Recent Heatwaves Prove Energy Grid Storage Matters

by David Fessler, Investment U Senior Analyst

Friday, July 29, 2011

Home Depot and Lowe’s sold out of room air conditioners this past week. So did Walmart, Sears and just about every other store that carried them.

The heat wave that fried folks living in over 30 states sent them flying off the shelves. As a result of the nation’s record temperatures, many electric utilities set records of their own.

As you can see from the graph below, courtesy of the Energy Information Administration (EIA), three of the regional transmission organizations (RTOs) set daily power production records during the second half of last week.

Peak Hourly Power Demand

The Midwest Independent System Operator (MISO), the PJM Interconnection (PJM) and the ISO New England (ISO-NE) all set new records. The New York Independent System Operator (NYISO) just missed a new record, but only by 74 megawatts.

Peak demand rolled across the United States last week, scorching the Midwest last Wednesday, hitting the Mid-Atlantic region Thursday and slamming New York and New England on Friday.

Peak Demand is the Real Problem

It’s this peak demand that’s the real problem for any utility. When the weather gets too hot or too cold, more power has to be supplied to the grid to meet the increased demand.

Since this power has to be brought online quickly and isn’t needed for very long, it costs utilities dearly to produce it or purchase it from another utility that can supply it.

Utilities price peak power using what’s called day-ahead rates. These are based largely on the weather forecast in any given region, and utilities forecast their demand based on very accurate regional temperatures and other weather-related factors.

As you can see from the EIA graph below, the mid-afternoon day-ahead hourly price for peak power jumped from $100 per megawatt-hour (MWh) on Monday to nearly $350 per MWh by the end of the week.

Hourly Day-Ahead Power Prices

The highest prices were recorded in parts of the Northeast, where there’s less excess generation capacity than other parts of the country.

Looking at the graph above, you can begin to appreciate how much money power companies could save over the long haul if they had the ability to store power and instantaneously provide it during peak load times.

Grid Storage to the Rescue

That’s where grid storage comes in. Grid storage is the new hot sector… Whether we’re talking:

  • Pumped hydro storage
  • Compressed air energy storage
  • Sodium-sulphur
  • Advanced lithium-ion
  • Advanced flow batteries

In a new report entitled Energy Storage on the Grid (ESG) from Pike Research, you can see just how hot it will be. Pike is predicting the ESG market will grow to $22 billion annually in just the next 10 years. That’s up from less than $1 billion today.

Energy Grid Storage Technology

As you can see from the above chart from Pike, that’s pretty heady growth in all of the above-mentioned technologies.

Right now, there are a few public companies directly focused on energy grid storage. At this point, most are battery companies like A123 Systems, Inc. (Nasdaq: AONE), Ener1, Inc. (Nasdaq: HEV) and EnerSys (NYSE: ENS).

Of the three, EnerSys is the largest and most diversified, and sells to over 10,000 customers in over 100 countries. Grid storage represents a small but growing segment of its business.

A123 Systems and Ener1 are both struggling in today’s anemic business environment. Time will tell if they’ll ultimately survive, as they’re narrowly focused on lithium-ion energy storage. That segment of the ESG market won’t really start to take off for another year or two.

Another technology for grid storage not shown in the graph above from Pike is flywheel storage. Beacon Power Corporation (Nasdaq: BCON) is a company still more or less in the development stages of this product.

It develops flywheel-based energy storage systems. It recently deployed its first such system, a 20 MW system in New York. This could ultimately be a viable technology, especially for short-term peak power requirements.

Investors who want exposure to what promises to be a rapidly growing energy-related sector should consider an investment in energy grid storage companies.

Good investing,

David Fessler