Determinants of the value of storage technologies for wind and solar energy

Wind and solar electricity generation installations have each grown by an average of 30% over the past thirty years while seeing rapid reductions in costs. Additional installations, for example to meet countries’ Paris... [ view full abstract ]

Wind and solar electricity generation installations have each grown by an average of 30% over the past thirty years while seeing rapid reductions in costs. Additional installations, for example to meet countries’ Paris climate pledges, may have the effect of further reducing costs through a "virtuous cycle" of technology development and emissions reductions. Current installation levels are still small, however, relative to total global demand, and may be limited in future by the intermittency of the renewable resource. To reliably and optimally operate wind and solar power plants requires energy storage. But given the wide range of storage technology options, which ones perform best and what features of the electricity market determine this?

Much of the current literature analyzing energy storage systems focuses on either comparing specific technologies along a vector of attributes or analyzing one or two storage technologies for a specific project. We develop a general analysis tool for comparing storage technologies based on the value they provide to wind and solar energy. Our research is designed to inform technology development.

We optimize the operation of storage to maximize revenue given storage power and energy capacity constraints. We then compare storage technologies based on the benefit-cost ratio of the optimally sized storage system, given capacity costs, for a range of wind and solar generation costs. We find that storage at today's prices can provide value in many locations, but that as the cost of wind and solar energy generation declines, the installed cost of storage must keep pace to continue to provide value. These results account for demand-pull policy incentives, such as the U.S. federal investment tax credit. Participation in additional markets, such as forward capacity markets, provide an opportunity for storage to further increase the value of wind and solar energy by enabling access to additional revenue streams.

We find that the distribution of the frequency and amplitude of electricity price spikes are key determinants of the value of storage. Similarities in the distribution of the duration of price spikes results in a locational-invariance in the relative value among the diverse storage technologies. The optimal operation of storage requires perfect-foresight of resource availability and electricity prices. We find however, that even absent perfect-foresight, decision rules for storage operation can be effective. This research aims to inform policy-makers, investors, and researchers by determining directions for optimal technological improvement to maximize the value of storage.