Grid Battery Deployment in USASome observations and lessons learned

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Nine Independent System Operators cover two-thirds of US power transmission

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PJM has the highest deployment of batteries for frequency regulation US

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High value market

2018 Frequency Regulation Installed capacity (MW) by ISO

MISO recently announced an expansion of their FM program and movement to a model similar to PJM

Source: DOE Global Energy Storage Database, Accesses 23th September 2018

CAISO and PJM; two contrasting philosophies

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CAISO:• Policy implemented by

regulation• Focus on replacement

of conventional generation by renewables

• Effectively “cost-plus” –subsidies will be included in rates

• Electricity prices likely to increase

• BATTERY FOCUS• Energy

PJM:• Market-mechanism to

implement policy• Focus on integration of

renewables alongside conventional generation

• No subsidies needed• System has cut overall

costs and improved quality of regulation

• BATTERY FOCUS• Power + Energy

PJM – key facts and figures

• Connects approximately 117 GW of generation with 65 million subscribers

• Pioneer in the deployment of grid batteries

• Has used market mechanisms to support deployment

• Batteries compete against each other based on scoring system

• Best performing batteries are despatched first

• Good performance rewarded, poorly performing assets are squeezed out and get no revenue

• Overall performance of battery fleet improves over time

• Market mechanism has cut total costs and at the same time improved quality of frequency regulation

• Battery operators carry merchant risk

• Good performance will be well-rewarded

• No subsidies; competition as drawn in privately-funded assets and driven innovation

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Grid Scale BESS: FREQUENCY MANAGEMENT

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2017 PJM Regulation Price

2017 PJM Reg D Signal • PJM is a market-based system for the purchase and sale of the Regulation

ancillary service, running via an hour-ahead Market Clearing Engine

• Remuneration is based on the capability offered as well as the performance provided

• Both payments are weighted by a performance score

• The performance score is calculated for each hourly interval from three components: the delay score, the correlation score, and the precision score

• The clearing price is determined by three components:o lost opportunity cost (LOC)o capability offer: captured by the regulation market capability

clearing price (RMCCP)o Performance offer: captured by the regulation market

performance clearing price (RMPCP)

• The clearing prices is then used in market settlements to determine the credits awarded to providers and charges allocated to purchasers of the Regulation service

PJM’s pay for performance model has a multi dimensional payment system

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10 year cumulative cashflow (OPEX and CAPEX) Long cycle-life vs. Generic Lithium Ion serving the PJM RegD Signal

Economic impact of long cycle-life versus battery replacement

Note: Unleveraged, undiscounted cashflows

Source: Economic modelling of Innolith LFC86 against Generic Lithium Ion within the PJM signal and market mechanism. Model uses performance score of product and PJM cycle to value revenues. Product performance / capacity fade is built into the model as well as the lifetime of the product as defined by number of cycles.

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• Conventional li-ion can technically support

application

• Replacement of cells or “repowering” feasible but

negatively impacts economic returns

• Need to focus on Total Cost of Ownership and not just initial capital cost

Scenario Est. 10 Year IRR

Li Ion constrained cycling & 5 year repower -1.6% - 1.0%

Li Ion 2 year repower 4.1% - 5.4%

Long cycle-life battery 13.0% - 17.3%

Based on Unlevered Free Cash Flow w/o TVYear 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

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Long cycle-life battery

Li Ion – 2 year repower

Li Ion – Constrained cycling & 5 year repower

Power versus Energy; finding the right metrics

• Historical focus on $ / kWh

• Implicitly assumes all batteries are the same

• Focus on initial purchase cost rather than Total Cost of Ownerships (TCO)

• Metric for Power applications:

• $ / cycle

• Metric for Energy applications

• $ / (total energy throughput)

• Challenges with li-ion:

• Cycle life too low for Power applications

• Initial cost still too high for Energy applications

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Renewable Energy‘Smoothing’

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Charge / Discharge time

FrequencyRegulation

Renewable EnergyTime-shift

Substation On-SitePower

Electric SupplyTime shift / Capacity

Low

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Power Energy

~ 1 hr

Conclusions – what can India learn from grid battery deployments in the US?

Power batteries versus energy batteries?

• You need both

• Power batteries deliver cheapest cost-per-cycle for ancillary services

• Energy batteries needed for large-scale substitution of fossil-fuels with renewable power

Market mechanisms versus cost-plus (subsidies)

• Market mechanisms drive performance up and costs down

• No need for subsidies if market well-designed – key role for electricity regulator

Market mechanisms not feasible if underlying technology is not cost-competitive

• PJM shows impact of market in driving innovation – new technologies have emerged

• Need to define the right metrics – $/kWh does NOT capture total cost of ownership

• New and fundamentally lower-cost technologies still needed for energy batteries

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