Grid services and value-stacking

Energy storage systems are capable of providing a wide range of system services depending on where they are interconnected and their technical characteristics.

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These services can be broadly categorized as:

  • Providing capacity services and energy shifting: System operators must ensure they have an adequate supply of generation capacity to reliably meet demand during the highest-demand periods in a given year. This peak demand is typically met with higher-cost generators which are almost exclusively used to serve peak demand, such as open cycle natural gas turbines; however, energy storage systems can also be used to ensure adequate peaking generation capacity. System operators can also improve the ability of variable renewable energy (VRE) plants to reliably contribute to peaking capacity by pairing VRE with energy storage, which can enable these resources to shift their generation to times when they are most needed. Storage systems may not need to be sited with VRE generators (known as co-location) in order to provide such benefits, and there are pros and cons to such co-location that must be carefully considered before siting storage systems.
  • Providing fast-response ancillary services: Many forms of energy storage, most notably batteries, are capable of rapidly and accurately changing their charging and discharging rates in response to external signals. By quickly changing their output, these storage resources can provide valuable ancillary services that system operators use to help balance short-term differences between demand and supply. These ancillary services are particularly important in systems with large amounts of variable renewable energy generation, as system operators must be able to respond to unexpected changes in energy supply. Currently, ancillary services are predominantly provided by conventional generators. Using cost-effective and system-appropriate energy storage projects to align supply and demand through the provision of ancillary services increases the flexibility of the power system and helps reduce both the curtailment of renewable energy resources and spinning reserve requirements from conventional resources.
  • Transmission and Distribution Upgrade Deferral: The electricity grid’s transmission and distribution infrastructure must be sized to meet peak demand, which may only occur over a few hours of the year. When anticipated growth in peak electricity demand exceeds the grid’s existing capacity, new investments are needed to upgrade equipment and expand network infrastructure. Deploying energy storage can help defer or avoid the need for new grid investments by meeting peak demand with energy stored from lower-demand periods, reducing congestion during periods of stress on network infrastructure and improving overall transmission and distribution asset utilization.
  • Black Start: When starting up, large generators need an external source of electricity to perform key functions before they can begin generating electricity for the grid. During normal system conditions, this external electricity can be provided by the grid. After a system failure, however, the grid can no longer provide this power, and generators must be started through an on-site source of electricity. On-site energy storage such as a lithium-ion battery storage system can provide this service and avoid fuel costs and emissions from conventional black-start generators. As system-wide outages are rare, on-site energy storage can provide additional services when not performing black starts.
  • Behind-the-Meter Applications: Battery storage systems that are interconnected behind-the-meter (BTM) can provide services for individual electricity consumers as well as services ‘upstream’ at the distribution- and transmission-levels. ‘Customer-facing’ services can broadly be categorized as (1) Bill savings; (2) Increased PV self-consumption; and (3) Backup power.
    • Bill savings: retail tariff elements determine how a customer is charged for electricity consumed from the grid and consequently determine the extent to which energy storage systems can help to reduce their electricity bills. Flat volumetric tariff elements that charge the same rate for energy consumption from the grid ($/kWh) regardless of when the energy is consumed provide little to no opportunity for energy storage to help customers reduce their bills. Time-of-use energy charges, which charge different rates for consumption during different parts of the day, and demand charge elements, which charge customers based on their maximum instantaneous consumption ($/kW) during a given period, offer opportunities to reduce bills with energy storage by shifting demand to different periods.
    •  Increased PV self-consumption: Production from customer-sited solar PV systems and energy demand may be poorly aligned depending on customer demand patterns. This may mean solar PV energy that exceeds customer demand is either curtailed or exported to the power system, depending on restrictions on the customer’s interconnection agreement. Depending on how solar PV exports are compensated, this may represent a lost financial opportunity for the customer. Energy storage can help customers address the mismatch between their demand and PV generation by storing excess PV energy and discharging to meet demand after PV generation has tapered off.
    •  Backup power: Energy storage, especially if combined with a generating source like solar PV or when interconnecting with multiple distributed energy resources (DER) in a micro-grid setting, can meet the energy needs of customers in the case of grid outages. This can be critical for essential infrastructure by, for example, ensuring power to an emergency shelter or hospital during a storm. Uninterrupted power can also be critical for sensitive industries that would suffer significant consequences from even brief interruptions. 

Types of Services and Timescale


 While energy storage may be technically capable of providing multiple services, there may be several barriers to fully utilizing its capability including the lack of  proper communication and control equipment, explicit regulatory barriers, and ownership and business model barriers. Pilot projects can be a good way for utilities, regulators, installers, equipment manufacturers, and customers to build familiarity with energy storage and address potential issues with its operation, ensuring that it is fully utilized to the benefit of all stakeholders in the future.

Energy storage systems can maximize their value to the grid and project developers by providing multiple system services. As some services are rarely called for or used infrequently in a given hour, designing BESS to provide multiple services can enable a higher overall battery utilization that improves project economics. This multi-use approach to energy is known as value-stacking. For example, a BESS project can help defer the need for new transmission by meeting a portion of the peak demand with stored energy during a select few hours in the year. When not meeting peak demand, that BESS can earn revenue by providing operating reserve services for the transmission system operator.

 Some system services may be mutually exclusive depending on the BESS design (e.g., a short duration storage device used to supply regulating reserves would have limited value for deferring transmission or distribution upgrades).

Even if a BESS is technically capable of providing multiple services, the additional cycling of the battery (charging and discharging) may degrade the battery and shorten its lifetime and economic viability. Finally, a BESS can only provide a limited duration of any set of services before it runs out of charge, which means batteries services must be prioritized, and the state of charge of BESS must be carefully monitored.

Reading List and Case Studies

USAID Energy Storage Decision Guide for Policymakers

National Renewable Energy Laboratory, 2021

As many countries seek to reduce their carbon emissions and increase the amount of VRE on their grids, storage provides an attractive solution to provide grid flexibility and reliability. This report is designed to arm relevant decision makers with the initial layer of information they need to understand energy storage and to make informed policy, regulatory, and investment decisions around grid-connected energy storage. While many of the case studies presented in this report are based on experiences from the U.S. and Europe, the lessons learned can be applied to power sectors in emerging economies. The report is focused on grid-connected storage, meaning storage that is connected to a centralized power system. The USAID Grid-Scale Energy Storage Technologies Primer is a useful companion resource to this report. 

USAID Grid-Scale Energy Storage Technology Primer

National Renewable Energy Laboratory, 2021

Higher penetrations of VRE can drive additional need for power system flexibility. Energy storage is one method of power system flexibility that has gained attention in recent years. This primer is intended to provide regulators and policymakers with an overview of current and emerging energy storage technologies for grid-scale electricity sector applications. This work provides an overview and compares key operating characteristics of select energy storage technologies and explores how these storage technologies may be used to improve the flexibility and reliability of power systems given their technical characteristics. The report covers various electrochemical (lithium-ion, lead-acid, flow, sodium-sulfur), chemical (hydrogen), mechanical (pumped hydro storage, compressed air energy storage, flywheels, gravity) and electrical (supercapacitors) storage mediums. The USAID Energy Storage Decision Guide for Policymakers is a useful companion resource to this report. 

The Potential for Battery Energy Storage to Provide Peaking Capacity in the United States

National Renewable Energy Laboratory, June 2019

This study examines the potential role of limited-duration battery energy storage in meeting peak demand. As battery storage costs decline, they have become important sources of peak capacity because they reduce net demand. Yet, the economic value of peak capacity storage decreases because peak demand flattens as more storage is added to the system. The paper evaluates the potential market size of peak capacity storage and its sensitivity to various mixes of solar PV and wind. The authors find that this potential strongly depends on the shape of electricity load and grid conditions. Under high penetration of renewable generation, the potential of storage to provide economic peaking capacity increases substantially: the potential for 4-hour energy storage to provide peaking capacity doubles when solar PV penetration exceeds 10%. The impact of wind, however, is unclear and requires additional research

 Behind-the-Meter Batteries: Innovation Landscape Brief

International Renewable Energy Agency, 2019

This brief provides an overview of behind-the-meter (BTM) battery storage, also referred to as small-scale battery storage, and its role in supporting the integration of variable renewable energy in the grid. The brief explains the benefits that BTM batteries can bring both to the power system and to consumers, as well as the role of BTM battery storage in microgrid and mini-grid settings.

Energy Storage in South Asia: Understanding the Role of Grid Connected Energy Storage in South Asia’s Power Sector Transformation

National Renewable Energy Laboratory, 2021

During the last decade, the cost of energy storage technologies has declined rapidly. At the same time, grid flexibility is becoming more important as renewable energy integration increases across the world. Storage technologies have the potential to provide some of this flexibility. However, uncertainties around costs and regulations remain when considering energy storage in India and other South Asia countries, including Bangladesh, Bhutan, and Nepal. This study provides a first-of-its-kind assessment of cost-effective opportunities for grid-scale energy storage deployment in South Asia. The report covers both a near and long term analysis, and discussion of energy storage drivers, potential barriers, and the role of storage in system operations. The state-of-the art modeling approach compares the value of battery storage and pumped hydro storage for 2030 and 2050, considering system operations in India, Bangladesh, Bhutan, and Nepal as a single South Asia interconnection with no institutional barriers to cross-border electricity trade (CBET). 

Policy and Regulatory Environment for Utility-Scale Energy Storage: India

National Renewable Energy Laboratory, 2021

India’s electric power system is in the midst of a dramatic shift, with both increases in demand and greater shares of renewable energy. These changes present challenges and opportunities; energy storage is a promising solution to many of these challenges and accelerate India's energy transition. Previous energy storage analyses in India have focused on the bulk power system, including ancillary services, energy arbitrage, and transmission network support. This report applies an Energy Storage Readiness Assessment (see more here) developed by NREL for policymakers and regulators to identify policy and program priorities to enable storage deployment. This assessment uses a simple evaluation scheme to identify the barriers and opportunities for utility-scale energy storage within India’s policy and regulatory environment.


 Rulemaking 15-03-011: Decision on Multiple-Use Application Issues 

 Public Utilities Commission of the State of California, January 2018

Battery storage systems can maximize their value to the grid and to project developers by providing multiple services. This multi-use approach to BESS is known as value-stacking. California regulators developed 12 rules dictating battery behavior around value-stacking to ensure that for battery projects, the most cost-effective combinations of services are selected without negatively impacting the reliability of the grid. Among other considerations, these rules ensure batteries:

  • Cannot contract for additional services that might interfere with obligations to provide reliability services
  • Meet all performance and availability requirements for the services they provide
  • Inform the utility of services it currently provides or intends to provide.

 AB-2514 Energy storage systems

 Public Utilities Commission of the State of California, September 2010

California established a target of 1.325 GW of energy storage by 2020 for its various investor-owned utilities. Key details included:

  • Specific biennial procurement requirements for each utility. As of June 2018, California’s three main investor-owned utilities — Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric achieved 40%, 70% and 95% of their goals for a combined 1.325 GW of battery energy storage, respectively.
  • Value-stacking of energy storage is allowed. That is, energy storage could be used in multiple applications in capacity, ancillary, and peak shaving services.
  • Utilities’ ownership of storage may not exceed 50%.
  • Large scale pumped hydro storage may not be used to meet requirement.

 Stafford Hill Microgrid, Green Mountain Power, VT, USA

Sandia National Laboratories, 2017

In 2015, the U.S. utility Green Mountain Power (GMP) commissioned a 4 MW/3.4 MWh energy storage system in combination with a 2.5 MW solar PV installation. The energy storage system is a combination of 2 MW lithium-ion and 2 MW lead-acid batteries. The Stafford Hill project is primarily designed to provide backup power to an emergency response center in case of outages caused by severe winter storms or hurricanes. Outside of emergencies, the project provides a suite of services including peak shaving to GMP, frequency regulation to the wholesale market, energy arbitrage, and transmission investment deferral. The project saved the utility over $200,000 in demand charges in a single hour in 2016 and is expected to have an 8 to 10-year payback period.

 AGL Virtual Power Plant, Adelaide, South Australia

Australian Renewable Energy Agency, 2017

The South Australian electricity market is experiencing high rates of conventional synchronous generator retirements concurrently with increasing variable renewable energy (VRE) generation — in particular, distributed generation. In 2017, the utility AGL in South Australia began a pilot project targeting 1,000 DPV-plus-storage systems able to operate as a 5MW solar PV system, with an expected storage capability greater than 9MWh. This virtual power plant (VPP) pilot aimed to improve AGL’s understanding of the potential of using distributed energy resources to provide bulk power system services while also providing value to customers. At the end of 2018, the target of 1,000 installations had been achieved. The VPP is centrally controlled by AGL and uses algorithms to coordinate charging and discharging to ensure that the VPP has energy to both smooth the output from VRE generation and defer expensive upgrades to network infrastructure by flattening demand and providing services to customers.

 Example interventions:

  1. Address revenue compensation mechanisms and market shortcomings for the services offered by energy storage resources. These can include:
  2. Explicitly allowing storage systems to provide system services
  3. Ensuring that the unique technical characteristics of storage (e.g., fast response time, ability to act as both a load and supply source) are properly compensated
  4. Removing barriers to value-stacking.
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