US energy storage industry sees data centre load growth as bridge to low-carbon energy transition

It survived with the existing mid-2030s phaseout timeline for ITCs for downstream projects and production tax credits (PTCs) for manufacturing intact, albeit with some significant modifications.

These changes will see anyone receiving material assistance over a certain threshold from Chinese companies deemed foreign entities of concern (FEOC), including equipment supply, long-term operations and maintenance (O&M) and investment, ineligible for the tax credits.

Make no mistake, that is a significant challenge for an industry that presently relies heavily on Chinese technology and manufacturing scale, as has already been said elsewhere many times.

Nonetheless, the treatment accorded to energy storage and other low-carbon technologies deemed ‘dispatchable’ by the government, such as geothermal and nuclear, is vastly different from that given to variable renewable energy (VRE) sources.

Unprecedented load growth and ‘intense power fluctuations’

Previously, we heard that a likely reason for the US administration’s more favourable treatment of energy storage stems from its focus on grid and energy supply reliability, according to BloombergNEF energy storage market analyst Isshu Kikuma.

Speaking just after the OBBBA was passed this summer, Kikuma said that while a transition away from fossil fuels is clearly no longer a priority for the US government, meeting growth in demand for electric capacity is, and energy storage is a quick and cost-effective pathway to achieve that.

“Some of the projections about load for data centre builds are just eye-watering in terms of the amount of capacity [to be] added to the grid even if there’s a small percentage of what’s announced and what’s potential out there [built],” says Jason Abiecunas, business development manager at battery energy storage system (BESS) integrator FlexGen.

His company recently partnered with the electrical contractor Rosendin’s data centre development arm, co-creating battery-integrated power solutions tailored to hyperscaler requirements.

“There is the potential that the data centre market is one of our larger market segments. It’s a significant driver of economic growth. It’s a significant driver of the next major wave of industrialisation. We see it as enduring, and we see it as significant.”

Whereas in the pre-AI past, data centres might have been considered additions of fairly stable demand, requiring just land, cheap energy and cooling, the hyperscale facilities being built today create energy fluctuations “unlike anything we’ve seen in cloud data centres previously”, Abiecunas says.

This requires a rethink in how data centres are designed and operated, and Abiecunas says that battery storage solves four key problems.

“It’s a faster time to interconnect, by thinking about the interconnection as flexible rather than static at the max load for the data centre. It’s a lower cost of power, which is the largest operating cost for data centres. It’s a more reliable cut-off by rethinking the UPS [uninterruptable power supply] structure for the data centre, and it’s managing power quality from those intense power fluctuations in the data centre.”

Brian Hayes, CEO of BESS developer-owner-operator Key Capture Energy (KCE), says that data centres are the most significant driver of tailwinds for the industry, based on load growth from artificial intelligence (AI) computing data centres.

Hayes says it’s the first time in his career that he has seen load growth on the US grid. For KCE, which has its bulk of operating projects in Texas and a handful in New York to date, it is also a driver to bring energy storage at scale to new US wholesale market and transmission territories.

MISO, the Midcontinent Independent System Operator, which operates the transmission network in 15 US states spanning the Midwest and South, as well as Manitoba in Canada, is a prime example.

Whereas other TSO regions such as CAISO in California and ERCOT in Texas have become major adopters of energy storage because they are major adopters of renewables, MISO’s energy storage adoption will likely be hastened by data centre loads, the CEO says.

“The data centres are coming to that area of the country. As a result, they’re figuring out that storage is a good way to shorten the time to power. Early on, they weren’t quite seeing how storage would fit,” Hayes says.

“Now they’re seeing storage has a tremendous benefit on the capacity side. It’s helping energy storage get more attention from the data centres and from the utilities that are trying to serve the data centres.”

According to the KCE CEO, the OBBBA’s passing didn’t affect customer interest in MISO-connected states like Michigan, Illinois and Indiana.

The tricky part is figuring out where those data centres are going to be built and, therefore, deploying storage nearby to meet that load, Hayes says. Nonetheless, data centres will create demand for clean electrification, with or without supportive policies in place.

Economics can align with mission-driven motivation

For an industry that has long been considered a part of the renewable energy family tree, to the extent that energy storage is sometimes itself (perhaps incorrectly) referred to as a renewable energy resource, policy support for the transition away from fossil fuels has been replaced by a narrowed focus on three things.

To take the administration’s words at face value and disregard the obvious bias against solar PV and wind, these are: energy resiliency, adding capacity quickly and buying domestic.

As many of the sources we spoke to at RE+ pointed out, solar and batteries are the fastest to deploy and cheapest combination of resources available to achieve those aims.

“I look at the world as an economist. We’ve passed the point where renewable technologies have shown that they’re economic with other technologies. That wasn’t true a few years ago,” says John Zahurancik, Americas president at BESS integrator and renewable energy software company Fluence.

“Storage is also economically driven. Everywhere we put storage in, it makes the system more efficient because we don’t have to overbuild as much. We don’t have to use as much. It ends up being an efficiency gain, and an efficiency gain means lower prices, and it means less emissions.”

A lack of explicit climate and decarbonisation goals doesn’t necessarily mean an energy transition to cleaner sources won’t take place anyway. In other words, Zahurancik argues that whether you think emissions are good, bad or even fictional, why produce them if you don’t need to?

“Whether you like AI or you don’t like AI, it’s driving demand. The world is going to a new level, where computing is producing more of the goods. Computing needs power. However we do that, I don’t think that genie is going back in the bottle,” he says.

“Then I would say: well, why not have the least cost, most reliable, least emissions and actual power system? That just makes sense to me, and storage does that.”

Luke Witmer, head of software engineering at Wärtsilä, agrees. His personal view is also that the economics will win out in the long-term in favour of energy transition, regardless of policy.

“Renewables continue to be dirt cheap. You can slap massive tariffs on them, and there will still be growth in the renewable sector.Is it a headwind? Is it a tricky puzzle? We have to figure out our manufacturing supply chains [that are] shifting because of it, yes,” Witmer says.

“Does that mean that we’re going to stop installing renewables? I don’t think so, because no matter what the political administration perspective is, we all care about money.”

“Electricity rates in the US are rising, and that is a problem for the current administration, and it is a problem for any administration. It doesn’t matter which administration’s fault it was. It is a fact that it’s happening, and it needs to be addressed.

Interconnection and integration paradigms must evolve, too

Of course, delivering that capacity to the grid in a timely fashion requires grid interconnections. Everyone is aware of how congested those queues have become.

The irony, Chris McKissack, CEO of developer Fullmark Energy tells us, is that the rush of excitement around data centres has exposed a major inconsistency in the approach of transmission operators and utilities.

“For years and years and years, you get this open access transmission tariff and utilities telling you how long and how difficult and how expensive it is to connect to the grid,” he says.

“Then, all of a sudden you have large data centres showing up, asking for effectively the same connection. Lo and behold, they can move fast and cheap.”

Those gatekeepers of the grid will have to realise, the developer says, that you can’t have one without the other.

“You can’t add these high single-digit percentages of load to the grid without adding generation, or without decreasing your reliability and resiliency on the grid. Utilities are going to have to find a way to use the mindset that they’re using to connect the data centres to speed up connections for generators.”

Beyond connection lies integration. Wärtsilä’s Luke Witmer points out, grid interconnection queues around the US are 90%-plus wind, solar and batteries, and where that buildout goes, curtailment and negative pricing follows.

This takes him from his personal viewpoint onto a favoured topic of his team at Wärtsilä: grid-forming battery storage, the final frontier to replacing a key role played for a hundred years by thermal generation.

“As we install more renewables, curtailment is just exploding. When there’s free and even negative-valued energy available on the grid, and gas plants running at 50% loading for the pure reason of creating a voltage to have a grid, you need to enable your existing battery fleet with grid-forming technology,” he says.

“You can actually turn off that gas plant; instead of running at 50% at a very inefficient, bad emissions loading level, you instead shut it off for those portions of time. It’s not like they’re off all the time. They’re off during the day, when the sun’s shining and at night you still rely on gas for the next decade-plus, easily, but you end up in a place where you’re running the grid without the thermal generation.”