Much of the news on energy storage in the U.S. comes from the east and west coasts, and moderate electricity prices in the Midwest mean energy storage isn’t always cost-effective yet. However, a new University of Minnesota-led report finds that when environmental benefits are considered, combined energy storage and solar arrays can be a more cost-effective alternative in Minnesota – implementable today – to natural gas peaking plants, which are fired up only to meet peak demand.
The report also shows that increasing the deployment of energy storage combined with renewable energy would help Minnesota meet its statutory goal of 80 percent carbon reduction by 2050 sooner and at a lower cost than other technologies.
The report, “Modernizing Minnesota’s Grid: An Economic Analysis of Energy Storage Opportunities,” is the result of months-long effort led by the Energy Transition Lab (ETL) at the University of Minnesota’s Institute on the Environment. Lessons learned could also be applied to other Midwest states that are in the Midcontinent Independent System Operator (MISO) footprint.
“Energy storage is a linchpin for Minnesota: It has the potential to reduce our system costs, increase electric grid resiliency, and even decrease greenhouse gas emissions in our broader coal-dependent region,” said Ellen Anderson, director of the Energy Transition Lab. “While the federal government questions the reliability of renewable energy, states like Minnesota are stepping up to show it’s possible to connect renewables and storage to reduce both costs and greenhouse gas emissions, while maintaining a reliable grid.”
Input from dozens of Minnesota energy experts laid the foundation for the analysis and final report. ETL convened more than 60 stakeholders, including representatives from utilities, energy technology companies, nonprofits, academia, and government, in two Energy Storage Strategy Workshops starting in 2016 to assess the opportunities for energy storage in Minnesota and at MISO. Participants explored whether and how energy storage could be used to help Minnesota achieve its energy policy objectives, and enable greater system efficiency, resiliency and affordability. The stakeholders identified reducing peak demand as a key energy system need ripe for further analysis. Project collaborators Strategen Consulting and Vibrant Clean Energy conducted the use-case and system-wide modeling for the analysis, with input from MISO.
Use-Case Analysis of Energy Storage and Storage + Solar as Peaker Alternative
The storage use-case analysis compared the costs and benefits of a 100 MW 4-hour battery storage system with a conventional new natural gas 100 MW peaking combustion turbine, and found that the storage alone alternative would be a cost-effective way to meet Minnesota’s capacity needs in 2023. When solar was added to the storage system, it became cost-effective in 2018, with environmental costs and the federal Investment Tax Credit (ITC) included. This analysis assumed a 100 MW 3-hour storage plus a 50 MW solar PV system. Costs and benefits included capacity, energy sales revenue, and sub-hourly ancillary services revenue. Because solar PV generation can coincide with Minnesota’s peak demand hours, it can complement stored energy to meet peak demand. As a result, the solar + storage option could provide a capacity resource that meets peak demand using less storage capacity than a standalone storage project would require.
These findings are potential game-changers for Minnesota and the Midwest region for several reasons. First, while electricity usage growth is relatively flat, peak demand is increasing and managing it is costly. A recent Massachusetts study, State of Charge, found that “on average from 2013-2015, Massachusetts electricity customers annually spent over $3 billion, 40% of the total annual electricity spending by consumers in Massachusetts, on the top 10% most expensive hours.” Minnesota plans forecast 1800 Megawatts of new gas peaking capacity by 2028, so there is a meaningful opportunity to find cost-effective and lower carbon solutions without locking in new fossil fuel infrastructure for decades to come. Energy storage systems paired with solar can level off peak demand, save customers money, and reduce carbon emissions.
Analysis of Energy Storage Impacts to Midcontinent Independent System Operator (MISO) Regional Grid
In addition to showing that storage plus solar already could be more cost effective than peaking gas plants, including environmental benefits, the analysis shows that the deployment of storage in Minnesota is projected to increase the use of low-cost renewable energy generation dispatched in MISO and to reduce the need for expensive transmission investments.
The MISO analysis showed that adding energy storage would reduce the levelized cost of energy over time and reduce reliance on a single type of fossil-fuel generation. Costs would be lowered because storage would enable more low-cost renewable energy on the system, and reduce need for expensive transmission investment. Even though MISO is still very reliant on coal, energy storage would enable greenhouse gas reduction sooner and at a lower cost. Without storage, MISO would face a significant risk of over-reliance on non-diversified fossil fuel sources, especially natural gas. As it becomes economic in MISO, storage appears to compete with and displace gas combustion turbines (CTs) used for peak demand.
The Energy Transition Lab’s work illuminated projected and actual energy storage opportunities in Minnesota. Connexus Energy, Minnesota’s largest distribution cooperative, was a participant in the workshops and is already pursuing procurement of a 20MW, 40MWh energy-storage system. It will be one of the largest storage projects of its kind in the Midwest, saving money for co-op customer/members, and facilitating renewable energy growth to reduce greenhouse gas emissions. Responses to Connexus’ Request for Proposals have been encouraging, with bids coming in at half the cost projected just one year ago.
The broad cross-section of Minnesota stakeholders in the ETL workshops, including representatives from utilities, energy technology companies, nonprofits and government, prioritized next steps for state regulators and policymakers. These include: increasing experience with energy storage through commercially viable demonstration projects, through an energy storage or “all source” procurement process or pilot projects procedure, designed to meet system needs, and overseen by the Public Utilities Commission. Additionally, the action steps included developing standards and processes to enable the wise use of storage through better planning and modeling tools, procurement processes, rate design, valuation and cost recovery mechanisms, and market rules by the Public Utilities Commission and MISO; as well as continuing education, analysis, and identification of opportunities for decision-makers and for utilities.
The energy storage planning process was spearheaded by ETL and the Minnesota Energy Storage Alliance (MESA), with support from the Energy Foundation, the McKnight Foundation, the Minneapolis Foundation, the Carolyn Foundation, AES Energy Storage, General Electric, Next Era Energy Resources, Mortenson Construction, Great River Energy and Strategen Consulting.
Director, Energy Transition Lab,
University of Minnesota
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