Dive Brief:

• Utility-scale energy storage in the U.S. grid rose from 1.4 GW at the end of 2020 to 4.6 GW last year, according to the U.S. Energy Information Administration’s Annual Electric Generator Report. Nearly 60% of installed utility-scale storage capacity was used for price arbitrage in 2021, up from 17% in 2019, the EIA found.
• In California, which has the most energy storage of any state, the buy low, sell high strategy is playing a leading role. More than 80% of the battery capacity added in California Independent System Operator service territory last year was used for price arbitrage.
• More than 90% of the storage installations last year were paired with large-scale solar energy facilities because of the considerable federal tax credit such installations receive, the EIA noted.

Dive Insight:

Large battery storage helps with grid reliability by providing ancillary services, particularly frequency regulation to keep the grid within a safe bandwidth. Frequency regulation is still the most common battery application in the U.S because batteries can fire up right away and “quickly absorb power surges,” the EIA said. But energy storage is increasingly being used for price arbitrage strategies and for providing energy to the grid, not ancillary services.

The takeaway from the EIA’s report “is that a storage resource can operate either in the ancillary services or energy markets,” Jin Noh, California Energy Storage Alliance policy director, said.

Storage is playing a bigger role in the energy market, replacing the ancillary services market, Noh said. The large proportion of storage used for arbitrage in California “is telling us that the ancillary services market is largely saturated” in the state, Noh added. That’s a change from 2018, when the first large storage system connected to California’s grid, and “everyone was bemoaning that storage was operating only as ancillary services, not providing greenhouse gas reduction benefits or energy arbitrage,” he said.

Now batteries increasingly “absorb excess solar or wind generation when demand is low and then discharge it later when demand is high,” according to the EIA. The change comes as storage has grown in California from 172 MW at the end of 2020 to 2,419 MW at the end of 2021.

In addition, batteries are increasingly being co-located with large solar plants because when they are charged solely or predominantly by on-site renewables, they can qualify for federal tax credits for up to 30% of the basis of the facility, said Susan Schneider, primary consultant and founder of Phoenix Consulting. Those credits also apply to storage co-located with wind generators, EIA notes.

More than 93% of the battery capacity that came online last year across the U.S. was co-located with solar power plants, EIA reported.

Price arbitrage by storage providers improves the economics of energy storage, although those reaping the tax credit must be charged by the connected solar facility, Schneider said.

“[E]xcept for emergencies or out-of-market dispatches, battery operation [in California] is almost solely based on market prices at the battery location” in CAISO’s market, Schneider said. Payments for out-of-market and emergency dispatches can be higher during those times, she added.