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Energy Storage

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As electricity use rises and falls over the course of a day, grid operators must nimbly balance electricity supply and demand so the two remain instantaneously matched.1 Energy storage facilitates this balance by engaging a range of technologies2 that store energy until it is needed, whether that is a second, minute, or day later. By doing so, energy storage can alleviate intermittency (those moments when the wind doesn’t blow or sun doesn’t shine). This lets solar and wind more effectively fulfill base load electricity demands.3 This reduces the need for coal- and gas-fired plants to fill in the gaps when solar and wind is unavailable, reducing emissions. In addition, when energy storage helps avoid citywide blackouts or supplies power to military bases, our energy system becomes more reliable and secure.  Energy storage can also improve electricity quality and prevent flickering lights. Finally, deploying energy storage for power reliability, security, and quality will displace many inefficient peaking plants, avoiding the emissions these seldom used plants produce.


Energy storage faces three major challenges. First, energy storage installations are expensive. Second, the regulatory system is not designed to accommodate energy storage installations. Third, regulatory gaps help create a market failure because businesses either do not know how to or may not be inclined to fully value energy storage.

Energy storage installations face high upfront costs: batteries and other novel technology materials are expensive4 Until costs go down, this means the revenue made by storing electricity at times of low demand and pricing and selling at times of high demand and pricing does not compensate the cost of technology. Of course, energy storage applications can also earn money by improving power reliability or power quality or deferring transmission investments. Nevertheless, any given benefit energy storage provides usually cannot provide sufficient return on investment to justify costs.5 Hoping to lower future costs, a variety of federal agencies support initiatives to promote energy storage R&D, focused on basic research,6 technology commercialization,7 and pilot project demonstrations.8

Regulation also remains a major challenge. Many energy storage technologies could be used for multiple applications,9 yet the regulatory structures that would allow utilities to recoup costs by doing so are underdeveloped.10 Although the Federal Energy Regulatory Commission (FERC) has made big strides towards commercializing energy storage for a few specific purposes,11 regulations have not caught up with potential market opportunities.

Because the regulations specifying how energy storage may charge for services are underdeveloped, investors are slow to consider energy storage technologies. While the U.S. does have enough large-scale pumped hydro capacity to power about 1.7 million homes,12 most new projects rely on batteries and other emerging technologies. Emerging technologies generally lack data on performance and reliability.13 In addition, power system planning models undervalue or exclude energy storage.14 When coupled with regulatory uncertainty, this means business largely cannot effectively estimate the potential value energy storage investments could bring, and is consequentially wary of investing in energy storage.

Outside of the grid-scale applications discussed above, distributed energy storage has the potential to save money for businesses and homeowners under an appropriate regulatory framework. Should it become available over the long term, cheap, and standardized energy storage can provide backup power to the data centers, banks, hospitals, and other institutions that must access it.


Energy storage has benefitted from federal research, development and deployment. Now, energy storage will benefit from policies that remove regulatory barriers preventing faster market adoption.

Determine Fair Compensation for Energy Storage

 FERC should identify and put in place regulatory changes that would fairly compensate energy storage. In practice, current regulations require energy storage be classified only as a generation, transmission, or distribution facility,15 even though one project can provide benefits across the three categories. This limits the number potential applications for which grid operators can compensate energy storage, making it difficult to design profitable energy storage projects. Revised regulations could establish a new type of facility,16 specify clear and fair procedures to compensate energy storage for multiple applications, or unify market rules among grid operator regions.17

Encourage Energy Storage on Government Properties

 The government services agency should seek out energy storage applications to evaluate for potential energy savings performance contracts. Such installations could integrate with distributed generation, provide peak demand charge management, or offer continuous backup generation. Some commercial buildings have installed basement batteries, realizing that they save money.18 The military has also led the way in installing energy storage, in large part because it values the security benefits distributed storage provides.19 By leveraging its own buying power among a wide swath of federal agencies, the broader government can help spur development of distributed energy storage.

Clarify Distributed Energy Storage Compensation

 While small, the market for distributed energy storage is growing20 as distributed solar becomes ever more popular. Foreseeing this growth, revisions to PURPA suggested in the Distributed Solar  component should expand to include distributed energy storage. These revisions should clarify the rights of distributed generation owners to sell electricity to the wholesale market, as well as to clarify their responsibilities to support transmission and distribution networks.

Make Energy Storage Eligible for Tax Credits

 Congress should pass the bipartisan bill, sponsored by Sens. Wyden and Collins, providing an investment tax credit for energy storage.21 Specifically, the bill would provide a 20% tax credit to grid-connected energy storage technology and a 30% tax credit to other property installed with the energy storage technology or distributed energy storage in homes.

Make Energy Storage Eligible for Master Limited Partnerships

As proposed by Sen. Coons, Congress should pass legislation that extends Master Limited Partnerships to energy storage technology, which would open up cheaper and earlier financing options.22 Master Limited Partnerships are addressed in the PowerBook’s Finance Component.

  1. Electricity must retain instantaneously matched to provide all customers with sufficient energy to meet their demand while not overloading the wires’ capacity.
  2. Technologies include batteries, flywheels, compressed air storage, pumped hydro, and electrochemical capacitors. See United States, Congress, Congressional Research Service, Paul Parfomak, “Energy Storage for Power Grids and Electric Transportation: A Technology Assessment,” 112th Congress, 2nd Session, March 27, 2012, Chapters 4, 7 -10. Accessed September 23, 2013. Available at:
  3. For a thorough discussion of energy storage applications, see Chapter 1 in the DOE/EPRI Electricity Storage Handbook. Unsurprisingly, different technologies are better suited to different applications. For example, flywheels are best suited for electricity quality applications, whereas pumped hydro storage and compressed air storage projects serve a range of applications. See United States, Department of Energy, Sandia National Labs, “DOE/EPRI 2013 Electricity Storage Handbook in Collaboration with NRECA,” July 2013, Chapter 1. Accessed October 8, 2013. Available at:
  4. United States, Department of Energy, Sandia National Laboratories, Dhruv Bhatnagar et al., “Market and Policy Barriers to Energy Storage Deployment,” September 2013, p. 34. Accessed March 25, 2014. Available at:
  5. DOE/EPRI 2013 Handbook, p. 26.
  6. Basic research funding is spread across multiple programs. See United States, Government Accountability Office, “Batteries and Energy Storage: Federal Initiatives Supported Similar Technologies and Goals but Had Key Differences,” August 30, 2012, pp. 42-48. Accessed September 23, 2013. Available at:
  7. Advanced Research Projects Agency–Energy (ARPA-E) has provided transformative energy technologies $770 million since 2009 to provide a path from laboratory to market, and a third of these projects have gone to energy storage projects. Of the 17 projects that have raised private capital, 8 have grid scale potential. See “American Energy Ingenuity: How strategic federal partnerships with the private sector are driving energy innovation,” Briefing, Pew Charitable Trusts, Washington D.C., September 19, 2013. Attended event on September 19, 2013; See also “The Current and Future Status of Energy Storage Technologies,” Lecture, United States Energy Association, Washington, D.C., September 13, 2013. Attended event on September 13, 2013. Related information available at:; See also United States, Department of Energy, Advanced Research Projects Agency – Energy, “Arpa-E Announces Projects Have Attracted Over $450 Million in Private Sector Funding, Spurred Start-up Company Formation and Fostered Public Partnerships,” Press Release, February 26, 2013. Accessed September 23, 2013. Available at:
  8. DOE’s Energy Storage program leveraged $185 million in stimulus funding to provide $585 million in funds and has launched sixteen projects to demonstrate their grid-scale readiness. See United States, Department of Energy, “Grid Energy Storage,” Report, p. 61, December 2013. Accessed December 20, 2013. Available at:
  9. DOE/EPRI 2013 Handbook, p. 26.
  10. Most markets strictly classify assets as transmission or distribution, and it is difficult to appropriately functionalize energy storage assets within this system. See Bradford Roberts and Chet Sandberg, “The Role of Energy Storage in Development of Smart Grids,” Proceedings of the IEEE, Vol. 99, No. 6, June 2011, p. 1143. Accessed September 20, 2013. DOI: 10.1109/JPROC.2011.2116752; See also David Pomper, “Electricity Storage: Technologies and Regulation,” National Regulatory Research Institute, June 2011, pp. 35-36. Accessed September 20, 2013. Available at:
  11. By compensating frequency regulation for the actual service provided, requiring regulators to consider speed and accuracy when assessing such resources, and allowing energy storage access to fair and speedy grid connection services reserved for small generators, FERC has expanded energy storage market opportunities. See three recent FERC orders: United States, Federal Energy Regulatory Commission, “Frequency Regulation Compensation in the Organized Wholesale Markets,” Order 755, October 20, 2011. Accessed December 29, 2013. Available at:; United States, Federal Energy Regulatory Commission, “Third-Party Provision of Ancillary Services; Accounting and Financial Reporting for New Electric Storage Technologies,” Order 784, July 18, 2013. Accessed December 29, 2013. Available at:; United States, Federal Energy Regulatory Commission, “Small Generator Interconnection Agreements and Procedures,” Order 792, November 22, 2013. Accessed December 29, 2013. Available at:
  12. Pumped hydro delivered nearly 20 billion kWh in gross generation in 2012, and the average American home consumed about 11,300 kWh electricity in 2009. Storage generation data from United States, Department of Energy, Energy Information Administration, Ronald Hankey, Email, Third Way, January 29, 2014; Electricity consumption data from United States, Department of Energy, Energy Information Administration, “Residential Energy Consumption Survey (RECS),” 2009, Table 2.1. Accessed March 25, 2014. Available at:
  13. “Grid Energy Storage,” p. 30; See also Bhatnagar, p. 30.
  14. Bhatnagar, pp. 32-33; See also Ramteen Sioshansi, Paul Denholm, and Thomas Jenkin, “Market and Policy Barriers to Deployment of Energy Storage,” Economics of Energy and Environmental Policy, January 12, 2012, pp. 3-6. Accessed October 7, 2013. Available at:
  15. “Challenges and Opportunities For New Pumped Storage Development,” National Hydro Association, July 2012, pp. 11-12. Accessed October 7, 2013. Available at:
  16. National Hydro Association, p. 12; See also Roberts and Sandberg, p. 1143.
  17. Bhatnagar, p. 25.
  18. Martin LaMonica, “Bright Lights, Big City—Big Battery,” Scientific American, June 6, 2013. Accessed February 11, 2014. Available at:
  19. For example, see “U.S. Army and Lockheed Martin Commission Microgrid at Fort Bliss,” Lockheed Martin, May 16, 2013. Accessed May 23, 2014. Available at:; See also “Air Force Pilots New Solar Power Storage System,” Clean Technica, October 21, 2013. Accessed January 3, 2014. Available at:
  20. Eric Wesoff, “SolarCity Launches Energy Storage for Business Using Tesla Battery Packs,” GreenTech Media, December 6, 2013. Accessed February 10, 2014. Available at:
  21. United States, Congress, Senate, “S.1030 — Storage 2013 Act,” 113th Congress, 1st Session, May 23, 2013. Accessed January 3, 2013. Available at:
  22. The proposed legislation includes energy storage. See United States, Department of Energy, “DOE Global Energy Storage Database,” Database, Accessed October 4, 2013. Available at: