Reverse Auctions May Become the Key to Energy Storage Rollout, EDF says

April 25, 2019
Will reverse auctions emerge as a way to drive down costs as electric grids incorporate more renewables and energy storage?

When Xcel Energy conducted a reverse auction in 2018 to help build out its energy storage systems, it received hundreds of bids. It’s all about integrating energy storage into its wind and solar energy networks to increase reliability. 

In a traditional auction, the seller does business with the highest bidder. But in a reverse auction, the buyer will go with the low-cost bidder. And that model has had success in the energy storage market.

“Reverse auctions offer a transparent and cost effective approach for procuring goods and services,” says Maureen Lackner, a policy analyst with the Environmental Defense Fund, in an interview. “These features have made it a popular tool applied to a diverse set of needs, including fulfilling road salt contracts in Pennsylvania and purchasing ethyl alcohol for University of California research centers.”

She adds: “With regards to renewable energy, reverse auctions have also gained traction. It is expected that nearly half of global renewable energy capacity between 2017-22 will come from competitive auctions.”

In the case of Xcel, the median price was $21/MWh for wind plus storage and $36/MWh for solar plus storage. The solar-plus-storage bid fell by 20% from one year to the next. Altogether, energy storage prices have dropped by 74% since 2013, says analytics firm Lazard, although it depends on the application. It expects such prices to fall by 8% a year through 2025.

Ambitious goals open way for reverse auctions

Hawaii Electric has had similar success. The utility may have too much solar and it has to curtail it during times when energy usage is less. Battery storage allows it to harness those electrons and to discharge those devices during peak periods — for four hours at a time, instead of having to run a fossil plant. The power company currently has proposals for seven grid-scale solar-plus-storage projects totaling 262 MW with 1,048 MWh of storage.

“We believe strongly that the renewable energy transformation should benefit everyone and these seven projects will help stabilize customer costs while reducing our reliance on imported fossil fuel and cutting greenhouse gas emissions,” says Shelee Kimura, Hawaiian Electric senior vice president of business development and strategic planning.

The trend will only accelerate. California, Hawaii and New Mexico set goals to use 100% clean energy. Other states are eying similar goals: Colorado, Illinois, New York, Maine and Michigan. And private companies such as Tesla are feeding their demand.

Tesla’s plan

Tesla’s 2019 Impact Report says that utilities and grid operators are benefiting from battery storage and microgrids more than at any time in the past. It’s overall goal, the company says, “stops relying on fossil fuels and moves towards a zero-emissions future.”

To that end, Tesla says that solar and energy storage systems provide clean power but that they also improve reliable and resilience of the electric grid, especially if they work in concert with a microgrid. If an outage occurs, the system will immediately kick into gear and provide electricity.

It’s so-called Powerwall technology allows Tesla and the utilities to use their battery when energy demand is peaking, which alleviates stress on the grid and gives customers better prices.

The future of battery storage is bright. EDF says that two-thirds renewables electricity mix in the United States may require as much as 10,000 GWh of energy storage – enough to run the entire grid for 10 hours at full capacity.

“With a growing number of states now implementing plans to reach 100% clean energy and directives like the recent FERC Order 841 facilitating storage participation in new markets, we will likely see many more reverse auctions for both storage and renewables here and overseas,” says EDF’s Lackner.

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About the Author

Ken Silverstein

Since the late 1990s, I've covered energy, beginning with the rise and fall of Enron -- first as a magazine writer before becoming a columnist. For more than seven years, I've been a columnist for Forbes while also expanding my coverage to include key environmental issues and emerging technologies such as microgrids. I've also done some global reporting of those same issues that touch the African and Asian regions. My work has appeared in, and by cited by, dozens of publications and broadcasts.

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