Sideways move into ‘volatile’ frequency regulation market is ‘natural fit’ for RES Ameri

Large-scale battery projects of the type announced earlier this month by Renewable Energy Systems (RES) America are a “natural fit” for renewable energy developers, according to one analyst.

Dean Frankel of Lux Research told PV Tech Storage that the move to construct a 19.8MW project by RES America in Chicago, which will see two 7.8MW lithium-ion batteries installed to supply ancillary services to the PJM service area, would fit well with RES America’s background in developing renewable energy.

“It’s a pretty natural fit. They are project developers and operators, so once they have an idea of what the marketplace is and understand how you can really go out and develop a project and make contacts and work with suppliers, it’s a natural fit to go into the energy storage space.”

PJM Interconnection is a regional transmission organisation which forms part of the USA’s Eastern interconnection grid network. It serves all or part of a number of US states, including Illinois, Kentucky, New Jersey and North Carolina, as well as the District of Columbia. In total PJM serves 61 million people.

At present, PJM offers the world’s largest competitive wholesale electricity market, offering energy storage operators the chance to bid hourly to provide electrical capacity to the network for frequency regulation, which matches generation and load to keep the grid operating at optimum frequency to avoid power outages and other problems.

As RES America put it; “The frequency regulation service balances the second to second variations in load and generation by absorbing excess energy during moments of over-generation and releasing energy during periods of under-generation to maintain power quality.”

According to Dean Frankel, PJM’s is thought to be the market for ancillary services providing the most robust pricing in the US. Companies bid on an hour-by-hour basis to respond to a signal from the grid, with the market known as ‘pay-for-performance’ within the industry. According to a recent presentation at a UK event on storage by PJM executive vice president of operations Mike Kormos, as of January 2014 PJM’s network had on it 81MW of grid-scale batteries.

The future of the PJM frequency regulation market is a tough one to call, says Dean Frankel. Image: flickr User: mikael altemark.
Into this market, RES America will sell electricity from its new lithium iron phosphate systems, named Jake and Elwood, after the lead characters from the popular 1980s comedy film The Blues Brothers. Expected to operate for at least 10 years, according to RES America, the systems will begin construction this winter and are scheduled for completion in August 2015. RES bought the projects from developer Glidepath in September 2014.

Batteries will be provided by RES America’s partnership with the US subsidiary of Chinese company BYD. The project garnered some press attention recently due to high profile US investor Warren Buffet holding an interest of just under 10% in BYD, with Buffet also recently acquiring consumer battery giant Duracell for US$4.7 billion. Dean Frankel dismissed that media angle as something of a red herring.

“I don’t make much of that to tell you the truth. For BYD, batteries may be big business but they [also] make a lot of other stuff, vehicles, they’re one of the leading Chinese manufacturers,” he said.

“I have confidence that they’re not the lowest cost provider, they’re selling product. They’re in it for the long haul and the quality will hold up and I think Warren Buffet’s stamp of approval in some regards buttresses that point but it’s not really a major point. People talk about BYD as Buffet’s Chinese investment but I don’t really think that much of it.”

PJM is thought to offer the most robust pricing for frequency regulation in the US. Image: PJM Interconnection.
Frankel also poured scepticism on a claim by RES America that Jake and Elwood will be the largest storage projects in North America when completed and cited a number of other projects of similar or larger scale. Frankel said that while BYD and RES America’s systems were well suited to frequency regulation, a more pressing concern in his view was the possibility of the PJM frequency regulation market becoming “saturated” with battery systems and said that the short term nature of requests to ramp up or take down capacity made for volatile pricing.

“The bigger question for me is, will the frequency regulation market become saturated for batteries, will the prices remain lucrative, will they openly be able to return on their investment, they don’t really seem, pretty much are doing this unsubsidised, so it is in that regard promising, because this is a market based way to put batteries on the grid and it is just another developer out there who’s making a bet on batteries which is certainly good for the space as a whole.”

Frankel explained some of the factors influencing the volatility that he said existed in the PJM frequency regulation market and said it would be a question of waiting and seeing how the market played out.

“At the end of the day, it’s a little bit tough to forecast what’s going to happen with the frequency regulation marketplace. It’s a little bit volatile. For example the polar vortex was extremely lucrative for frequency regulation because the cold plunged the US and the eastern region experienced, affected the need for accepting and rejecting of power. That week alone, some systems made their, almost their entire projected revenue for the year, whereas on average you may see prices in the US$30 to US$50 per kW per hour delivered. So, on an average basis, this market is not the most attractive, but when you have frequency events and you need these services, the price can spike significantly and so, in a very very short window of time you have the opportunity to make your money for the year.”