Why Cheap Natural Gas Is Thwarting the Battery and Energy Storage Revolution

One of the major energy stories of 2015 has been the growing momentum of the so-called “energy storage” business, which burst into public view earlier this year when Tesla Motors announced a home battery product. Storage, whether through batteries or other technologies, has often been termed a game changer — if you can save energy and use it at a later time, then you can also use solar energy at night, wind energy when it’s not windy, and much more.

But if new research is correct, the installation of energy storage in the United States, especially at the scale of the electricity grid, might already be much further along if not for one major countervailing economic factor.  The problem is that energy storage competes quite directly in many cases with natural gas, and in recent years, natural gas prices have been quite low. That’s been thwarting storage adoptions even though, in the long run, and especially from an environmental perspective, more storage would be a desirable option.

Such is the result of a new study just out in Energy Policy by Eric Hittinger of the Rochester Institute of Technology and Roger Lueken of the Brattle Group.  “Since 2008,the energy storage industry has faced an unfortunate trend:  as the new storage technologies have become ready for the market and the more mature technologies have lowered their costs, the decreasing cost of natural gas has been reducing the potential revenue of energy storage,” the authors conclude.

Indeed, if you take the logic one step further, what this means is that the so-called “fracking” revolution, which has given us plentiful and affordable natural gas, may have thwarted a very different revolution — in energy storage.

“Hydrofracking has resulted in cheap natural gas, and that cheap natural gas has really stunted the growth of the storage industry, and really set it back a couple of years,” said Hittinger.

There’s no doubt that natural gas prices have dropped markedly.  According to the U.S. Energy Information Administration, monthly prices for natural gas-fired electricity plunged in 2008 from a peak of over $12.41 per thousand cubic feet all the way to $6.90 by the end of the year.  And since then, they have often been below $5 per thousand cubic feet.

That’s quite cheap — and low gas prices make a bigger difference when it comes to natural gas generation than when it comes to other forms of electricity, said Hittinger.  “If you look at the costs of natural gas electricity, more than half of the cost is directly due to the fuel,” he said.  “The capital costs for the plants are pretty cheap, and the fuel cost is what matters.”

But why would natural gas compete so directly against energy storage in the context of complex electricity markets?  It may sound surprising, but the research found at least two ways in which they’re in competition.

One of those is “frequency regulation” — in which small amounts of power are fed into grid on a second-by-second basis to help bridge the gap between supply and demand — and the other is “arbitrage.”  This refers to the ability to store energy at a time when it’s cheap, and then unleash it when it’s expensive because demand is higher — for instance, later in the day.

Both of these are potentially profitable applications of storage, but as the research suggests, both roles can also be in effect fulfilled by natural gas plants, because they’re quite fast at kicking into gear when needed.  “Because it’s burned in a turbine, it’s like a jet engine,” said Hittinger.  “So just like a jet engine you can turn it on and off, and ramp it up and down pretty quickly.”

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