profit) byselecting projects having shorter pay backperiods would be paramount. In a deregu-lated environment, technologies havingsimilar operating characteristics with a costpremium in comparison to other technolo-gies would be less likely to be selected, es-pecially if there are no significant nonpricebenefits.

This next view was offered by a municipal electricityprovider but was frequently repeated in feedbackfrom almost all electricity providers:

Deregulation [means] everything must becost-effective. Batteries must compete costwise with gas turbines or other sources ofenergy.

To add to this theme, a different electricity providerplainly stated that BES, in a deregulated environment,will need to compete against installed gas turbineprices of $300 to $400 per kilowatt.

Besides this, several other responses supported theclaim that cost will not be the sole factor driving BESprocurement. A great deal of importance was placedon distributed generation and customer applications.

One respondent brought to the study his view on thediversity of effects distributed generation and cus-tomer applications may have on electricity providers.He stated that BES procurement in a deregulated en-vironment might look "promising" because the distri-bution portion of his company's system may remain"monopolized."

A different electricity provider stated, with no otherdiscourse or explanation, that in a deregulated envi-ronment peak-shaving opportunities will be easier toidentify.

The effects of restructuring make BES cost a factoraffecting its deployment, but restructuring may alsocreate a noncost environment conducive to BES de-ployment. Distributed generation at the customerlevel is another theme, besides cost, that deservesrecognition.

Stated one electricity provider:

Deregulation would result in our deploymentof more distributed generation projects, soenergy storage would be evaluated muchmore carefully.

Some respondents felt BES may be used by electricityproviders as a tool for differentiating themselves fromtheir competitors:

A deregulated environment quickly shiftsinterests to value-added services with greaterprofit potential than the commodity businessof providing kW (kilowatts) and kWh[kilowatt-hours]. This will enhance interestin energy storage in dispersed applications.

As stated by electricity providers interviewed byFrost & Sullivan, the awakening of power qualityservices, power marketing, and distributed generationwill critically impact the electricity providing indus-try.

Additionally, one electricity provider stated:

Deregulation strongly affects customer siteapplications. Marketing takes the lead—perhaps with our ESCO. No foreseeable ef-fect on distribution system or grid uses be-cause of cost and other tradeoffs withconventional solutions.

Regarding BES in island geographic settings, such asPuerto Rico or Hawaii, almost all respondents felt


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deregulation will have no effect in those places in theforeseeable future. One IPP stated:

Given current generation capacity in theU.S. and emerging wheeling abilities, BESsystems are likely to be devalued by IPPs inthe continental U.S. given deregulation.[The local IPP] believes BES may prove vi-able to IPPs in off-shore island projectswhere electricity rates are more favorable.

In conclusion, two main themes appear to be preva-lent, besides responses aimed at geographic excep-tions. The primary theme is competition with otherpower supply technologies. Some contributors whofocused their opinions on technologies saw BES asnot being competitive with other technologies. Themain reason given was cost—with the cost of tech-nologies becoming an increasingly relevant factorafter deregulation, compared to the current regulatedenvironment.

The second theme centered on a possible surge ofinterest in BES as energy services and marketing areused to add value and product differentiation tocommodity bulk power.

BES Applications

Electricity providers interviewed by Frost & Sullivanwere asked to identify, from a list of applicationsprovided by SNL (see Appendix D), those that BEScould best serve for their companies. Commonthemes were evident in the responses although varia-tions were found in the exact terminology differentrespondents used to describe the same applications.

The applications electricity providers named in-cluded:

• Black start*• Customer demand peak reduction*• Distribution facility deferral• Distribution volt-amp reactive (VAR) sup-

port and voltage regulation• Emergency power to shut down power

plants*• Frequency control• Generation capacity deferral• Generation scheduling/dispatching• Load conditioning

• Load following• Load leveling• Reliability• Renewables• Spinning reserve• Transmission facility deferral• Transmission line stability• Transmission voltage control/VAR support• UPS/power quality

The asterisk (*) indicates an application not proposedby SNL (see Appendix D).

In conclusion, some electricity providers offered noopinion in response to this question, while otherslisted several possible applications for BES. Mostprominent among the applications listed were powerquality and reliability, cited by 14 and 12 respon-dents, respectively (see Table 4-2 and Figure 4-1).

Power quality and reliability were chief among the 24separate BES applications listed by respondents, thisbeing 12 more applications than were suggested torespondents on the list of applications found in Ap-pendix D.

BES and Ancillary Services

This discussion centers on the provision of services toan independent system operator (ISO) by a BESowner. Note that the electricity providers who con-tributed to this discussion reviewed a list of possibleancillary services. This list is included in the elec-tricity provider questionnaire in Appendix A.

Electricity providers chose applications from the listand also provided some additional applications notlisted. The original and appended list follows:

• Backup reliability• Demand cost control• Energy imbalance• Generation voltage control• Help with voltage regulation• Load following• Real power loss replacement• Reliability• Supplemental operating• Transmission voltage control


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Table 4-2. Applications Identified by Electricity Providers (30 Companies), 1996

ApplicationTimes Application

Mentioned

Area/Frequency Control 3Black Start 1Customer Demand Peak Reduction 5Distribution Facility Deferral 6Emergency Shutdown Power 1Frequency Control 1Frequency Regulation 2Generation Capacity Deferral 5Generation Dispatching 4Load Conditioning 1Load Following 1Load Leveling 10Out of Step Prevention 1Peak Reduction 2Power Quality 14Reliability 12Renewables 5Spinning Reserve 8Transmission Facility Deferral 5Transmission Line Stability 2Transmission Stability Enhancement 2Transmission VAR Support 2UPS 10Voltage Regulation 7

Voltage RegulationUninterruptible Power Supply (UPS)

Transmission VAR SupportTransmission Line Stability

Transmission Stability EnhancementTransmission Facility Deferral

Spinning ReserveRenewables

ReliabilityPower Quality

Peak Reduction

Out of Step PreventionLoad Leveling

Load FollowingLoad Conditioning

Generation DispatchingGeneration Capacity Deferral

Frequency RegulationFrequency Control

Emergency Shutdown PowerDistribution Facility Deferral

Customer Demand Peak ReductionBlack Start

Area/Frequency Control

0 2 4 6 8 10 12 14

Times Application Mentioned

Figure 4-1. Applications Identified by Electricity Providers (30 Companies), 1996.


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The opinions in this section were contributed by onlya small fraction of the electricity providers respond-ing to the questionnaire. Moreover, 11 of 38 elec-tricity providers either offered no opinion or littleinput.

Of the limited input by electricity providers,only the two following quotes have anydepth.

One IPP stated:

In a deregulated environment, who becomesthe utility is still unclear. To the extent anenergy supplier also becomes responsible forT&D, utilizing BES to assist in the aboveareas would be beneficial. However, aswheeling becomes easier, the net effect onBES may be a lower importance or value tothe "utility" given current costs.

An IOU stated:

I do not foresee BES playing a role in thenext five years. The southeast has a surplusof generation capacity. In a deregulated en-vironment, potential generation pools couldform and maximize the economic benefits ofthe current excess generation capacity.Sharing the dispatch of existing generationmay enable lower reserve margins andwould push out the need for additional gen-eration. Beyond five years, the role of BESdepends on load growth, technological ad-vances, and demonstration of the technol-ogy. All the listed items would be viableservices BES could provide. However, thequestion still remains on whether an ade-quate market would exist for these services.

In conclusion, the lack of input in this discussion maybe an indication that electricity providers either havenot considered BES in an ISO role or have not fullyrealized the potential for ISOs.

Additional BES ApplicationsImportant to Respondents

This section discusses additional specific BES appli-cations provided by electricity provider respondents.Although the list of applications given to electricityproviders with the questionnaire was thought to becomprehensive, further queries were made to elicit

overlooked or innovative applications not covered inthe original list found in Appendix D.

After reviewing the collective input of opinions tothis discussion, responses proved that feedback waslimited compared to other topics covered in the sur-veying of electricity providers.

Electric vehicle applications (charging stations)gained two responses. Other applications offered fordiscussion included photovoltaics (also discussed inAppendix D), environmental emission reduction,backup for distributed generation, and black start fornuclear generation.

In conclusion, this category revealed several possibleapplications not included but which several electricityproviders considered relevant. Secondly, the list ofapplications generated by our respondents includedonly one application given by multiple respondents,electric vehicle charging.

Additional BES ApplicationsImportant to the Electricity Pro-vider Industry

Electricity providers were asked for input that collec-tively formed a list of applications important to theelectricity providing industry. The applications of-fered by contributors were not necessarily applica-tions that were relevant to that particular electricityprovider, but were applications that respondents be-lieved were important to the industry as a whole. Themajority of contributing electricity providers did notanswer our inquiries or offer conclusive opinions forthe discussion.

The list included electric vehicle quick charge storageapplications, power quality improvement for particu-larly sensitive customers, and remote metering andtelecommunication power services.

Desired BES Technical andProduct Characteristics

Electricity providers were asked to comment on BEStechnological and product characteristics. Addition-ally, surveyed respondents were asked for opinionsthat might point to areas of potential BES technicalimprovement.

During the course of the interviews, common themesemerged. Cost, cell life, maintenance, and footprint


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were the most commonly repeated BES characteris-tics with room for improvement.

A list of less important characteristics also in need ofimprovement included lower maintenance (8), longercell life (8), smaller footprint (6), environmental con-cerns (3), energy density (2), larger sizes (2), longerstorage capacity (2), system reliability (2), increasedoperational flexibility (1), inexpensive inverters (1),portability (1), quicker recharge (1), voltage stability(1), quicker discharge (1), and reduced effects of op-erational profiles on equipment (1). Parentheses in-dicate the number of times each characteristic wasmentioned. Twenty-nine respondents out of a total of38 contributed answers. Cost, although not techni-cally a technical or product characteristic, was men-tioned by 18 respondents.

Only a small proportion of respondents felt BES wasadequately equipped to serve current needs effec-tively. One respondent offered support to this minor-ity consensus, though perceiving one commonlimitation:

The technology is here today, I wouldn'tworry about it, except for extending the lifeof the batteries.

Specific battery characteristics were commonly ad-dressed. Actual constructive input varied, however.One electricity provider offered considerable input:

BES needs to be able to discharge quickly ata higher rating and at the same time be usedfor longer discharge periods, i.e., rating of6 MW for 10 to 20 cycles and 1 MW for alonger period of time of 1 to 2 hr. This maybe possible, but the cost may be prohibitive.

An additional comment provided by one electricityprovider continues this theme. The respondent stated:

Battery storage systems, primarily the bat-teries themselves, need substantial furtherdevelopment to improve cost, increasepower and energy density, increase energyefficiency, and to reduce the effects of op-erational profiles (sudden discharge/charge) on equipment performance and life-time. Governmental investments in addi-tional battery R&D must be traded againstadditional investments in flywheel andSMES technologies. All three need furtherdevelopment before seeing substantial mar-

ket growth for the applications described[earlier].

Several electricity providers addressed nontechnicalissues. One participant addressed industry-widetraining, stating in his opinion that BES is "not anormal tool used to solve a specific problem."

Another respondent offered valuable insight bybringing together several common themes addressedin this section—capital cost, footprint, and energydensity. He stated:

Capital costs for battery energy storageplants are a function of the capacity of theplant as well as the number of discharginghours required. An increase in productionvolume would most likely achieve lowermature market costs.

On the subject of availability of suppliers offeringcompetitive BES system solutions, one electricityprovider stated that BES improvements could in-clude:

Small space, automatic, modular, continuousstatus and event monitoring, voltage selec-tions, low cost. There may be others. Ithink most of these characteristics are avail-able, but there is a limited number of suppli-ers that offer all of the features.

Although this response was not repeated, it may indi-cate that this electricity provider is waiting for a ven-dor to create a new product mix.

One electricity provider included a comparison to aperceived competing technology, stating that BESneeds to be:

Less than $400/kW with capability to store12 hours of energy, 2,000+ cycles. Need tocompete with a CT [combustion turbine] orgenset.

Furthermore, the point was raised that when BESreaches technological maturity, fuel cells may be verypopular, thereby nullifying BES gains.

In conclusion, a minority of electricity providers of-fering input to this discussion felt BES is technologi-cally prepared to meet current demand. Many feltthat only after significant investment in research anddevelopment would BES gain the characteristics


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needed to provide significant value to electricity pro-viders.

Estimates of Load Growth andTransmission and DistributionExpansion

The numbers in Table 4-3 represent the total numberof megawatts that 21 of the 38 contributing energyproviders in the sample projected would be added tomeet their load growth and other needs in the years2000, 2005, and 2010.

These numbers were then extrapolated from the sam-ple by dividing statistical measurements for the 21sample energy providers by the statistical measure-ments of the entire U.S. electricity provider industry.

The following statistical measurements were used:

• 1994 megawatt-hours sold (industry =2,936,085,000 MWh, sample = 945,579,000MWh)

• 1994 megawatt-hours generated (industry =3,254,081,000 MWh, sample = 919,691,000MWh)

• 1994 revenues from electric sales (industry =$203.48 billion, sample = $58.89 billion)

• 1994 generating capacity in megawatts(industry = 773,916 MW, sample = 211,346MW)

After executing these equations, it was found that thesample group represented the following percentages:

• 32.21 percent of 1994 U.S. MWh sold• 28.26 percent of 1994 U.S. MWh generated• 28.94 percent of 1994 U.S. revenues from

electricity sales• 27.31 percent of 1994 U.S. electric generat-

ing capacity

When the industry statistics were divided by the sam-ple statistics, the following multipliers were achieved.Again, these are presented carried to two decimalplaces:

• 3.11 for 1994 megawatt-hours sold

• 3.54 for 1994 megawatt-hours generated• 3.46 for 1994 revenues from electricity sales• 3.66 for 1994 generating capacity

These multipliers were added together and then di-vided by the number of multipliers (four). This re-sulted in the master multiplier, hereafter known as themaster extrapolation factor, of 3.44.

To arrive at estimates, the cumulative responses forthe years 2000, 2005, and 2010 were multiplied bythe master extrapolation factor.

The products of the master extrapolation factor andthe sample megawatt capacity estimates for theseyears were then deflated to account for the naturaltendency among survey respondents to provide in-flated estimates. This tendency is especially preva-lent when estimates are provided for times in thedistant future. The deflation factors used were 0.9 forthe year 2000, 0.8 for the year 2005, and 0.7 for theyear 2010.

The resulting equation for the extrapolation of thesample projected megawatt capacity additions in theyear 2000 to the electricity provider industry as awhole is as follows:

• Year 2000 sample megawatt capacity addi-tion estimate (3,210 MW) × master ex-trapolation factor (3.44) × year 2000deflation factor (0.9) = industry megawattcapacity addition estimate of 9,938 MW

Similar equations resulted in industry-wide capacityaddition estimates of 12,709 MW in 2005 and14,553 MW in 2010 (see Table 4-4). All three ofthese estimates represent 1 to 2% load growth whenapplied to projections of industry generating capacitythrough 2010.

This level of load growth is commonly found withinthe electricity provider industry, indicating that thismodel behaves in a manner that makes it viable forthe purpose of making the projections needed for thisstudy. This same model has been applied to the ex-trapolation process resulting from the responsesfound in the next section.


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Table 4-3. Estimate of Capacity Additions and Load Growth (in Megawatts): Pro-vided by Electricity Provider Sample (21 Companies), Years 2000, 2005, and 2010

Year Megawatts (MW)

2000 3,2102005 4,6182010 6,035


Table 4-4. Extrapolation of Capacity Additions and Load Growth (in Megawatts):Electricity Provider Industry (U.S. and Puerto Rico), Years 2000, 2005, and 2010

Year Megawatts (MW)

2000 9,9002005 12,7002010 14,500


Estimates of the BES Market

Table 4-5 represents the mean percentage of newcapacity added in each year that respondents pro-jected would be met using BES. These mean num-bers are immaterial for true statistical purposesbecause a large percentage given as a response wouldaffect the mean percentage score in the same mannerregardless of the size of the utility giving the re-sponse. However, on a purely qualitative basis, themean percentage is an indicator of the rising interestthat energy providers show in BES in the out years ofthis market assessment.

These figures gain their true value when a respon-dent's estimate of the percentage of new capacity de-voted to BES is multiplied against the expectedcapacity additions given by the same respondent.These individual estimates are then added together toform an estimate for the 21 sample utilities as awhole. This process resulted in the estimates of BESdemand in the 21 sample electricity providers (seeTable 4-6).

Putting these estimates through the same extrapola-tion process that was discussed in the previous sec-tion of this chapter, estimates of industry-widedemand for BES were derived (see Table 4-7).

These estimates were then multiplied by the meanprice per kilowatt of installed BES capacity for com-plete systems. The following figures were providedby SNL for 2000, 2005, and 2010:

2000: $900 per kilowatt2005: $600 per kilowatt2010: $500 per kilowatt

These per-kilowatt prices were then multiplied by1,000 to arrive at a per-megawatt price and then mul-tiplied by the estimate of the number of megawatts ofBES needed in each year to come up with estimatesof the value of the U.S. BES market in each year (seeTable 4-8).

The obvious conclusion drawn from these estimates isthat BES systems will likely gain greater use and de-ployment in coming years. However, this conclusiondoes have limitations. Foremost among them is thatadvancements in BES component technology, com-ponent price changes, and the effect of macroenvi-ronmental factors in the electricity providing industrycannot be fully accounted for when making criticalforecasts.


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Table 4-5. Mean Estimated Percentage of New Capacity AdditionsBeing Met by BES: By Electricity Providers (21 Companies), Years 2000, 2005,

and 2010

Year Percentage

2000 1.732005 4.102010 7.58


Table 4-6. Estimated BES Capacity Additions (in Megawatts): By Electricity Pro-viders (21 Companies), Years 2000, 2005, and 2010

Year Megawatts

2000 82005 622010 166


Table 4-7. Extrapolation of BES Capacity Additions (in Megawatts): ElectricityProvider Industry (U.S. and Puerto Rico), Years 2000, 2005, and 2010

Year Megawatts

2000 272005 2152010 573


Table 4-8. Estimated BES Market (in Dollars): Electricity Provider Industry (U.S.and Puerto Rico), Years 2000, 2005, and 2010

YearMarket

($ Million)

2000 242005 1292010 287



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Projected Effects of Lower-CostBES Technology

Electricity providers formed opinions for this discus-sion based on the prospect of BES being comparableto their preferred technology in 2010. Respondentswere asked which technology(s) would provide theircentral and/or distributed energy source(s) in 2010,and if in 2010 the cost of BES were comparable totheir preferred option, how much BES they wouldinstall.

The uncertainty of making accurate projections intothe future precluded many from offering opinions.Factors such as deregulation, future technologies, anduncertain customer bases added to the uncertainty ofmaking credible projections.

One opinion offered by an IOU spokesperson summa-rized the common line of thought regarding this dis-cussion. She stated:

All depends on how much need there is.Possibly also the operating characteristics ofthat technology. From what I've seen its ba-sically a peaking type technology. So itwould have to be competitive with the com-bustion turbines. As to how much?...It de-pends on the market. Who knows whatderegulation will look like that far out intime. Then also what our needs will be,whether or not we retain, gain, or lose cus-tomers. It's very hard to say how much wewill specifically [give] to a certain technol-ogy.

This quote identified BES as a peaking technology.In addition, many other respondents shaped theiropinions in reference to BES as a technology suitedfor distributed siting, mainly for prospective customerapplications.

To confirm electricity providers' uncertain technologyforecasting, some offered no opinions on future tech-nologies. Alternatively, those who did contributeoffered one or two opinions. Technologies such asgas turbines, combustion turbines, combined cycle,and fuel cells were mentioned more frequently thanother technologies. In addition, these technologiesare likely candidates for central and/or distributedenergy sources in 2010.

Other technologies electricity providers thoughtmight be used included advanced combustion tur-

bines; coal (all different types of generation, such aspulverized or supercritical); combustion regurgitation(exhaust gas recycling); diesel fuel; flywheels; liquid-fuel-fired, natural-gas-fired, and oil-fired units; andrenewables. Opinions holding these technologies aslikely candidates were few—often only one or tworespondents sponsored them.

One opinion by an electricity provider underscoresthe popularity of gas technologies:

Relatively strict solicitation requirementswill partly determine mix of technologies tobe used. Estimated 90 percent gas combinedcycle type, 10 percent renewable or DSM.

Gathering quantifiable estimates of the respondents'preferred option to BES was difficult, mainly becausethe respondents felt uncomfortable forecasting futuretechnology demands. Although some electricity pro-viders did give estimates, many electricity providersuse IRPs to help forecast their company's technology,and IRPs do not usually forecast 14 years into thefuture.

Given the scenario envisioned in this section of thestudy, where BES would match the cost of the re-spondent's preferred energy supply options, estimatesof BES purchases varied widely. Some respondentsfelt that this event would only marginally increase thepercentage of new capacity met by BES purchases,maybe increasing this percentage into the 5 to 10%range from their previous estimates of below 5%.

Other respondents offered estimates in the form ofhard figures, with a cooperative stating that it mightpurchase about 2.4 MW, and a major utility project-ing that such an event happening within the next fewyears might inspire them to purchase as much as2,000 MW of BES capacity between 2005 and 2010.

In conclusion, many electricity providers were opento the prospect of considering BES in 2010, if it werecomparable to their preferred option.


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SUPPLIER AND CONSULTANT PERSPECTIVESBATTERY ENERGY STORAGE MARKET FEASIBILITY STUDY ON BATTERY ENERGY STORAGE

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5. Supplier and ConsultantPerspectives on Battery Energy Storage

Introduction

This chapter discusses the perspectives of BES sup-pliers and independent consultants who participatedin the BES market study. The responses discussed inthis chapter were obtained during interviews withprominent BES suppliers and consultants using thequestionnaire found in Appendix B of this report.

List of Contributing Suppliersand Consultants

Suppliers and consultants that contributed insights tothis study are included in the list below.

Suppliers• AC Battery• ABB Power Systems• C&D Charter Power Systems• Delphi (formerly Delco)• GNB Battery Technology• Johnson Controls Battery Group• Powercell Corporation• Silent Power Systems• Westinghouse• Yuasa-Exide• ZBB Technologies, Inc.

Consultants• Bechtel• Decision Focus• El Camino Real Engineering, Inc.• Energy and Environmental Economics• Power Engineers, Inc.• Zaininger Engineering Company, Inc.

Products and Services Offeredto BES Market

The current BES product and service infrastructure iscomposed of independent consultants and manufac-turers; offerings may range from BES consulting tofully integrated BES system design and implementa-tion.

Completely integrated BES system suppliers are few,and those that have produced systems are typicallysupported by revenues outside the BES market. Suc-cessfully installed systems may offset large researchand development expenses, but insufficient electricityprovider demand has forced several BES competitorsto scale back their product offerings.

One company that previously offered a fully inte-grated BES system commented:

At this point in time we don't make anyproducts for that market [for Alaska andPuerto Rico type BES systems]. We used tomake complete systems, but the market issuch a small niche, and it's so politicallydriven, and utilities buy demo systems whenthey buy one...it's really not a profitable en-deavor for a company to get in. We havewithdrawn from that niche.

Companies that do not offer fully integrated BESsystems are sometimes horizontally integrated. Thesecompanies offer products in other more lucrativeelectricity markets such as end-user power qualitysystems. Power electronic inverters, as an example,can be tailored to meet the requirements of most sys-tems types.

In fact, they have to—utility designed BES systemslack standardization. In today's BES market, systemofferings are showing the first signs of standardiza-tion within companies. This is a break from tradi-tional pilot-type BES systems, yet no industry-wideBES product or service standardization appears to beon the horizon.

Current battery technology offered by BES suppliersis entirely lead-acid, including both flooded andVRLA cells.

Consulting services in the BES market may rangefrom power quality consulting services to economicanalysis and system design. Because of the limitedmarket for utility-scale BES systems, consultants, like

SUPPLIER AND CONSULTANT PERSPECTIVESON BATTERY ENERGY STORAGE BATTERY ENERGY STORAGE MARKET FEASIBILITY STUDY

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product suppliers, typically diversify their consultingover a range of electricity markets.

Future BES Supplier Productand Service Offerings

Until 2010, products and services offered to the BESmarket by suppliers and consultants are expected toevolve to meet market demand requirements. Somesuppliers and consultants do not foresee changes intheir areas of expertise. For instance, they believelead-acid batteries are proven and point only to costas an area of improvement. It is possible that by theyear 2000 sodium/sulfur and zinc/bromine batteriesmight be offered in the BES market, assuming exist-ing technological obstacles are overcome.

Some people think great technological advancementsin advanced batteries will bring about the greatestBES system cost cutting. This remains to be proven.Others are more skeptical of advanced batteries, fa-voring traditional lead-acid batteries.

The majority of others included in this study foresee,and expect, changes in both batteries and other sys-tem components by the turn of the century. Severalcompanies see improved developments in nonbatteryBES system components as being likely:

My guess is that [two major components]would change before the end of the century.One would be the inverter/converter tech-nology for higher efficiency/lower cost.Secondly, probably next generation batterytechnology [would change].

This response may indicate a shift from the relativelycost-insensitive mindset of demonstration or pilotsystem construction. A different respondent indicated

We will continuously [be] improving ourPCS (power conditioning systems) for thismarket.

Battery technology is expected to change over theforecast period. Expansion of battery storage capac-ity and refined deep-discharge life cycle are two areasfor potential improvement, as indicated by severalsuppliers.

This mainly concerns existing battery technologies.Although several participants expect improvement ofexisting battery technology, others anticipate ad-

vanced batteries having a greater presence, one stat-ing:

[Our company will offer] a BES productbased on advanced battery technology.

Independent consultants who currently work withBES may adapt to changes in that market but manyindicate little change in their service offerings.

In the 1980s, Decision Focus performed commer-cialization analysis of energy storage technologies.CAES, fuel cells, and BES were their areas of exper-tise. Now, they have scaled back this type of analysisand perform these services only when requested.

Of the consultants interviewed for this study, thosecurrently working in the BES market are actively en-gaged on projects; BES does not create an environ-ment commensurate with widespread, full-timeconsulting, in general.

One consultant explained his outlook:

We do battery storage, but we do otherthings such as solar and wind power. Rightnow these kinds of technologies have differ-ent impacts on utility systems than conven-tional type technologies. What I just said isthis restructuring...is going to change notonly these kinds of technologies, but otherkinds of technologies, like transmissiontechnologies and other kinds of generationtechnologies.

Renewable energy sources are expected to use bat-teries to a greater degree. To accommodate thischange, the flexibility of BES systems may be tested.As indicated by one contributor, an avenue for thismay be achieved by using "hybrid large scale energystorage devices that couple batteries together withultracapacitors."

Vendor Perspectives on OtherEnergy Storage Technologies

On this topic, many responses mentioned SMES,pumped hydro, advanced batteries, CAES, and fly-wheels.

The majority of contributors view these competingtechnologies, with the exception of pumped hydro, aseither technologically immature or lacking storagecapacity and duration. Several people offering


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opinions felt flywheels and SMES will probably notbecome commercially available for about five years,with SMES being further out than flywheels. Twocommon complaints about SMES technology are itscost and failure to provide support for sustained peri-ods of time.

In the responses on which this section is based, sev-eral people appeared hopeful for the eventual arrivalof marketable SMES and, possibly, flywheels. How-ever, despite the possible future acceptance of fly-wheels, one person pointed out:

Now I don't see rotating equipment fittinginto that at all because it is not long enoughdurations at all. SMES doesn't fit into thatcategory [spinning reserve, utility standby,customer use outage protection]. It fits intopower quality, but it does not fit into thecategories we have defined here.

Another supplier felt an increase in SMES dischargecapacity was not likely to occur.

One respondent looked to the potential of advancedbatteries. The respondent mentioned advanced bat-teries as having outstanding problems, as do manyother energy storage technologies. One is cost, andanother is that the lack of technological advancementmay deprive the technology of widespread practicalapplication other than for the purposes of demonstra-tion. Although this comment was mainly directed atadvanced batteries, the respondent believes the costof traditional batteries and the power conditionercomponent of the system need to come down.

An alternative view to the previous comment wasthat:

Lead-acid technology needs to demonstratelonger life or focus on applications that havelittle or no effect on the life of the battery[power quality].

Negative perceptions of energy storage must be recti-fied for these technologies to satisfy the market. Ashas been indicated in other areas of discussion, peo-ple are hesitant to adopt technologies deemed to raisesafety concerns. These concerns may include chemi-cal, mechanical, or electrical hazards.One supplier suggests:

Part of developing the market is instillingconfidence on the part of the customer forthe product. Confidence in the quality and

reliability of the product, confidence in thecost effectiveness of energy storage—but mysense [is that BES] technology is furtheralong than the other stuff.

Two opinions dissented from this opinion. Thus far,most respondents had focused their opinions on cost,awareness, and technology. However, some respon-dents felt a development that might lead to marketacceptance would be integrated energy storage sys-tems. Therefore, extended power outages that cannotbe handled by single SMES coils might need a com-bination of two energy storage technologies; "longerdisturbances might be best solved by putting a SMEScoil with a battery." Overall, though, not many re-spondents alluded to hybrid technology solutions.

A different respondent, this one also a supplier, addedto the previous opinion. This respondent saw cus-tomers wanting their energy storage needs providedby a turnkey operator. Likewise, he pointed out thatmost companies acquiring large capital assets areaccustomed to having installation provided by others.

Barriers to BES Acceptance

Cost, lack of utility support and organizational cohe-sion, industry awareness, and perceived inadequacyof technology are the common barriers to BES ac-ceptance. This section discusses these four popularlyperceived barriers to BES acceptance, yet neithersuppliers nor consultants targeted any one particularbarrier. Suppliers pointed to cost, technology, andthe electric utilities. On the other hand, no consult-ants included in this study acknowledged utilities asbeing a barrier. Furthermore, consultants referredonly to cost and technology as being barriers.

Production of a battery (the supplier) to deploymentof the total system at the end-user site (the utility)involves a linear process—addressing a market andproviding a product to serve that market. BES sup-pliers have invested large capital and research anddevelopment costs to prepare for the BES market. Todate, the BES market has lacked adequate demand tofully compensate all suppliers for their internal in-vestment.

From one supplier's perspective, utilities may loserevenue if BES systems are to be used:

[One barrier to BES acceptance is] lack ofutility support...And utilities look at this as


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perhaps cutting into their revenues in thearea of peak shaving.

The discussion of BES barriers to acceptance shouldnot focus on lack of utility interest as the singularbarrier. Each utility is confronted by unique internaldilemmas such as technology selection, as well asexternal industrial factors such as deregulation, in theday-to-day operation of a utility.

One barrier to BES acceptance is the internal processof technology selection by utilities. Industrial electri-cal technologies are intended for use in either genera-tion, transmission, or distribution, with procurementprocesses generally surrounding the individual areawhere that technology will be used. Rarely does onefind a technology suitable for use in all of the threeareas.

An exception to this rule is the deployment of gen-eration technologies at the substation level. BES isfairly unique because of the flexibility of its simulta-neous contribution to generation, transmission, anddistribution—all from one location.

BES could play a part in generation, transmission, ordistribution. However, marketing BES as being use-ful in all three of these areas would bolster its imageas a multitasking technology—which many perceiveto be one of BES's greatest marketing assets. Pro-curement must therefore rely on the coordinated ef-forts of three internal areas, which can be difficult.One respondent stated:

The other barrier is what I specialize in, isthat you have to deal with multiple types ofentities in different parts of the power sys-tem. For storage to be a viable alternative itjust can't have one application; it has to bemore than one application and you have todeal with transmission, distribution, andgeneration people. It has to perform allthese functions in order to be a viable alter-native. That's a barrier when you have todeal with multiple people.

One supplier perception about utilities is their failureto conduct internal research. As one person re-sponded:

I think another barrier is that utilities don'thave money to experiment, and they...needto consolidate R&D activities, somethinglike an EPRI sort of methodology.

This statement assumes that utilities should directeffort towards studying and identifying single or mul-tiple technologies. Utilities may have studied or cur-rently study technologies such as BES, but with littleor no investment. Utilities can employ traditionalgeneration technologies in applications suitable forBES.

Lack of utility interest in BES may create negativefeelings toward utilities, as one participant remarked:

For storage and power quality with BESsystems that the industrial and commercialuser will use, they're being unsold by utilitiesbecause they don't think they're a forwardthinking technology.

Perceived technical barriers are mainly aimed at bat-tery lifetime and energy density. One respondentstated:

The first barrier is no capability to supply amature product.

A battery capable of delivering energy with lowcapital costs might be considered mature. Yet, lead-acid technology has existed for decades. People willcontinue moving toward technologies that maintainbetter cost-to-benefit ratios. In addition to perceivedtechnical barriers, BES cost has always been a largebarrier to acceptance.

Some people feel the increased delivery of BES unitswill help lower the overall cost of the system. Otherssee reducing the cost of system technology, mainlysystem components other than the battery, as a solu-tion.

A third method to possibly reduce barriers to BESacceptance is not through technology changes or vol-ume shipments—instead, it is thought that highlight-ing the value and benefit stream of the BES system incomparison to cost would help. Highlighting thebenefits and value underscores the larger issue relat-ing to overall awareness of BES.

BES Customer Segmentation

BES suppliers and consultants were asked to identifyany types of electricity providers that might becomeBES customers (see Appendix B for the question-naire). The same suppliers and consultants wereasked which electricity providers they target now andwhich ones they plan to target in the future.


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The list of potential BES customers included but wasnot limited to cooperatives, municipalities, IOUs, andIPPs. Alternatively, customers can also be segmenteddepending on their particular needs irrespective oftheir formal title.

Although fewer than a half a dozen large BES sys-tems are currently installed in the United States, ven-dors and consultants have identified market segments.

Entities with high demand charges and those withcritical loads have been identified as one potentialBES customer segment. Several contributors whoseopinions parallel these thoughts felt these character-istics could be found in specific markets or ruralelectricity providers. Secondly, the contributors feltthe electricity providers who are more attuned withtheir customers needs could fit in this group.

Although high demand charges and critical loadshave been identified as common characteristics thatmay be reasons for segmentation, several contributorshad different feelings on particular entities with theseneeds. One person felt that the market that could becharacterized by SCE with their Chino, California,plant would "dry up." Average-sized cooperativesand rural electric associations are often not perceivedto be potential BES customers, mainly because oflack of adequate funding.

Discussion in this category raised much attention onserving end-user needs. To a certain degree, somecontributors expressed their feeling that innovativeelectricity providers may be more inclined to be BEScustomers. This category of entities would includeutilities aware of end-user needs, IPPs, and electricityproviders serving niche markets.

IPPs and PV electricity providers are viewed as beingpotential BES customers. It is possible these viewsare generated by thoughts on deregulation and howIPPs may or may not be affected. Although utilitieswere scarcely mentioned by class in this discussion,one person gave his views with regard to utilities andIPPs:

A utility is being pushed. For example, be-cause of competition neighboring utilitiesmight be a big [BES] user, especially if theyare all electric. If there's gas and electric,they're going to look to the gas side. Mostutilities are looking at generation, and notstorage. PVs and renewables, and IPPs in-terested in those sort of things usually have

incentives in terms of long term contractsfrom utility purchasers.

In response to that argument, emerging power qualityand end-user pressures may evolve to the point whereutilities address those issues more fully:

I'm talking about those things that are spin-ning reserve, peak shaving, and things likethat [with regard to distributed generationand distributed storage in certain geographicregions]. It's really the latter that the indus-try is going to address out of need for gen-eration support. But I think on the otherside, their end-user customer is what isdriving very hard the need for the powerquality side. So IPPs are not going to be anydifferent than utilities today. They are goingto have the same end-user pressure for whenthey get into wheeling when they get intoother things in the unregulated environment,they're going to have to supply power qualityinitiatives.

One underlying theme in the input from the con-tributors is the emerging needs of end users. Manypeople feel that eventually the BES market will shiftto end-user needs. As expressed by one vendor:

My opinion is that in terms of the hierarchyof need, large scale BES systems can pro-vide some useful benefits to the generation,transmission, and distribution side in theelectric energy dispatch chain. But on thecustomer end, the end-user customer is thegreatest beneficiary of BES. My opinion hasto do with a whole new emerging field ofcustomer oriented services which can be de-rived from the use of BES.

Outside of the common themes discussed here thatmay point at customer segmentation, others separatelyfelt that no entities were particularly likely BES cus-tomers. Alternatively, some felt all the groups wereas likely as any others to be BES customers.

In conclusion, the emerging issue of end-user partici-pation in electricity-providing decisions is a drivingforce behind BES customer segmentation.


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BES Customer End-Use Appli-cations

Many contributors felt a large potential for end-userutilization of BES. In regard to applications, manyspeculate that end-user power quality issues will driveend-user acquisition of BES.

In numeric terms, several separate contributors of-fered numeric estimates of the size of this potentialmarket, although quantification of the end-user mar-ket size is discussed in a separate category. Opinionsgiven by respondents were split between large andsmall estimates, with a large vacuum in between. Forinstance, a large battery supplier that also manufac-turers BES systems estimated the market in 2005 tobe $2 billion to $3 billion.

Niche markets, such as electricity providers on is-lands or in remote continental off-grid locations, aredeemed as being an appreciable market for BES. Theinherent problem with this market, regardless of itbeing considered appreciable, is its size; the niche"island" market may not be large enough to supportvendor manufacturing efforts.

Secondly, end-user applications in niche markets maybe similar to end-user needs for on-grid end-users, butniche markets may be small.

Said one respondent:

Compared to the whole power generationsegment it's very tiny [the niche BES mar-ket]. I would guess—if I had to pick a num-ber—I would guess less than 1 percent of thewhole power generation market.

A different contributor thought the BES marketwould be comparable to the PV market.

End-user needs when compared to the utilities' pro-pensity and ability to deal with those issues may forcevendors and utilities to address that market. Ad-dressing the BES market at the end-user level, in spiteof the growing demand for power quality, is difficult.Several respondents indicated that they were not al-ways successful in receiving help from utilities toidentify end-users who are potential customers forBES.

Furthermore, if the end-user market becomes as largeas some have predicted, methods for identifying thosecustomers will be developed by vendors. One con-

tributor targeting potential commercial and industrialend users pointed out that the demand for BES sys-tems presently exists:

Because, once again, the customers at theend of the distribution chain are the oneswho suffer the greatest losses in the event ofdisturbances.

In addition, two vendors actively pursuing the end-user market are looking for the customers with thelargest losses in revenue because of product spoilageand downtime caused by power outages. Those cus-tomers, they say, are the ones who have chosen to gooutside the utilities for solving their power qualityneeds.

As discussed in other parts of this section, powerquality issues are at the heart of end-user demand forBES. However, end users are also looking to BES tohelp reduce high peak-demand charges. One respon-dent estimated that the BES power quality market willgrow to $150 million in the next five years. Thispower quality market, he stated, will demand BESsystems with "up into the several megawatt ranges perinstallation for short durations up to 10 to 30 sec-onds."

Several contributors felt cost would be an overridingfactor that would play into identifying end-user appli-cations. These opinions were discussed in other cate-gories but were included in this discussion todemonstrate how some respondents felt about thetopic of end-user applications.

Regarding cost, one contributor's opinion is includedhere:

I think the market is substantial for end-userapplications. I don't foresee a substantialmarket in residential applications; however,the key to success and penetrations will becost. With existing lead-acid technology themarket will be of no significance.

A different opinion, this one relating to BES in gen-eral, stated:

The potential is there, there is no questionabout it....The demonstration projects, thereal projects—everything is running fine....The potential is there, but people don't seemto want it.


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In conclusion, information gathered from supplier andindependent consultant interviews indicates thatpower quality is perceived to be the largest applica-tion for BES.

Barriers to BES AcceptanceAmong Electricity End Users

One of the largest barriers to end-user acceptance ofBES is showing that using the system is beneficial. Inthe end-user market, power quality and peak shavingwere two BES applications that, if proven, might helpopen doors. The first dilemma to be overcome isproving to the end user the financial viability of usingBES. One contributor stated that companies, if inter-rupted for only seconds, lose a great deal of money.In turn, they look to buy some sort of technical insur-ance to offset or eliminate those spoilage costs.

Once the end user is shown the potential savings, ithas to financially justify the capital expenditure.Separate contributors feel end users, as opposed toutilities, must realize the capital expenditure paybackin less than 24 months.

Utilities, on the other hand, are viewed as havinglonger payback horizons; one participant indicatedthe utility payback can extend from four to eightyears. Other contributors expressed similar views.Several indicated BES cost at the end-user levelmight be a considerable barrier preventing deploy-ment.

Frost & Sullivan would like to point out that end-users and utilities might see cost in comparison tobenefits in different ways. Furthermore, uncertaintycreated by deregulation may nullify traditional 4- to8-yr payback, forcing many to cease capital purchasesor to choose safe and proven technologies such asUPS or serial power supply (SPS) systems.

Compared to utilities, who may use BES for similaror different applications than end users, end users donot traditionally allocate a section to their budget forelectricity-providing technologies. Examples of theseend users may include commercial and industrialcompanies. Some see this unfamiliarity as a barrier toend-user acceptance:

It's harder for them [end users] to take on amajor project to store a lot of energy be-cause that is not the business they've been in.I think utilities would be an easier market topenetrate than the end-users.

Deregulation may play an increasingly crucial role inchanging the barriers to BES acceptance at the end-user level. End users currently have the option topurchase BES systems through vendors. In someinstances end users can look to utilities to help solveelectricity reliability issues. When and if the effectsof deregulation are fully felt, intermediaries mighthelp facilitate the erosion of BES barriers. Assumingthe end-user market for power quality and peakshaving is addressable, third-party competitors mayemerge to serve the end users more efficiently thanexisting entities, utilities, or vendors.

One consultant offered his view on this discussion:

I think on the end-user side, the fact that youare seeing lots of third parties—whether theyare energy service companies or other simi-lar organizations that do consulting or turn-key operations or whatever—directly forend-users is going to facilitate the market forbatteries because those kinds of organiza-tions are much more likely to know aboutand be comfortable with installation of newtechnologies such as batteries.

This last response might show how third-party suppli-ers in a deregulated environment can possibly openthe doors to an explosive BES market.

In a thought not related to the general line of discus-sion in this section, a respondent estimated the end-user market to be approximately $20 billion a year;that number represented revenues lost to productspoilage and downtime from power outages. Third-party competitors could feasibly add another link tothe vertical BES market—they could interface be-tween BES vendors and end users. This could possi-bly help strike down barriers to BES acceptancebecause, as a previous quote indicated, third-partyelectricity providers could "facilitate the market forbatteries."

Electricity End-User BES MarketEstimates

Projections of the size of the end-user BES marketare based on estimates gathered from study partici-pants. Most respondents were unable or refused toestimate BES market size in a forecast period begin-ning in 2000 and ending in 2010. In the absence ofhistoric BES growth trends, those who did make es-timates either made outright guesses or used a


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percentage of total load growth as a basis for theirestimates.

In 2000, the electricity end-user market for BES wasprojected by BES suppliers to be 496 MW (see Ta-ble 5-1). This number was forecast to grow to805 MW by 2005. In 2010, survey participants ex-pect the market to be 965 MW. These estimates arebased on total estimated megawatts of installed BEScapacity for each of those years; these numbers arenot aggregate. Out of 17 respondents, six suppliedestimates used for this projection. Of the six, fourwere contributed by suppliers, two by consultants.

Lacking a central infrastructure for information col-lection, no proven BES market predictions have beenwidely disseminated. If any type of standardization inthe BES market existed, it would be logical to assumesome version of a BES market model would be incirculation. Although a current or standardizedmodel for estimating the potential end-user BES mar-ket is not in circulation, some vendors have indicatedthey have developed methods for determining thismarket.

Several vendors currently targeting the end-user mar-ket measure estimated demand in gigawatts of BEScapacity.

One participant stated:

I think the market is going to be power qual-ity areas, one. The other area is going to bepeak shaving. When deregulation hits theymay find more financial incentives to dothese kinds of things themselves.

Another contributor added to this sentiment:

I think 80 percent or more of batteries thatare out there for companies are going to bepower quality related.

End-User Battery TechnologyPreference

Feedback from study participants indicates that threefactors drive end-user battery technology preference:application requirements, cost, and maintenance fac-tors. These three factors vary depending on batterytechnology.

VRLA batteries are favored in the end-user marketover most other battery technologies for a given set ofapplications. End users may include telecommunica-tions companies, semiconductor manufacturers, foodprocessors, mold makers, and many others. It wouldbe safe to say most end-user companies do not em-ploy a staff of battery experts, and that therefore theirbattery selection is largely influenced by their directcontact with consultants and vendors. Under the as-sumption of total knowledge of battery technology,VRLA batteries are viewed as maintenance-free andsafe.

Maintenance appears to be a critical factor in end-user battery selection. One respondent stated:

VRLA cells to some extent obviate the hy-drogen problem. They also obviate some ofthe concerns about acid spills, as do thingslike sealed nickel metal hydride.

Table 5-1. BES Market: Supplier and Consultant Estimatesof the Electricity End-User Market (in Megawatts) (U.S. and Puerto Rico),

Years 2000, 2005, and 2010

Year Megawatts of BES Capacity $ (Millions)

2000 496 3722005 805 4432010 965 434



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Another respondent stated that the less the end user:

Has to bother with it the more they like it.So I guess they would like a battery theycould put in and forget it.

Another respondent repeated this sentiment and men-tioned a specific technology:

I don't think [end users] care as long as theydon't have to worry about all kinds of main-tenance. Right now people trust lead-acidmore because of experience....So I wouldthink that they [utilities] would probably pre-fer lead-acid over some of the newer onesright now just because of lack of experience.

This respondent's opinion was targeted at utilities, butthis sentiment is shared by contributors’ opinions ofend users.

Although maintenance and potential environmentalthreats impact battery technology selection, the appli-cation requirements demanded of a system shouldultimately determine the battery selection. Thisopinion is mentioned several times in responses.Stated one consultant:

If people want a lot of energy storage theygo to these flooded cells...People want highpower, they will go to the sealed for shortdurations.

This type of response indicates how battery technolo-gies may be reduced to simple generalizations with-out naming any particular battery technology. Onerespondent repeated this popular theme:

In other words somebody wouldn't come upand say it has to be nickel cadmium batteryor lithium polymer or has to be nickel metalhydride. They indicate more cycle life andlow maintenance as being the requirement ofthe battery.

Competitive Analysis

Contributors to this particular discussion were askedto give their impressions of BES vendors (most of thecontributors were vendors). The names of companiesthe contributors were able to recall as vendors in-cluded AC Battery, GE, GNB, C&D, Yuasa-Exide,Westinghouse, ABB, Siemens, Kenetech, SiliconPower, Nissho Iwai, East Penn, Horizon, Japan Stor-

age Battery, JCI, Delphi, and Habaka Avarta (thisvendor's proper spelling could not be confirmed. It isbelieved to be a European vendor and was only men-tioned once throughout the study).

Most contributors were aware of several vendors,though some contributors did not offer their opinions.Furthermore, contributors seem to be aware of andoffer names of the vendors and BES facilities theyhave participated in.

One vendor of complete systems offered his opinionof AC Battery:

They have no particular core technology inbatteries, their PCS system is fine, andthey've selected lead-acid as their primarybattery technology, and their PCS system isdesigned to match their lead-acid system.So, I think AC Battery is a key player, interms of BES as a system. That's the onlysystem I'm familiar with that has done anadequate job.

Only one other vendor specifically mentioned ACBattery as being relatively successful. A differentvendor named an Alaskan BES project, citing GE,and said GE has probably been the most successful ofknown vendors so far.

Several respondents were keen to point out the"demonstration nature" of existing BES systems, andbased their opinions on those projects and the lack ofa BES market. In short, a majority of respondentsfeel current vendors have not been successful overall.Furthermore, the lack of a full-scale market with largeunit shipments precludes an accurate assessment ofvendor success.

Some respondents felt that the success of BES ven-dors can be measured by the current size of the BESmarket. However, in a market characterized by low-volume unit shipments, it would be erroneous to im-ply that it is the vendors who are at fault for the slowgrowth of the market. Factors other than lack of ade-quate market demand should be brought into questionwhen measuring a vendor's success or lack of success.

One consultant expanded this discussion by offeringhis opinion on the changing nature of utilities. Heillustrated how the internal utility functions may af-fect the BES market and, indirectly, how this mayaffect vendors:


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They do fine [regarding vendors], but theirmarket maybe a thousand times what we do[consulting], so they're fine for other rea-sons. That's another thing that's sort offunny about this industry is that I think thesegiant battery companies come and keep theireyes open on this utility stuff so that ifsomething ever does happen, if the markethappens they'll be there and they'll under-stand what they have to do. But none ofthem are really like putting huge efforts intobuilding the market themselves becauseutilities will come and go. A utility will getsome excited research guy coming out andsaying this is great and they get the batteryguys excited and then the next year comesand the planning budget changes and the re-search guy goes "well, we're not going to doa lot." So I don't know, I sort of see thesebattery guys as sitting on the fence waitingfor a real market to appear and they havebeen waiting for a while.

A supplier had this to say about BES vendors:

I think most of us have some idea that wewant to attract some portion of the market.We're all trying to find our niche, we're alltrying to find out what we're best at, whatour battery is best applied to. I think there'sroom for all of us, really.

Vendor Perspectives On Exist-ing BES Projects

Perspectives of vendors and consultants on existingBES projects are based on tours of facilities and sec-ond-hand information.

The respondents capable of discussing this topicmentioned facilities at Chino, California; Vernon,California; Crescent Electric Cooperative; and PuertoRico. Alaska was mentioned, but no individual BESsystem was referred to. Two more responses sepa-rately referred to the BES facilities at Crescent Elec-tric and the BEWAG plant in Germany.

Most respondents seemed informed on the well-beingof existing BES facilities.

Based on interviews with vendors and consultants,opinions of existing BES projects are cautiously op-timistic. The use of the word “cautiously” should notimply that respondents were not pleased with existing

facilities. Instead, it means that respondents see bat-teries at installed sites boosting the BES market al-though they have pointed to the perceived problems.

A minority of respondents referenced this discussionto utilities. Most offered opinions of existing BESfacilities and simultaneously pointed to the successfuland unsuccessful features of those they were familiarwith. Other respondents made bold generalizationsabout existing BES facilities, either pointing to atechnological flaw or capital/revenue shortcoming.

The next quote is from another supplier:

I think they are happy in Vernon with whatthey've accomplished. I think the Chino fa-cility maybe didn't accomplish all of thegoals they wanted to accomplish. I think itwas expensive, a maintenance headache, anda bit of a disaster from that end, but SCEseems happy at least they have it on line.

This person added:

I think they are accomplishing a lot of thethings that we want to accomplish with theunits that we have.

The supplier who made these last two statementspraised the Puerto Rico facility, citing management'ssatisfaction with the BES system. Another respon-dent whose complete quote was not added alsopraised Puerto Rico for its performance. In the typi-cal fashion of some responses, he pointed out equip-ment failures, then stated that the facility "isproviding the benefits that justify it in the first place."

Regarding end users, one respondent commented thatBES benefits the end user more than the utilities forpower quality and reliability. Referring to the utilitiesagain, a different respondent stated that:

Utilities are trying to prove out the cost-effectiveness of BES, and to make someevaluations made on a small sampling size.

Not all respondents are as optimistic as others. Sev-eral negative opinions were contributed by suppliersand consultants. Comments seem to focus on generalshortcomings rather than technical overall perform-ance.

Along this line, one supplier commented:


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I think they've disassembled Chino. Thattells you something, you know. If it waspractical, why didn't they continue with it?

In conclusion, a wide disparity in opinions existwithin the BES supplier community on this subject,with significant numbers of suppliers and consultantorganizations on either end of the debate.

BES Manufacturing Develop-ments

During interviews with Frost & Sullivan, contributorswere requested to give their opinions regarding nec-essary future BES manufacturing developments.Opinions of future manufacturing developments re-flected BES market estimates presented to contribu-tors by Frost & Sullivan (see Appendix B, question12).

A large proportion of contributors’ opinions indicateda belief that the existing BES production infrastruc-ture would be capable of handling future market de-mands. Two responses supporting this consensussaid future demands could be met by shifting person-nel, and with "none or minimal expansion of manu-facturing if lead-acid is used."

Some companies producing batteries for the BESmarket are also involved in battery production forother industries, specifically the automobile industry.In 2002, approximately 100,000 zero-emission auto-mobiles are slated to be sold in California alone. Inorder to meet this demand for batteries, assuminglead-acid is used for batteries in those cars, the po-tential for restructuring manufacturing facilities couldoccur. One contributor expressed his thoughts aboutthis potential issue:

I would say that today's LA [lead-acid] bat-tery industry can handle this. There mightbe some production required if all the otherapplications also go up in demand. For ex-ample, [if] the California electric vehicle[EV] market had come on board, then wecouldn't have absorbed the energy storagemarket. This can be handled easily by theexisting factories with some removal of bot-tle-neck capacity.

This comment brings up the risk that parallel manu-facturing for BES batteries and electric vehicle bat-teries may still be an issue in 2002. However,another contributor commenting on the same issue

believes electric vehicles will evolve out of lead-acidtechnology by 2003.

In conclusion, most contributors do not feel futureBES demand will exert pressure on manufacturingunless advanced batteries are required. In that case,serious production bottlenecks might occur.

BES Marketing Developments

In addition to the manufacturing theme discussed,Frost & Sullivan contributors were also requested togive their opinions regarding necessary future BESmarketing developments. Responses discussed in thissection were based on the same market figures pre-sented to contributors in the previous category (seeAppendix B, question 12).

BES vendors and consultants were asked what BESmarketing developments would have to occur to meetforecasted demand. Notwithstanding the variety ofopinions expressed in this discussion, commonthemes emerged—legislation, customer satisfaction,industry/utility awareness, technological develop-ments, and power quality.

The current BES market is characterized by low util-ity demand, mixed optimism by suppliers, relativelyhigh cost, varied perceptions of BES by customers,and a mixture of competing technology price profilesbased on application.

Although the federal government has continued toprovide funding for BES development, some elec-tricity providers believe more help is needed. OneBES supplier theorized that government interventioncould be in the form of government subsidies. BESsystem cost is high compared to that of other tech-nologies such as gas turbines or diesel generators. Asubsidized environment could reduce the issue of costas a driving force behind capital equipment selection,but the concept is believed to be of dubious politicaland social merit.

Another factor that could possibly assist BES marketdevelopment is environmental regulation. The re-spondent who presented this opinion stated:

It would help if there were some environ-mental laws that require them [electricityproviders] to use BES instead of fossil fuelburning peaking technologies.


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If the price of fuels for competing technologies in-creases, customers may see an incentive to buy BESsystems. This scenario assumes a situation in whichBES and competing technologies could be used insimilar roles.

In addition to changes in government subsidies andenvironmental legislation, changes in customers’ fi-nancial methods and accounting policies are also apossibility. One respondent saw this as one avenue ofopportunity for stimulating the BES market:

I think just a realization of the problems theyhave out there and I think a lot of it wouldbe to defer capital investments in the utilitiesand end-users. If they looked into the realbenefits of it I think that's what it would taketo do it.

A different respondent voiced a similar opinion:

You would have to show you could defersignificant amounts of distribution invest-ment so that it would make sense to use themheavily on the distribution side as well. Ijust don't think the market is there on thegeneration side.

Focusing on greater utility involvement, in a marketcharacterized by virtual inactivity such as the BESmarket, a convenient paradox describing that marketis often used: Customers will not purchase BES sys-tems until the cost decreases, and cost will not de-crease until manufacturers' production levels reacheconomies of scale.

Only one respondent cited this paradox; others feltthe only way to stimulate market demand for BES isby pushing for deployment regardless of cost. Thisapproach will probably not be acceptable to electric-ity providers or end users.

Two respondents who contributed opinions to thisstudy felt that unless some kind of immediate actionsare taken to create a BES market, the benefits of BESwill never be fully realized:

We need to immediately and as soon as pos-sible demonstrate the economic viability ofBES systems at customer end-use sites andalso at the utility generation and transmis-sion sites. The technical feasibility can bedemonstrated in deploying hardware. Soyou can literally point to hardware deployed

in measuring the economic benefit streamthat came as a result of that hardware.

This respondent stated that his company will primar-ily serve the end-user market but could link multipleBES units for larger utility applications if that de-mand surfaced. An interesting point should be madehere—BES systems for utility applications could rec-ognize lower cost through economies of scale in theend-user segment of the market.

One supplier believes one of the ways to meet fore-cast demand is through the cost savings awareness ofBES systems. When the customer, and others, canclearly see the savings and productivity of employinga BES system, awareness will spread.

The concept of utility and end-user separation is im-plied. They are two different markets, but they areinterrelated in the sense that success in one marketshould benefit the other.

Under deregulation, utilities will have the option ofgenerating revenues by catering to the power qualityneeds of end-use customers. If they choose not toaddress these previously nonexistent pressures, cus-tomers will likely turn to off-grid power quality sup-pliers. Therefore, utilities might be faced with theoption of sharing revenues with third parties if theydo not respond to the power quality needs of end-users.

Looking at the market developments that would beneeded to meet the forecasted demand on which re-spondents based their opinions, several pointed outpotential for greater utility action.

In the words of one supplier, if the utilities are:

Willing to install [BES systems] across awide variety of applications or situations,then I think the whole thing will take off. Ithink then the people like Duke Power andthe City of Austin and some of these mu-nicipals—some of those will march in lockstep and they will buy it also and say, "Itworked there, I better get on board." Andthat's what happens in the utility market.There are just a few innovators and the restof the group kind of marches along in lockstep.

The truth of this person's statement is debatable, butmarket awareness through demonstration is the most


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viable option that could develop a large BES marketto meet forecasted demand.

Two other opinions aimed at utilities point to the po-tential for coordination inside the utilities, and ofutilities as a whole. Proving that BES systems havemultiple benefits and clearly demonstrating the valueof those BES benefits in a multiple application envi-ronment may broaden awareness of the uses of BES.Secondly, one respondent felt that utilities' internal"cost sharing" efforts may become one market devel-opment mechanism to drive BES demand.

Several respondents did not directly address the mar-ket development question posed to them. Instead,one respondent noted the lack of awareness in theelectricity provider industry. This respondent asked autility several questions, trying to discover if the util-ity was open to BES. In response, the utility asked ifa BES system could be installed on a telephone pole.

Another respondent summarized his thoughts on ven-dors and the BES market by saying:

People basically say, "Yeah, its here and if itcomes we will make it [a BES system]." Idon't think too many people are counting onthis market.

Another single response indicated the need for greaterawareness which could possibly be achieved througha BES web page. Although a BES web page mayhelp educational efforts, it seems unlikely to succeedwhere previous educational efforts have failed.

In conclusion, BES vendors seem constrained by highBES costs, which make demonstration projects diffi-cult. Also, incomplete BES awareness among utili-ties keeps them from driving demonstration projects.Interestingly, little discussion was given to subjectssuch as the development of sales, distribution, instal-lation, and maintenance infrastructure. The lack ofdiscussion is inconsistent with the current lack of thiskind of infrastructure in the current BES marketplace.


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REGULATORY AGENCY ANDBATTERY ENERGY STORAGE MARKET FEASIBILITY STUDY INDUSTRY GROUP PERSPECTIVES

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6. Regulatory Agency and Industry GroupPerspectives on Battery Energy Storage

Introduction

The regulatory agency and industry group surveysincluded in this study are intended to gauge theawareness of and appreciation for BES in those twobodies. Twelve separate entities were contacted andinterviewed for this chapter using the questionnairefound in Appendix C.

Input from the 12 entities varied widely, as does theirinfluence on the end-users of BES. The extent towhich these bodies influence BES depends on legis-lation, national resource trends, deregulation, anddemand side management (DSM). Compared toutilities or BES vendors, these organizations gener-ally maintain a broad view of energy resources,among which BES may or may not be singled out.

List of Contributing RegulatoryAgencies, Industry Advocates,and Professional/AcademicAssociations

Analysis of varying BES perspectives was based oncontributions made by the following entities.

Regulators:• California Public Utilities Commission• Florida Public Service Commission• Maryland People's Counsel• Massachusetts Department of Public Utili-

ties• New York Public Service Commission• Public Utility Commission of Texas

Industry Groups:• Alaska State Division of Energy• California Energy Commission• Environmental Defense Fund• National Association of Regulatory Utility

Commissioners• National Rural Electricity Cooperative As-

sociation (NRECA)• U.S. Rural Utilities Service

Chapter Structure

The following discussion is divided into six sections.Each section discusses the responses to the questionsfrom Appendix C based on the collective input of the12 entities interviewed for this study by Frost & Sul-livan.

Regulatory Agency, IndustryAdvocate, and Professional/Academic Opinions of BES

Responses from the listed entities demonstrate thevarying degrees of BES knowledge from one entity toanother. With this in mind, responses can be used asa tool for measuring exposure to and awareness ofBES within these organizations. If an entity has ex-perienced strong exposure to BES, its opinion may bebased on technical or actual operational knowledge ofBES systems in the field. No exposure to BES maybe reflected by the response "no opinion of BES."

Results indicate that an entity with no opinion of BESgenerally has had little exposure to BES technology.This premise is supported by several entities thatneither took a position on BES nor were actively en-gaged in identifying particular storage technologies.These entities later explained that they receive littlenews or feedback on BES.

Exceptions to this rule do exist. Some entities do notmaintain an opinion of BES but are aware of thetechnology. Such entities may simply regard BES asone of several storage technologies. Their depth ofBES knowledge is difficult to ascertain, but theseentities demonstrated familiarity in discussing issuesof BES cost, BES system success or failure in thefield, and/or the need for BES improvement.

Many regulatory agencies and industry groups main-tain a working knowledge of popular technologies,either by necessity, through experience, or word ofmouth. For example, one entity was firmly aware ofthe pricing and energy density issues regarding oneproposed Alaskan BES system installation, having

REGULATORY AGENCY ANDINDUSTRY GROUP PERSPECTIVES BATTERY ENERGY STORAGE MARKET FEASIBILITY STUDY

6-2

obtained this information through informal industrychannels.

In a more broadly defined scope, another respondentdemonstrated his organization's knowledge of BES bystating:

I'm not sure our organization has formed aspecific opinion on BES.

Later, the same person stated that:

While BES systems seem to form an impor-tant and sound operation part of distributedenergy applications, we're always interestedin more improvements.

If asked, "What is your opinion of combustion tur-bines?" the same respondents might call on their col-lective knowledge of combustion turbines with thesame vague uncertainty they did with BES. If thesame respondents were asked their opinions of hydropower, they might recite one or two popular hydroprojects. Fewer hydro projects exist than combustionturbines, and even fewer installed BES systems exist.

The point is that despite the disparate number of tur-bine, hydro, and BES installations, the 12 contribut-ing entities sometimes view the technologies ashomogeneous. This is ignoring the vast technologicaldifferences involved, however.

Often the controversial nature and novelty of a tech-nology dictates the amount of attention allocated to it.Nuclear generation, for example, is a widely debatedtechnology and may evoke a greater response becauseof its unique nature. On the other hand, BES maylinger in the shadows indefinitely before people reg-ister opinions about it.

Some entities may be familiar with the term "BES"and yet have no opinion of it. Lack of awareness,refusal to maintain an opinion, and absence of techni-cal knowledge have been widely observed in theregulatory agency responses. To some extent, thismay underscore the regulatory agencies' homogenousperception of the technologies.

However, the assumption that regulatory agencies aredevoid of practical and technical energy storageknowledge is unfounded. In general, the broad rolesof regulatory agencies may preclude them from de-veloping opinions on particular technologies.

Furthermore, the trend toward market-based technol-ogy selection has distanced regulatory agencies fromdeciding which technologies will be employed byutilities. Regulatory agencies play a role in reviewingelectricity providers' integrated resource planningwhen requested, but their knowledge base on par-ticular technologies seems to be diminishing.

Regulatory Agency, IndustryAdvocate, and Professional/Academic Promotion of BES

The willingness of the entities surveyed to promoteany particular technology in the electric industry islow. The word "promotion" dictates that one tech-nology is preferable to another, holding everythingelse equal. In the electricity market, a technologymay be promoted for its efficiency regarding fuelinput, kilowatt output, and capital cost. Outside theseboundaries, a technology may be promoted because itholds set characteristics not duplicated by other tech-nologies.

The cost of BES in relation to competing technolo-gies is viewed as the main factor retarding promotionby regulators and industry groups. To change this,the BES pricing profile would need to become morecompetitive with popular technologies for a given setof common applications. However, regardless of thecost barrier, other obstacles to BES promotion arewidely perceived.

As an example of a noncost barrier, one regulatorybody stated:

That would depend on the information pro-vided to us. I don't know that we have theinformation now to take a position. Wecould probably take a position through ourrole in reviewing R&D activities at [the localutility].

This person indicated a potential for their regulatorybody to form an opinion. However, a common themein this discussion is not the regulatory bodies' failureto promote BES, but rather their inability to givetechnology opinions outside their juristic role. In-dustry groups included in this study seemed to sharethat attitude. The National Rural Electric Coopera-tive Association (NRECA) indicated that it does notactively promote BES, but its research on BES hasproven positive. Furthermore, NRECA recognizesthe need for lower-cost BES systems.


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In addition to other factors inhibiting promotion,regulatory agencies are playing an increasinglysmaller role in determining technologies employed atutilities. Deregulation is forcing a shift in the indus-try to market-driven decision making. As regulatoryagencies move away from their traditional, more ac-tive role, their likelihood of performing technologypromotion is reduced dramatically.

In summary, regulatory agencies traditionally handedapproval to or endorsed actions taken by electricityproviders. Now, the limits of regulatory agency over-sight are measured by the actions utilities can takewithout regulatory approval. Thus, electricity pro-viders today are more free to pursue technology de-ployment and research efforts than in the past.

BES is generally regarded as an opportunity to provethe usefulness of renewable technologies. On thisissue, some respondents promoted BES openly. Oth-ers either promoted BES directly or indirectly by en-couraging continued research of BES itself. Onerespondent stated:

Implicitly, our organization has been a part[of] the sustainable energy budget coalitionin Washington to ensure sound funding forrenewable and energy efficiency pro-grams...DOE funding...I think as part of thatcoalition we'd be supportive of continuedfederal work in technology development.We support more investments in efficientenergy technology and renewable energytechnology development.

Another respondent stated that his organization didnot uphold an active policy on BES but that BES waspromoted at the staff level.

Responses indicated other factors besides cost andagency impartiality that hinder BES promotion. Gen-eral uncertainty about the environmental conse-quences of BES and electricity pricing scenarios alsostand in the way of promotion.

Although ultimately BES customers will decide thevalidity of environmental factors, uncertainty in theseareas has reverberated at the regulatory agency level.Without education, negative perceptions and lack ofopinion at the regulatory level will probably notchange much.

Benefits of BES

An overwhelming association of BES benefits andDSM/distributed resources by respondents indicatesthe evolution of power quality issues at the end-userlevel. It appears that most respondents see morebenefits at the electricity end-user level than at theutility level.

Part of this perception may be attributed to the lack ofawareness of the benefits obtained by existing BESsystems. Few people, residential or commercial, ex-press gratitude when power quality is maintained—they are not aware of this maintenance. Yet home-owners and business owners are certainly aware ofthe inconvenience caused by power lapses, poweroutages, and brown-outs. Residential individualscomplain, and business customers—tired of revenuelosses—choose a new power supply.

The development of DSM and distributed resourcesillustrates an increasingly popular trend among elec-tricity end-users. The perception and subsequenttesting and deployment of BES systems at the end-user level demonstrate the usefulness of BES as a toolfor breaking away from traditional utility-providedelectricity/power quality. BES did not create thisevolving practice; it only offers flexibility of systemdesign when other options are not available.

Reduction in peak demand and load stabilization areareas believed to generate the greatest savings whenemploying a BES system at the end-user level. Inaddition to providing insurance against power out-ages, BES systems offer end-users the option to shavepeaks.

The need for flexibility of control over suppliedpower and the ability to save electricity costs are thegreatest end-user benefits derived from BES. As aresult, end-user markets may emerge as the largestrecipients of BES systems. BES system flexibilitymay also be proven through DSM application pack-aging. In this scenario, BES systems would be cou-pled with other technologies designed to meetcustomer needs.

Estimates of Load Growth

Load growth and forecasted load growth should im-mediately affect the consequential selection, em-ployment, and/or deferment of electricitytechnologies. Electric utilities are the most affected;


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end-user power quality issues are not directly influ-enced by load growth.

The link between load growth and BES deploymentmay have greater meaning in the future. Competitionspurred by deregulation, coupled with increasing in-dustrial and commercial growth, will likely forceelectricity providers to look for new ways to retaincustomers.

Also, the costs and difficulties of siting a new trans-mission and distribution infrastructure should forcegreater reliance on distributed generation to alleviatesystem bottlenecks. Greater interest in distributedgeneration should benefit BES, since BES is bettersuited for distributed applications than for centralapplications.

Load growth in southern and coastal regions is ex-pected to grow at a reasonable rate of 2 to 3% in theforeseeable future. Load growth in the central andmidwestern areas can expect to experience almost nogrowth. Load growth of 1.5 to 2% in the easternstates is forecasted. An allowance for the uncertainimpact of deregulation is implicitly factored intothese forecasted load growth rates.

BES and Deregulation

The uncertainty in today's electricity market is chieflycaused by deregulation. In the face of looming de-regulation, many utilities are limiting, and sometimescompletely stopping, capital expansion.

Many respondents see deregulation as creating op-portunities for customer-oriented electricity servicecompanies. Companies may specialize in one servicearea or offer solutions to many problems. Opportu-nities for distributed generation solutions may includeBES:

Once you can add storage you can kind ofget effective capacity off intermittence andtherefore you have more people who mightbe able to buy them. That's dependent onrestructuring, producing more opportunitiesfor new business entrants and therefore morechoice of customers.

Opportunities for third party companies lie in solvingpower supply problems at the end-user and customerlevels. At the same time, utilities, no longer burdenedby the requirement to provide end-user service, may

prefer to focus in areas such as generation that are notconducive to BES use.BES systems in a deregulated environment willprobably continue to compete against two existingfactors. One is other power supply technologies. In-put by respondents indicates that natural gas, diesel,and potential encroachment by other developmentaltechnologies will likely compete against BES forcommon applications. The market success of BES inrelation to these other technologies will probably de-pend on cost factors. In addition, other BES percep-tion barriers mentioned in this chapter should play arole in decision making.

One respondent commented on the topic of BES'smarket success by saying:

[BES] has a niche of its own because thereare various other ways to [store energy] also.For electricity you can have liquid fuels.You can have natural gas and use it whenyou need it. You can store electricitythrough compressed air energy storage. Youcan store it as a modular pump hydro. It de-pends on the need for the site, and accord-ingly, you select the best storage mechanism.

One organization stated:

In a deregulated industry with the price ofelectricity dropping, it is making it muchmore difficult for the fringe, not-yet-developed industries, such as renewables,such as biomass, such as batteries, to be ableto economically compete in the market.

In utility applications, wheeling, capital divestment,and uncertain investment climates may retard theproliferation of BES in a deregulated environment.

Industry Feedback on BES

The differing types of BES feedback must be sepa-rated to appropriately determine if channels for feed-back do exist. BES opinions regarding cost ofsystem, maintenance factors, and output vary by indi-vidual and organization. Particular opinions held byindividuals or organizations may be outdated, subjec-tively influenced, or correspond with current BESmarket trends.

The responses of organizations contributing to thisstudy indicate that many do not receive BES feedbackfrom other members of the electric power industry.


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One respondent demonstrated that particular tech-nologies are not differentiated and that BES is appro-priated no special status:

There are hundreds or thousands of R&Dprojects either being considered or in prog-ress. So unless one really stood out, Iwouldn't be familiar with it.

That was a common sentiment among respondents.

Another respondent stated his knowledge of BES waslimited "to the extent it filters through IRPs and cer-tain conferences that we attend."

BES, as a technology, lacks the promotional infra-structure that other technologies have. Fuel cells andsmall turbines are actively promoted, Internet accessallows browsers to retrieve technical information, andgeneration technology information can be found intrade journals. In contrast, BES technical and prod-uct literature/studies are produced solely by researchlaboratories and BES suppliers and are not widelydistributed. BES suppliers do not seem to be publiclypromoting their products.

More direct avenues of feedback exist for some re-spondents. One respondent stated:

We are sensitive to claims by energy pro-ducers that BES [systems] are expensive orhave limited applications. So they're alwayssaying, "Well, they're too expensive or theydon't provide enough on the energy produc-tions side..." Therefore, they're not used bythe utility guys. Then the latter point on theend thing [ending discussion]; they form aspart of a kind of balance of system cost forrenewable energy systems...there are marketbarriers implicit in consumer understandingof how BES systems work...how they can beeffectively sized, how much they cost as partof the whole system.

Another respondent stated:

We do work with developers like the na-tional labs who are involved in that. Wealso work with utilities, we read their reportsand see how the batteries are performing,what impacts they are having on the abilityto manage the loads or use the assets in an-other way. We are also interested in batterytechnologies particularly for creating a valueout of renewable energy sources.

Feedback does exist for some people that are directlyinvolved in the industry. However, interested peopleoutside the electricity provider market appear to havedifficulty obtaining BES information.


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STUDY ASSUMPTIONSBATTERY ENERGY STORAGE MARKET FEASIBILITY STUDY AND RISK ASSESSMENT

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7. Study Assumptions and Risk Assessment

Explanation of Assumptionsand Risk Assessment

This section of the report contains a discussion of theassumptions of this report and issues that might affectthe BES market in ways that cannot be foreseen.Providing this information is vital to understandingthe market estimates given in this study and the con-text in which this information is provided to thereader.

Study Assumptions

The principal assumption in this study is that of thecontinuance of the normal economic cycle in the U.S.economy. The U.S. economy has been in a period ofprolonged, gradual recovery since the last recession,which ended in 1991. During that time, load growthin the United States has averaged about 1.5 to 2 per-cent per year, significantly higher than the averageduring the period of recession in 1990 and 1991.

Another assumption of this study is that organiza-tional changes within individual electric utilities willnot significantly affect the market for BES.

To a great extent, this assumption emerged out of thesurvey results of electricity providers, discussed inmore detail in Chapter 4 of this report. During thatsurvey, electricity providers were asked which groupswithin their companies would be responsible for BESprocurement and how this might change with de-regulation. The results of the survey indicate thatderegulation will probably have limited organiza-tional effects on BES procurement.

Industry Deregulation

The impact of deregulation is probably the least pre-dictable major factor affecting the electric utility in-dustry. Most major electricity providers in the UnitedStates are confronting market uncertainty for the firsttime in their existence. Many of these organizationsare still relying on assets, organizational structures,personnel, practices, and technologies intended foruse in a regulated monopoly environment.

When asked to project their future business activities,few electricity providers were absolutely confidentthat their companies will still be market leaders, oreven independent organizations, in 10 to 15 years.To a great extent, this insecurity also affects all in-dustries that sell capital equipment to electricity pro-viders. Unsure that they will be able to recover acapital investment because of competitive pressures,electricity providers naturally retreat from makingsuch investments.

The specific form that deregulation will take is alsodifficult to predict. The Federal Energy RegulatoryCommission (FERC) has mandated open transmissionaccess at the wholesale level but has left the retailmarket in the hands of the individual states. Eachstate has the right to craft its own solution or donothing, as they see fit. Different states will providedifferent solutions to nagging questions such asstranded costs, universal access, and residential com-petition.

Currently, very little certainty exists over how de-regulation will affect the various levels of customerswithin the electric power industry. What is certain isthat electricity providers will have to spend more timeand effort trying to understand and serve the actualelectricity end-user. Whether competition will reachall the way down to the individual residence on a na-tional basis is difficult to project, but regardless, cer-tainly large industrial and commercial customers willreceive direct access to the electric power market.

As for the impact of deregulation on BES demand,there is also little certainty. Currently, BES is viewedwith mixed feelings within the utility industry. Thetechnology has a reputation for being expensive,high-maintenance, and too short-lived. At the sametime, the economic benefits of storage versus produc-tion are accepted, and the customer, environmental,and operational benefits of BES are also understood.Either set of factors could come to the fore in a de-regulated environment, depending primarily on theperformance of the BES industry.

The success of BES in a deregulated environmentwill depend largely on the BES industry loweringBES cost, increasing its density/storage, and activelypromoting the product. The electricity provider in-

STUDY ASSUMPTIONSAND RISK ASSESSMENT BATTERY ENERGY STORAGE MARKET FEASIBILITY STUDY

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dustry must receive consistently positive messagesabout BES. This will likely require making each ad-ditional BES a success in cost/payback, achievingexpected benefits, and BES system performance.

Until the issue of cost is settled through new, yet-untapped economies, to justify cost, the BES indus-try's claims must focus on BES's system-level benefitswhen compared to those of competing technologies.

Unless BES cost and operating characteristics areimproved, the negative opinions and fixed percep-tions of BES technology may bridge over to the de-regulated environment. BES marketing must reachall prospective BES users and try to ease any fears ormisgivings about BES.

Network Reliability

In July and August of 1996, transmission line failurescaused major outages across the western UnitedStates. Fortunately, the worst of these disturbancesoccurred on a weekend, reducing both the economicdamage and the physical danger posed by such a largeoutage. These and other outages—attributed to new,bottom-line concerns among the utilities—may causeelectricity end users to question the reliability of theirservices.

Such uncertainty could create an increased market forBES, primarily in the form of UPS applications.Electricity end-users may eventually want qualitypower for their ever-increasing amount of criticalload. They will either have this power supplied tothem by electricity providers or turn to technologiessuch as BES.

Electricity End Users

A limitation that had to be accepted in producing thisstudy is that the report does not attempt to obtain agenuine set of electricity end-user perspectives onBES. To do so would have required more resourcesthan were available for this study. Instead, the focusof the study was placed on the electricity provider andBES supplier industries.

The problem with this approach is that most BESvendors seem to view the electricity end-user marketas the present and future of BES. This is understand-able, considering the amount of storage end-userskeep in the form of UPS. One of the most successfulnew battery products, AC Battery's PQ2000, is simi-lar to a UPS in that it enables the provision of con-tinuous power to customers. However, the PQ2000provides only very short-term storage; it is designedto provide electric power for 10 to 15 seconds to ridethrough brief outages.

Despite some successful end-user BES projects, thewidespread deployment of BES has not occurred atthe end-user level. Respondents believe this is partlybecause many utilities discourage the use of peakshaving, since demand charges make up a significantamount of revenues. Because end users' local experton electric power discourages the deployment of BESfor peak shaving, this makes it difficult for end-userpersonnel to justify BES purchase to their manage-ment.

Other factors restraining end-user BES sales includethe difficulty BES suppliers are having in targetingspecific end users and the relative youth of BESproducts.

CONCLUSIONSBATTERY ENERGY STORAGE MARKET FEASIBILITY STUDY AND RECOMMENDATIONS

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8. Conclusions and Recommendations

Conclusions on the BESMarketplace

Challenges to BES and the BESIndustry

Battery energy storage does not exist in a vacuum. Itmust be deployed in competition with other energysupply technologies within a technically complexindustry. This industry is also in the greatest periodof competitive transition since its formation. In thisframework, it seems that the BES industry faces thefollowing major challenges identified by respondentsof this study:

• Reducing the capital cost of BES to levelswhere it is competitive with other energysupply technologies.

• Improving BES product life span.

• Reducing BES maintenance expenses.

• Increasing BES energy density.

• Identifying, segmenting, and targeting spe-cific applications and technical solutions thatbest serve potential clients.

• Educating industry decision makers andgatekeepers about the benefits and viabilityof BES as opposed to other competing tech-nologies.

• Overcoming an existing utility industry andpower provider bias toward power genera-tion technologies.

• Dealing with organizational conflicts andconfusion at the customer level over whichgroups within potential client organizationswould be responsible for BES funding,authorization, and procurement.

Improving BES Cost, Life Cycle, andMaintenance

The first three points on the list above are basicallyall technical in nature. These points were derivedfrom responses to the electricity provider question-

naire and are discussed in detail in Chapter 4. Tosome extent, all of these points will be addressedthrough the research and market expansion that iscurrently under way. As manufacturing infrastructureis built and as BES research becomes finalized, Frost& Sullivan expects the cost of BES to fall.

To a lesser extent, the market growth and researchthat is now under way should improve the life cycleand operations and maintenance issues discussed inthe second and third points. As more advanced bat-teries and BES are deployed, greater knowledge ofbattery behavior should improve performance in bothof these areas.

The BES industry seems to suffer from negativeword-of-mouth among both electricity providers andend-users stemming mostly from poorly conceivedand planned projects. In many of these projects, bat-teries were not properly specified, installed, or main-tained by the contractor, leading to shortened batterylife cycle and greater maintenance problems for cli-ents. This in turn has led to a significant amount ofhesitation among prospective BES customers to relyon anything having to do with "batteries."

Increasing BES Energy Density

One of the shortfalls of available BES technologymost commonly noted by respondents was its lowenergy density. This low energy density increases theper-kilowatt-hour cost of BES. Also, possible storagecapacity is reduced in batteries that must be sited inphysically small places, as would be found in manydistributed generation and end-user sites.

There seems to be no significant prospect of improv-ing BES energy density using lead-acid technology,but both zinc/bromine and sodium/sulfur batterieshold great promise in improving BES performance inthis area.

Developers indicated to us that zinc/bromine batteriescurrently display a threefold improvement in energydensity over lead-acid technologies, and so-dium/sulfur batteries offer about eight times the en-ergy density of lead-acid. Of course, both zincbromine and sodium/sulfur technologies are not fully

CONCLUSIONSAND RECOMMENDATIONS BATTERY ENERGY STORAGE MARKET FEASIBILITY STUDY

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developed, but further research on advanced batteriesmay alleviate this problem.

BES Market Targeting and Segmenta-tion

Based on the research performed during this study, itseems that most BES manufacturers and many of theother major participants in the industry have not spenta sufficient amount of time identifying and targetingspecific BES market segments and applications.

No single monolithic BES market exists. Instead,several smaller markets exist within the larger BESmarket, and no one vendor is positioned to serve allthese smaller markets. To illustrate this point, cur-rently successful BES projects are examined below.These seem to fit within the following models:

The PREPA Model

PREPA is currently operating the largest BES systemin the world, a 20-MW/14.1-MWh flooded lead-acidfacility that began operation in November 1994. Thesystem is designed to provide spinning reserve andfrequency regulation on the PREPA system.

PREPA has been pleased with the operation of thesystem to date, describing the system as an "effective,practical solution to the need for instantaneous re-serve and economical frequency control." However,they have delayed building follow-on systems be-cause of their need to build new generating plants.

It is interesting to note that PREPA is not taking ad-vantage of battery energy storage to store cheap off-peak power to dispatch at peak load. The differencebetween on- and off-peak power costs at PREPA istoo small to justify load leveling on a significantscale.

The Crescent EMC Model

Crescent EMC has been using a 500-kW/500-kWhBES for peak-shaving purposes since 1983. By usingthe BES, Crescent has been able to significantly re-duce the demand charges that they pay to their sup-plier, Duke Power.

Even though Crescent did not respond to the electric-ity provider questionnaire, the fact that they are stilloperating their BES after so many years speaks foritself. Since the installation of the Crescent EMCproject, both San Diego Gas & Electric (SDG&E)

and Southern California Edison (SCE) have installedand then decommissioned BES systems.

Obviously, Crescent EMC must be experiencingsome level of success with its BES, since it does nothave the technical resources that SCE and SDG&Ehave to maintain their systems and yet Crescent hasavoided decommissioning its BES system.

The Vernon Model

Earlier this year, GNB Batteries installed a2-MW/5-MWh BES at its Vernon, California, batteryrecycling plant. This system functions both as ashort-term UPS to back up critical environmentalloads at the plant in the event of failure and as a peak-shaving device to help the Vernon plant cut its de-mand charges. Since the Vernon BES offers peakshaving as a service to GNB's recycling operation, itis somewhat similar in function to the Crescent EMCmodel.

It is difficult to evaluate this project objectively be-cause GNB is a producer of battery cells and is there-fore using the Vernon installation as a technologydemonstration project. Because of this, it is not inGNB's interest to portray the project in anything but apositive light. However, GNB's battery recyclingplant in Vernon seems to be happy with the results sofar.

The AC Battery Model

AC Battery is now beginning to mass-produce andmass-market its PQ2000 BES. The PQ2000 is de-signed to provide 2 MW of current for roughly10 seconds to provide short-term UPS service at theelectricity end-user level. The purpose of thePQ2000 is to provide system owners with ride-through on the 95% of power quality disturbancesand outages that last less than 10 seconds.

Currently, two PQ2000s are in operation at industrialsites being served by Pacific Gas & Electric andOglethorpe Power Corporation. Another seven unitsare on order or are in the sales process. Based on thisreception, it appears that the PQ2000 is going to be asuccessful product, especially if AC Battery can builddirect contact with power-quality-conscious elec-tricity end users.

Examining all of these models, a few similarities be-tween these four projects can be seen. First, each ofthese systems is or was provided to meet a specificneed that the buyer truly needed to have met. This


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meant that the customer for each of these systems wascommitted to making the BES work, because the BESwas crucial to their operations.

In the case of projects that have not succeeded, theowner/operator of the system was really using theBES as a technology demonstration, and the systemhad no relevance to the owner/operator's ongoingoperations.

In some of the cases mentioned above, a significantamount of thought has been put into the packaging ofthe BES product. The AC Battery PQ2000 is notvery useful in any role other than what it does best—produce a significant burst of power for a short time.It does not have the storage capacity necessary tomake it an adequate peak-shaving device, and it is notdesigned to be cycled often.

As a short-term power quality device, however, theproduct is quite successful. The PQ2000 is relativelycheap because it uses mass production batteries withlittle storage capacity. This and its electronic powerconversion system make the PQ2000 very competi-tive with other UPS technologies.

In too many past BES projects, little effort has beenspent on segmenting and targeting markets and de-veloping products to suit these markets. Instead, ef-forts have been made to try and make BES into both adispersed storage technology and a genuine replace-ment for generation technologies such as combustionturbines. Instead, BES should be viewed as a com-plement to generation technologies and should focuson dispersed applications and system-level applica-tions where its competitiveness with planned and ex-isting generation technologies can be proven.

For example, one of the applications found on the listof applications that is found in Appendix D of thisreport is generation deferral. Based on the repliesreceived during this study, no significant market forBES as a generation deferral tool exists.

Indeed, because the current cost of BES is higher thanthe cost of most generation technologies, using BESfor this role seem economically inefficient. Instead,utility input received during this study unequivocallysuggests that BES is engaged in cutthroat competitionwith most generation technologies for resources andattention.

The Level of BES Education

The results of this study suggest that both electricityprovider and regulatory body awareness of BES canbe significantly improved. Many of the responsesreceived during the survey of electricity providersstrongly indicate that awareness of even the basicproduct characteristics of BES is mixed. Some per-sonnel surveyed at major utilities indicated that theyhad almost no knowledge at all of BES but were in-terested in the concept.

At the regulatory agency level, knowledge of BES isespecially undeveloped. The regulatory agencies relyalmost entirely on the utilities within their jurisdictionfor information on generation and storage technolo-gies, and they are not getting any significant feedbackon BES. Instead, interest seems to be focused oncombustion turbines, combined cycle plants, and re-newable energy.

Technology Bias Toward Generation

During surveying of the energy provider industry,significant evidence was uncovered regarding astrong bias within the industry toward power genera-tion technologies as opposed to energy storage. Sev-eral companies mentioned that even if the price ofBES fell to levels where it would be competitive withgeneration technologies, they would still favor gen-eration technologies over BES because generationwas "familiar."

Organizational Obstacles to BESProcurement

Currently, significant obstacles to BES procurementexist at the organizational level, with the differentdepartments at electricity provider organizations un-able or unwilling to reach a consensus on their sharedinterest in BES. This is partly due to the highly com-partmentalized structure of many energy providers,remains from their days as a regulated monopoly.

As the electric power industry restructures, there issome possibility that this rigid corporate structure willbreak down and that technologies like BES that relyon the cooperation of several constituent groupswithin the client's organizations will benefit from thisrestructuring.

However, some risk is present that restructuring ofthe electric power industry will hurt BES sales by


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forcing the spinoff of many operational areas nowfound within the vertically integrated utility.

Eventually, generation, transmission, and distributionoperations could be spun off into separate organiza-tions, reducing the likelihood that these operationalfunctions will cooperate with each other to installtechnologies such as BES. Economically, deregula-tion can cause a drop in the difference between on-and off-peak electricity prices, reducing the advan-tages of storage.

Communications in the BES Market-place

The results of this study indicate that communicationsin the BES industry are inadequate on several levels.Specifically, the low level of BES knowledge andeducation exhibited in many of the responses gath-ered during this study shows that educational com-munications within the BES community need to beimproved.

Also, significant obstacles to clear and understand-able communication between BES suppliers and de-velopers and electricity providers exist. This isprobably more important than the educational com-munication issues, because it significantly affects thebasic way in which many of the parties in the industryrelate to and perceive each other. These communica-tions difficulties seem to be affecting the proper de-velopment of the BES market. Further discussion ofthis communications topic will be found in the rec-ommendations section of this study immediately fol-lowing.

Recommendations for SNL

Frost & Sullivan offers the following recommenda-tions to SNL in the hope that they will provide valuein the future and stimulate consideration of ap-proaches that might improve the viability and per-formance of SNL’s BES development efforts.

Focus on Potential BES Applicationsand Products

The results of this study indicate that the energy pro-vider sample surveyed is interested in deploying BESin a wide variety of applications, but only a few spe-cific applications were mentioned by three or moreenergy providers. These specific applications are:

• UPS/power quality• Reliability• Peak shaving• Load leveling• Electric vehicle charging

Of these five applications, UPS/power quality wasmentioned most frequently, cited by 13 electricityproviders. This is an application that should gathereven more attention at the electricity provider levelbecause many of the electricity providers surveyedhave not made the transition to the competitive mar-ket yet.

Many electricity providers are still operating underthe "regulated monopoly" mindset and regulatoryenvironment. They have not yet become customer-focused organizations. In the future, as electricityproviders become more externally focused, they willprobably be even more enthusiastic in their supportfor UPS/power quality technologies.

Reliability and load leveling were cited by four elec-tricity providers as the BES applications they wereinterested in. Load leveling is of course the classicenergy storage application, so its mention by multiplerespondents was not surprising.

Reliability is interesting, since electricity providersmentioned it as a system level application, and it didnot appear on SNL's BES applications list (see Ap-pendix D) as such. This indicates that there is signifi-cant interest in using BES to avoid system-levelvoltage sags and spikes and other events that mightcompromise system reliability.

Peak shaving was mentioned in three responses. Peakshaving is another application that should receivemounting interest as the electric power industry be-comes more competitive. Electricity providers willprobably have to respond to customer demands to amuch greater degree than they do today.

Electric vehicle charging was mentioned in three re-sponses and is another application that was not onSNL's list of proposed BES applications. Addition-ally, it is another application in which interest couldincrease over time. Currently, many electricity pro-viders do not promote electric vehicles in an aggres-sive way.

Many electricity providers are interested in and infavor of the success of electric vehicles, but they donot view them as a way of significantly increasing


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their revenues. As electric vehicle technology im-proves, more utilities will be inclined to promoteelectric vehicle use more aggressively, increasing theneed for electric vehicle charging stations.

Interestingly, an applications area that received verylittle comment was ancillary services. This is due inpart to the formative state of utility deregulation.Electricity providers are not yet able to determineexactly what ancillary services will mean to them in aderegulated environment. Therefore, the whole dis-cussion of ancillary services seems very academic andtheoretical. Also, utilities have not identified signifi-cant flaws in the current methods of delivering ancil-lary services and do not see why these methodsshould be changed in the future.

In light of these response patterns, Frost & Sullivansuggests that SNL focus its BES research efforts onthe five applications listed by multiple electricity pro-viders. Trying to address the wide range of applica-tions proposed by electricity providers on this topicwould require significant resources.

For example, the issue of ancillary services seems tohave been greeted by the electricity provider samplewith relative indifference and does not seem to de-serve a major research commitment by SNL.

Strengthen BES Industry Partner-ships

To advance BES, Frost & Sullivan recommends thatSNL emphasize long-term commitments from theorganizations it works with in the electric power in-dustry.

The best illustration of this is the Chino, California,battery energy storage system (BESS) facility that isbeing run by SCE. The Chino facility was primarilydeveloped and financed by SCE and the ElectricPower Research Institute (EPRI), and its closure didhave a negative impact on the perception of BESamong other energy providers. They have seen theclosure of the BES not as the end of a demonstrationproject but as evidence of the ineffectiveness of BES.

SNL was involved in the project in a limited sup-porting role, and at the time of its construction, theChino BES represented the largest and most visibleapplication of battery energy storage in the world.This visibility made the success of the Chino BES ofvital interest to SNL's energy storage developmentefforts.

As mentioned earlier in this report, SCE has nowscheduled the Chino BES for decommissioning. Thisis despite the fact that the Chino facility still has ap-proximately 40 to 50% of its usable life remainingand that the acquisition of the system was largelyfunded or underwritten by EPRI and the InternationalLead Zinc Research Organization (ILZRO). SCE'sposition on the shutdown is that the Chino facilitywas too expensive to continue operating, especiallyconsidering the impending deregulation of Califor-nia's electric power market.

The immediate result of the Chino decommission hasbeen a significant increase in industry-wide skepti-cism about the merits of BES. This conclusion hasbeen formulated from responses received from boththe BES supplier community and the electricity pro-vider community, some of which are directly quotedin this report. The shutdown of the Chino facilityunder the circumstances listed above has perpetuatedthe image of BES as being an expensive and unde-pendable technology, the opposite result from thatwhich SNL and EPRI wanted from the project.

SCE is concerned about its profitability in a newlycompetitive marketplace. SCE also has to be con-cerned about maintaining its reputation as a techno-logical leader in electric power technologies, a factorthat no doubt contributed to their selection of theChino BES in the first place. At the same time, itmust be realized that the Chino facility represented aminute fraction of SCE's generation and storage infra-structure and therefore risked being lost among muchlarger issues that SCE's management has to face everyday.

On the other hand, SNL and its fellow research or-ganizations have to be concerned solely with the suc-cessful demonstration of BES and with the collectionof valuable data on the operating characteristics andproblems of the Chino BESS over its full lifespan.The decommission of the Chino BES under the cur-rent circumstances has denied these outcomes toSNL, EPRI, and the BES supplier community.

In the future, Frost & Sullivan suggests that SNL payparticular attention to the screening of all of its part-ners in BES development. Partners should be evalu-ated and selected based on their commitment to BESdevelopment and their willingness and ability to seeany development or demonstration projects throughto the point where they are successful or conclusivelyproven to be unsuccessful.


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SNL should also take steps to ensure that future de-velopment and demonstration projects provide long-term value to any organizations with which SNL part-ners. This value can include economic value, public-ity value, and the value of any technological andoperational insights gained from the project.

In the future, perhaps SNL can avoid the problemsthat arose in the Chino project by offering certainperformance guarantees that would make future proj-ects of at least nominal ongoing value to SNL's part-ners. Similar guarantees are found throughout theenergy services industry and might be a valid modelon which to base future development and demonstra-tion projects.

A second approach might be to form independentenergy services corporations to demonstrate futureBES projects. These corporations would underwriteand cover any costs involved in operating and main-taining the project. They would generate at leastsome of the revenue needed to cover these coststhrough the provision of services offered by the BESto a utility or electricity end-user partner at a mutuallyacceptable price guaranteed by a contract lasting thelife of the project.

Both of these approaches would require significantcontractual obligations on the part of SNL and itspartners, but it is trusted that these obligations willnot be so onerous that they will defeat every potentialproject that might be considered.

Additionally, Frost & Sullivan understands that as agovernmental organization, SNL faces both statutoryand budgetary limits on its operations. However,SNL does have an established base of partners withinthe BES industry that are not so constrained and maybe able to take the lead in some form of collaborativeeffort with SNL along the lines listed above.

Focus on Lower-Cost, Higher-DensityBattery Technologies

The current generation of BES products suffers fromtwo critical handicaps that retard the large-scale ac-ceptance of BES outside of customer-end powerquality applications. Namely, these handicaps are thecurrent high capital cost and the less-than-adequateenergy densities of available battery technologies.

The reduction of capital costs is an explicit assump-tion of this study (see the per-kilowatt cost figuresused in Appendix A). Also, some respondents must

have made the assumption or detected Frost & Sulli-van's or SNL's assumption that this issue would bedealt with during the later portion of the study's fore-cast period. With this in mind, the capital cost andenergy density issues must be addressed over theforecast period for the BES industry to achieve thelevels of market penetration discussed in this report.

Of the four battery technologies that SNL included inthis study, zinc/bromine batteries seem to hold thebest promise of low construction and material costsand improved energy densities that would deliverconcrete progress on the capital cost and energy den-sity issues.

However, within the broader context of the needs ofpotential customers within the industry, the exacttechnology used to meet existing market requirementshardly matters. The marketplace is prepared to ac-cept whichever technology meets its demand, as longas that technology is not flawed as to make its useimpractical.

Therefore, whether the solution to cost and energydensity issues is based on zinc/bromine batteries, ad-vanced lead-acid, nickel metal hydride, or any otherbattery technology does not matter. BES customersare looking for a solution to their problems, not for atechnology to champion. If the technology works, aplethora of customers will likely be ready to cham-pion it at that time.

In short, Frost & Sullivan suggests that SNL makeevery effort to develop a new generation of batterytechnology that would enable BES systems to betterdeal with capital cost and energy density issues. Theresponses received during this study clearly indicatethat those were the central product features that po-tential BES customers within the electricity providerindustry felt were missing. Undoubtedly, success indealing with these issues would also be welcomed bythe electricity end-user community, since it wouldmake their customer-side systems easier to locate andcheaper to acquire.

Facilitate Clearer Communicationswithin the BES Industry

Another issue affecting the BES industry is the lackof clear, consistent communications within the indus-try. In any developmental industry, clear communi-cations are likely to be lacking, since the technicaloptions available within the industry and the state ofthe many parties that make up a successful industry


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will be unstable, creating uncertainty. However, theBES industry seems to be particularly affected bycommunications problems.

In particular, Frost & Sullivan would like to drawattention to two concrete issues. The first of these isthe extremely high level of dissonance within theBES industry on the subject of the viability of thebattery technologies in use or being considered foruse within the industry. The second issue is thesomewhat contentious and unclear communicationsthat exist between many of the parties within the sup-plier, technology developer, and electricity providercommunities within the BES industry.

Determining which of these two communications is-sues is more serious is difficult, since no effort to dothis was made as a part of this study. Therefore, noattempt will be made to attach a relative importanceto either issue. However, the presence of both issuesserves to confuse and alienate valuable relationshipsthat would greatly assist the successful developmentof BES.

Dissonance over battery technologies is the firstcommunications issue covered here. Being in themarket research business, Frost & Sullivan has manyopportunities to perform research on new productsand markets. As a result, project teams are usuallyacquainted with the types of behavior that are dis-played within developing markets. In the case of theBES market, the Frost & Sullivan project teamworking on this study felt that the level of dissonanceand disagreement within the market was as high orhigher than that of other markets they had studiedpreviously.

Mainly, this dissonance is occurring over the issue ofthe commercial and technological viability of theavailable and planned battery technologies that theBES industry has to draw from. A wide variety ofbattery technologies are available to draw from, mostof which are not yet commercialized. Nevertheless,the amount of contention over battery technologieswithin the BES community is extremely high.

The situation has now reached the point where vari-ous industry parties are not only championing theirown favored technology but are actively underminingother competing battery technologies. Perhaps thissituation does not concern the technologists that cur-rently hold sway in the industry. These technologistsare equipped with the technical knowledge they needto refute arguments and maintain a focus on what theyare trying to achieve.

However, as BES becomes more commercialized, theindustry is expected to move increasingly into thehands of the managerial and procurement personnelthat will make the economic decisions that will decidethe success or failure of BES. The current level ofdissonance may alienate and confuse these procure-ment and managerial personnel, reducing their will-ingness and enthusiasm to procure BES systems.Currently, the BES industry makes it too difficult fornontechnologists to determine which battery tech-nologies might provide them with potential solutionsto their problems. Also, the dissonance issues areaffecting the ability of some developing battery tech-nologies to get the backing they deserve.

The only battery technology that the industry seemsto agree on is sodium/sulfur, and the general opinionon this technology is that it will not succeed. How-ever, nobody has finished a utility-scale sodium/sulfurdemonstration project, which leaves the possibilitythat the general industry mood toward this technologymay be mistaken.

The second communications issue, the lack of clearand consistent communications in general, is moredifficult to assess. In general, the problem seems tobe that parties within the BES industry seem to talkpast each other instead of talking to each other. Thisis particularly prevalent in the relations between BESsuppliers and electricity providers. These two groupsare beginning to alienate each other, thereby riskingthe long-term viability of the BES market.

Not all BES suppliers and electricity providers arepart of the communications problem, but enough ofthem are to have created a significant problem. Spe-cifically, the results of this study and contacts withBES industry professionals have led Frost & Sullivanto believe that the problem on the BES supplier sideseems to stem from too much concentration on tech-nology as opposed to customer solutions. Also, thatsome vendors expect electricity providers to helpthem develop BES markets seems to be unreasonable.

The situation is more confusing on the electricityprovider side. This study has clearly shown severalinstances in which stated public opinions of largeutilities and other electricity providers have contra-dicted the private survey responses from these sameorganizations. Not only has this happened on an or-ganizational level, but high-level utility personnelhave also demonstrated these differences betweentheir public positions and survey responses.


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Lacking hard evidence, the cause of this unusual be-havior can only be speculated upon. A possible ex-planation is an attempt to curry favor in the BESindustry publicly while deflating expectations pri-vately. Also, the "junket mentality"—whereby per-sonnel away from the office get swept up in the spiritof events and make overly optimistic projections,only to discover later that the actual office environ-ment will not support those projections—may be afactor. Or perhaps the discrepancy is due to a"programmed optimism," where the respondent ap-proaches any situation from the standpoint that to-morrow will be a better day.

These various behaviors were demonstrated and dis-cussed at several points over the course of this studyand have doubtless led to a certain amount of the ten-sion between electricity providers and the other par-ties within the BES industry.

Frost & Sullivan recommends that SNL discouragethe behaviors discussed above. Specifically, it shouldbroaden the base of industry forums in which it par-ticipates to include more managerial and planning-level personnel and input. Doing so should help con-siderably with communications with the electricityprovider industry. SNL already has a program alongthese lines to improve its own communications withelectricity providers; perhaps this can be expanded toimprove industry-wide communications.

The dissonance issue is a little harder for SNL tocope with, because some of the parties that have cre-ated the dissonance have links to SNL’s ESS Pro-gram. However, anything that SNL can achieveregarding these constraints would be an improvement.

Perform Studies of Electricity EndUsers and Cooperatives

At this point, the accepted logic in the BES industryis that the electricity end-user market is the best mar-ket for BES products. Unfortunately, this marketcould not be covered in this study. Frost & Sullivanrecommends that, in the future, SNL undertake orencourage studies of both the end-user market and thepotential BES market among electric cooperatives inthe United States.

A cooperative study may be conducted with theNRECA, which expressed interest in such an en-deavor, and perhaps also the BES supplier commu-nity and the ESA. With the cooperation of theseorganizations, the study will be easier to finance.

Additionally, the endorsement of such organizationsmay make the survey process more acceptable to po-tential electric cooperative participants.

The end-user study can be financed using a somewhatsimilar alliance of organizations. However, the end-user study will probably require more attention toissues of proper questionnaire and sample develop-ment before the study commences. This is becauseelectricity end users are engaged in a wider range ofdisparate businesses, as opposed to the more homo-geneous electric cooperative industry.

Closing Remarks

Even though the results of this report are not as uni-versally positive as some BES industry professionalsmay have hoped they would be, the results clearlydemonstrate that a market for BES does exist. Evenif the technology does not advance beyond its currentlevel, there will probably be a market for a limitednumber of BES systems serving specialized but vitalapplications at the utility level.

If the technological and market issues discussed inthis report can be dealt with more comprehensively,Frost & Sullivan expects BES to become a significantelectricity supply option, with a potential marketreaching into hundreds of millions of dollars per yearat the utility level alone by late in the next decade.Because of the unique, highly responsive, verymodular, nonpolluting nature of BES, the nationalbenefits of forecast BES expenditures are expected tobe many times the nominal value of the BES market.

Frost & Sullivan would like to express its gratitude toSNL for choosing the company as the contractor forthis study. This study has provided unexpected in-sights into the BES market that neither SNL nor Frost& Sullivan originally intended to receive. These in-sights should be of ongoing value to the developmentof BES as a viable electricity supply option within theutility industry, which was the original intent of thisstudy.

BATTERY ENERGY STORAGE MARKET FEASIBILITY STUDY APPENDIX A

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Appendix A:Electricity Provider Questionnaire

Sandia BES Market Potential Survey

Date:

Company:

Division:

Address:

Contact:

Title:

Telephone: Fax:

Electricity Provider Questionnaire

1. On a scale of one to ten (1 = very unlikely, 10 =very likely), how would you characterize yourcompany's interest in deploying battery energystorage (BES) systems as a part of its generation,transmission, and distribution assets in the fol-lowing years?2000:2005:2010:

2. What is your company's opinion of current bat-tery storage technology? What strengths orweaknesses do you see the technology havingthat would affect its deployment at your com-pany?

3. What department(s) in your company would beresponsible for authorizing and funding the ac-quisition of battery energy storage systems?How do you envision electric utility deregulationaffecting BES procurement from this organiza-tional standpoint?

4. What is your opinion of battery energy storagetechnology versus other energy storage technolo-gies such as flywheels, superconducting magneticenergy storage (SMES), and supercapacitors?

5. What is your opinion of battery energy storageversus pumped hydro and compressed air energystorage (CAES)?

6. What is your opinion of battery energy storagetechnology versus generation technologies suchas gas turbines, diesel generators, and fuel cellsin dispersed or central station generation?

7. Identify the generation and energy storage tech-nologies that your company sees as providing su-perior performance versus battery energy storage.

8. How would being an electricity provider in aderegulated environment affect your interest inenergy storage versus operating in the currentregulated environment?

9. Please refer to the enclosed list of electric powerapplications identified as being practical for BEStechnology. In what applications do you seebattery energy storage systems providing themost value to your company?

10. Do you see battery energy storage as playing arole in, for example, the provision of ancillaryservices to an ISO, or other business opportuni-ties that would exist in a deregulated environ-ment? For reference, below is a list of someancillary services that have been identified asbeing necessary in a deregulated environment.

APPENDIX A BATTERY ENERGY STORAGE MARKET FEASIBILITY STUDY

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Scheduling and dispatchLoad followingReliabilitySupplemental operatingEnergy imbalanceReal-power loss replacementGeneration voltage controlTransmission voltage control

11. Do you know of any additional applications notincluded in questions 9 and 10 for which batteryenergy storage might be used at your company?

12. Are there other applications for battery energystorage that are not in questions 9 and 10 thatyou see as being valuable to the utility industryas a whole that are not important to your par-ticular company?

13. What technical or product characteristics do youthink battery energy storage systems should pos-sess to fulfill the applications discussed in ques-tions 9, 10, 11 and 12? Do you feel that batteryenergy storage for the most part possesses thesecharacteristics now, or does battery energy stor-age require a significant additional investment oftime and money to gain these characteristics?

14. How many megawatts in generation, transmis-sion, and distribution capacity would your com-pany need to provide for both normal loadgrowth and the applications discussed in ques-tions 9, 10, 11, and 12? Please provide answersfor the following years:2000:2005:2010:

15. Of this new capacity required by your company,what percentage do you see battery energy stor-age providing in the same years? For the pur-poses of this question, assume that the installedcost of battery energy storage is approximatelybased on the schedule below. Prices are pro-vided in a range and represent the expected costof BES systems in each year in constant 1996dollars. The higher end of this price range is forsystems with longer storage capacities (two ormore hours of operation at full output) and withlower prices representing the cost for systemswith shorter storage capacity (down to 3-4 cy-cles).

YearBES System PriceRange

Percent of newcapacity providedby BES in calen-dar year

2000 $700/kW to $1,100/kW

2005 $500/kW to $700/kW

2010 $400/kW to $600/kW

16. Does your organization have any projections ofwhat technology(s) will provide your centraland/or distributed energy source(s) in 2010? Ifin 2010 the cost of BES were to be comparableto your preferred option, how much BES wouldyou install?

17. Are there any other contacts at your organizationor in others that you think might provide valuableinput to this study?

Thank you for your time.

BATTERY ENERGY STORAGE MARKET FEASIBILITY STUDY APPENDIX B

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Appendix B:BES Vendor Questionnaire


Date:

Company:

Division:

Address:

Contact:

Title:

Telephone: Fax:

BES Vendor Questionnaire

1. What products or services does your companycurrently offer to the battery energy storage(BES) marketplace?

2. Do you currently plan any major changes in yourBES product offerings in terms of technology orfeatures by the turn of the century?

3. What developments do you see being necessaryfor the marketplace preparation of energy storagetechnologies other than those offered by yourfirm? Please specify by technology.

4. What barriers do you see to the large-scale ac-ceptance of battery energy storage in the elec-tricity production and consumption marketplace?Please include both technical and nontechnicalissues, such as the development of production fa-cilities and a marketing and service infrastructurefor BES.

5. Do you see any particular electricity providers(cooperatives, municipals, IOUs, IPPs, etc.) asmore likely BES customers? Which electricityproviders do you target now? Which are youplanning to target in the future?

6. Do you feel that there is an appreciable marketfor battery energy storage systems in electricity

end-user applications? If so, roughly how largedo you see this sector of the market being incomparison to the utility/power generator seg-ment of the market?

7. Do you see the barriers to market acceptance andcommercialization in electricity end-user appli-cations being different from those in utility appli-cations? If so, how?

8. What do you see the electricity end-user marketfor BES being in the following years? (in mega-watts of capacity)2000:2005:2010:

9. Do you see any type of battery preference fromend-users? Does this vary by application?

10. Are you aware of other BES and energy storagevendors? Of which vendors are you aware?How successful do you think these vendors havebeen?

11. What are your thoughts or observations aboutexisting, installed battery energy storage facilitiesat either the electricity end-user or utility level?

12. Our preliminary research has produced the fol-lowing estimates for the U.S. BES market in the

APPENDIX B BATTERY ENERGY STORAGE MARKET FEASIBILITY STUDY

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years 2000, 2005, and 2010. The market esti-mates are given in constant 1996 dollars and inmegawatts (MW) of installed BES capacity.

YearMarket inMW

Market in Dol-lars

2000 25.9 $23,330,000

2005 199.5 $119,690,000

2010 490.9 $245,430,000

What manufacturing developments would berequired by the battery energy storage industry tomeet this forecast level of demand? What marketdevelopments would be required to meet thesesame projections?

13. Are there any other contacts at your organizationor in others that you think might provide valuableinput into this study?


BATTERY ENERGY STORAGE MARKET FEASIBILITY STUDY APPENDIX C

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Appendix C:Regulator/Advocate/Professional

Organization Questionnaire


Date:

Company:

Division:

Address:

Contact:

Title:

Telephone: Fax:

Regulator/Advocate/Professional Organization Questionnaire

1. What is your organization's opinion of energy storage, especially BES?

2. Would your organization advocate a position on BES? What tools or developments would be necessary foryour organization to advocate a position on BES?

3. What do you see the benefits of battery energy storage being versus other competing technologies and programssuch as distributed generation or demand side management?

4. If your organization is actively involved in the regulation of electric utilities, what are your estimates of electri-cal load growth within your jurisdiction for the period between 1996 and the following years?2000:2005:2010:

APPENDIX C BATTERY ENERGY STORAGE MARKET FEASIBILITY STUDY

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5. Do you or your organization have any perspective on how battery energy storage might compete with other op-tions in a deregulated environment?

6. Does your organization get any feedback regarding battery energy storage from electricity producers or inputfrom BES suppliers or electricity end-users? What kind of feedback, and how would you characterize it?

7. Are there any other contacts in your organization who might provide input on this topic? Please identify them:


BATTERY ENERGY STORAGE MARKET FEASIBILITY STUDY APPENDIX D

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Appendix D:Battery Energy Storage Applications List

Generation

Spinning Reserve: generation capacity that a utilityholds in reserve to prevent interruption of serviceto customers in the event of a failure of an oper-ating generating station.

Generation Capacity Deferral: ability of a utility topostpone installation of new generating facilitiesby supplementing the existing facilities with an-other resource.

Area/Frequency Control: ability of grid-connectedutilities to prevent unplanned transfer of powerbetween themselves and neighboring utilities(Area Control) and ability of isolated utilities toprevent the frequency of the electricity that theyproduce from deviating too far from 60 Hz(Frequency Control).

Renewables: applications through which renewablepower is available during peak utility demand(Coincident Peak) and available at a consistentlevel (Firming).

Load Leveling: storage of inexpensive off-peakpower for dispatch during relatively expensiveon-peak hours.

Generation Dispatch: Decommitting and/or moreeconomically dispatching generating units thatare operating at inefficient partial loads untilsystem load more closely matches the aggregatecapacity of available generating units.

Transmission & Distribution

Transmission Line Stability: ability to keep allcomponents on a transmission line in synchroni-zation with each other and prevent system col-lapse.

Voltage Regulation: ability to maintain the voltagesat the generation and load ends of a transmissionline within 5% of each other.

Transmission Facility Deferral: ability of a utilityto postpone installation of new transmission linesand transformers by supplementing the existingfacilities with another resource.

Distribution Facility Deferral: ability of a utility topostpone installation of new distribution linesand transformers by supplementing the existingfacilities with another resource.

Customer Service

Customer Demand Peak Reduction: storage of off-peak power for a customer to dispatch duringgreatest on-peak demand as a way to reducemonthly demand charges.

Reliability, Power Quality, Uninterruptible PowerSupply—Small & Large Customers: ability toprevent voltage spikes, voltage sags, and poweroutages that last for a few cycles (less than onesecond) to minutes from causing data and pro-duction loss for customers.

APPENDIX D BATTERY ENERGY STORAGE MARKET FEASIBILITY STUDY

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