Editorial

Six Questions About Wind & Storage

The industry is buzzing about solar & storage. What about wind & storage?

Although wind & storage has not experienced the same interest as solar + storage in the U.S., projects in ERCOT have shown that these pairings can succeed. Recently, Daniel Finn-Foley, Senior Energy Storage Analyst, and Hong Durandal, Business Analyst at MAKE authored a research insight examining current economics and market conditions for wind + storage. The note, U.S. Wind + Storage - The Business Case, can be found here. Daniel and Hong discussed some of the key themes of their findings in the six questions below.

Key U.S. wind-storage projects, Q4 2017

Source: GTM Research, MAKE. For more project data, learn more about our Energy Storage Data Hub.

Why is it worth talking about wind + storage now?

Daniel Finn-Foley (DFF): We have been talking about solar + storage for some time now as the business case for this pairing is clear and generally agreed upon. The more predictable energy supply from solar makes it an excellent fit for storage, and we are seeing firming and time-shifting applications in multiple markets across the U.S. The business case for wind + storage, however, is not as clear, given the more unpredictable energy supply and the predominant usage of the production tax credit (PTC) over the investment tax credit (ITC). As storage costs continue to drop, however, innovative use cases surrounding wind + storage could begin to emerge.

Hong Durandal (HD): Despite the barriers that Daniel mentioned, it is clear that wind + storage do offer new opportunities to leveraged wind energy production: Wind farms paired with energy storage can shift energy from periods of low prices to take advantage of spikes and shift energy in bulk when it is most needed. Pairing wind with energy storage helps with real time ramp rate control (smoothing) to reduce wind energy variability and intermittence, and curtailment of wind energy can be eliminated or reduced significantly. Finally, wind + storage systems can compete in ancillary services similarly to solar + storage systems. It is also worth noting that we are seeing increased interest by wind turbine OEMs across the globe in exploring and developing utility scale wind + storage systems. Not only, can the development of such systems strengthen the portfolio of the OEMs in key markets, hybrid systems can also play a significant role in the deployment of more wind energy in the future

There is potential for cheap wind energy to provide grid services but the main challenge for wind + storage is to shift energy at very specific times when price spreads are significantly large enough to make a profit

What makes ERCOT a unique environment for wind + storage in the U.S.?

DFF: If you are going to examine opportunities, you go where those opportunities are, and the spectacular growth of wind in Texas means that, if and when we are going to see energy storage solving some sort of challenge related to integrating large quantities of wind, we are going to see it here first.

HD: Texas is the #1 wind state in the U.S. with more than 22,000 megawatts of wind capacity installed. In 2016, 15 percent of all the energy consumed in ERCOT was generated from wind, and we are seeing a healthy growth of wind energy in ERCOT with more than 30,000 megawatts of wind capacity in the interconnection requests pipeline. Already, several projects in the territory, like Texas Waves from E.ON, have begun operating wind + storage systems.

DFF: No doubt that Texas is the place to look, but we should be careful to not develop tunnel vision - opportunities may emerge across the U.S. as it is unique confluences of regulation, technology, and market dynamics are what drive new business models.

CHART: Wind + storage installations in the U.S., by developer

Source: MAKE, GTM Research

What are the main barriers that are holding back commercialisation of wind + storage systems?

HD: As we show in the report, there is potential for cheap wind energy to provide grid services but the main challenge for wind + storage is to shift energy at very specific times when price spreads are significantly large enough to make a profit. Capital expenditure of battery systems and degradation over time are a big roadblock to fully realize cost effective energy time shifting. In addition, low volatility of prices do not provide enough spreads to recover discharge and charge cycles. Regions with large price spreads during a day or shorter periods of time can benefit tremendously from energy time shifting.

DFF: On the ancillary services side, renewables + storage is still tough to make work. In a market like Texas where a frequency regulation signal is split into two markets (up and down) you can claim the ITC while still participating in the regulation up market – charging exclusively from a renewable resource and then discharging onto the grid. Modeling, however, shows that your economics improve if you ignore the ITC, install stand-alone storage, and participate in both the regulation up and down markets. Ultimately the ITC and regulation services are incompatible, suppressing project economics.

Do you see incentives that could make wind + storage more attractive?

DFF: The ITC has been taken for wind + storage so far in several states reducing the capital costs and improving the profitability of the hybrid system. No known utility scale wind-charged storage project has claimed the PTC so far. There could be potential opportunity to use the PTC as the energy stored in the batteries is from the wind farms. A clear ruling is needed for the PTC to be eligible for wind + storage systems.

The best signpost for the post-PTC/ITC climate may be Xcel’s recent RFP, which showed that developers are bullish on wind, solar, and energy storage price declines over the next five years, even with absent tax credits.

How will the elimination of ITC and PTC by 2020 alter the situation for wind + storage?

DFF: The current climate, it would be optimistic to anticipate any new federal support systems for renewables or storage, but incentives and mandates will continue to emerge at the state level. The best signpost for the post-PTC/ITC climate may be Xcel’s recent RFP, which showed that developers are bullish on wind, solar, and energy storage price declines over the next five years, even with absent tax credits. Full market participation, declining costs, and the political will of state leaders will continue to drive this market even as legacy incentives fade. Clearly, the industry is already looking beyond 2020.

U.S. Wind Power Forecast 2017 - 2027E

Source: MAKE

Does the unclear future for wind + storage hurt the competitiveness of wind in the U.S.?

HD: The short answer is this: wind is competitive. First of all, although the economics for certain wind + storage hybrid applications might not be too profitable at the moment, it is not to say that it will not become profitable. Secondly, we have seen record low onshore turbine prices offered across the globe, and in the US, in particular, expectations among offtakers for lower PPA pricing cascades down the value chain and continue to push down turbine pricing. As a matter of fact, we saw 6.4 gigawatts of new wind capacity connected to the grid in 2017, and we have already witnessed offtake announcement of more than three gigawatts in 2018, which indicates a market that is rapidly gaining pace ahead of the PTC expiry.

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This insight comes from the report U.S. Wind + Storage: The Business Case.