NREL: Industry Proves To Be a Promising Prospect for Future Grid Flexibility
As the share of renewable electricity generation grows, it is clear that future power systems will need to be highly flexible to smooth out the variability of wind and solar generation.
Industrial manufacturing consumes one-third of energy in the United States and worldwide, and it could help ensure electricity supply-demand balance by contributing to demand flexibility. Potential decarbonization of industry through electrification could massively increase the electric load—making it even more important as a grid flexibility option.
In a new study, analysts at the Joint Institute for Strategic Energy (JISEA) examined four energy-intensive industries with and without paired energy storage over several years to identify under which circumstances providing grid services might profitable. The study was done in partnership with the National Renewable Energy Laboratory (NREL) and funded and supported by GE Energy Consulting.
The team studied chlor-alkali and electric arc furnaces, which are established electricity-intensive industries, and methane pyrolysis and direct air capture, which are emerging industries with electrification potential. Across the industries, the JISEA/NREL analysts found that with large behind-the-meter batteries, demand flexibility is a profitable strategy.
“We calculated the net present value for a range of battery sizes at each industry,” said Mark Ruth, co-author of the technical report, Opportunities for Industry to Provide Grid Flexibility While Increasing Profitability. “We found in certain scenarios the net present value of demand response could be in the tens of millions of dollars per industrial facility by 2050, reaching up to $45 million.”
Industrial processes can provide grid flexibility through demand response or by ramping down industrial load and production intensity based on grid demand or capacity prices.
Industry typically does not participate in demand response because of operational, financial, regulatory, and knowledge barriers, as well as a temporal mismatch between operating and energy purchase decisions. Established high-capital industries have difficulty adjusting their electricity demand and are typically operated around the clock to maximize the capacity of the fixed capital asset.
Batteries Could Transform Industrial Demand Response
Industries could support demand flexibility through on-site energy storage, which allows for electricity price arbitrage—purchasing and storing electricity at low-cost hours and using it to power loads when electricity prices are high, while maintaining industrial production at full capacity.
Siting the batteries on-site behind the meter rather than elsewhere on the power system presents several key benefits to the industrial customer. For example, key existing assets such as substation equipment and the land itself can serve both the plant and battery when sited on-site.
Scenario modeling results indicate that the industrial plants must have on-site battery storage (and battery prices must continue to decline) for flexible industrial loads to be profitable.
The net present value across the four industries increases significantly with 2050 medium and low battery cost projections compared with present day battery prices. Battery prices less than $110–$130 per kilowatt-hour and up to $250 per kilowatt-hour are profitable across all industries analyzed, and most industries are able to profit at battery prices as high as $150 per kilowatt-hour installed.
Net Present Value in Millions of Dollars Across Years and Battery Costs
Industry 2019 2050 High 2050 Medium 2050 Low
Chlor-alkali -$1.9 -$0.5 $2.6 $17.5
Electric arc furnaces -$4.0 >-$0.8 $11.6 $45.2
Methane pyrolysis -$0.04 $0.0 $0.1 $0.4
Direct air capture -$8.1 -$2.4 -$0.5 $35.6
The JISEA/NREL analysis suggests that if battery prices continue to fall along the learning curve of the last decade, and electricity rate structures become more dynamic (e.g., time of use rates), behind-the-meter batteries for industrial customers could become profitable long before 2050.
The upfront battery investment cost has a payback period of 8–10 years across the industries. All industries see an electricity cost savings of around 47% when using optimally sized batteries, which also increases the profit margins.
“Overall, we find there is a tremendous opportunity for industry to profitably provide grid flexibility,” said David Garfield, JISEA/NREL analyst and co-author of the paper. “With large-scale batteries, industry could help reduce the total amount of renewable capacity that needs to be built, reduce grid congestion, and provide quick ramping and reserve capacity to support the grid as more renewables are added.