Category Archives: SG Investment Cost

Related to the costs and benefits of SG deployments

Distributed Storage II: Power System Simulation Of The Benefits Of Distributed Storage

Final Avatar 80x80-Logo-SG-1-and-2-and-IX-LOGO-e1363114874895-150x150


Dominic Geraghty


Types of Storage Systems

Energy storage is available in the form of commercial bulk storage, e.g., CAES, pumped storage, large battery systems. It is also available as distributed energy storage (DES) systems, e.g., dispersed small batteries located at the facilities of industrial, commercial or residential energy users.  Sometimes these DES systems are operated in conjunction with distributed PV generation.

Bulk energy storage can create benefits for energy-users, utilities, regional power system operators (ISOs), and society as a whole. For example, bulk storage, operated by power system operators (ISOs, integrated utilities, transmission system operators, and distribution utilities), can reduce operating costs, defer capital expenditures, increase system reliability, and reduce price volatility. These benefits can be quantified using an integrated power system/market model.

To date, most of the studies of bulk storage conclude that the value that it provides to the system does not justify its high costs, while caveating that there may be situation-specific locations where net value is created

Benefits of Distributed and Bulk Energy Storage Systems

DSC_0184 150-x150DES can reduce customers’ electricity bills, shave peaks, reduce power system costs, increase reliability, reduce price volatility, reduce required reactive power support, and, when aggregated, provide an arbitrage opportunity in electricity markets.

Here, we present a scenario depicting the deployment of DES and present a preliminary quantification of its value, based on a detailed power system and market simulation model, and contrast this result with the preliminary quantification of the value of a bulk storage system in the same region.

Scenario Description

Location/year: ERCOT/2015

DES system:

  • Installed cost, post any incentives/subsidies: $1,600/kW
  • Amount: 120 x 2 MW systems, distributed across 60 buses

Bulk storage system:

  • Installed cost, post any incentives/subsidies: $1,250/kW
  • Amount: 100MW, located at a transmission bus

Preliminary Scenario Results

The DES system reduced peak Locational Marginal Prices (LMPs) at all 60 buses – the largest reduction at a node was $3.50/MWh. The bulk storage system produced an average LMP reduction of $1.50/MWh.

The DES system created production cost-savings to the power system (net societal benefits) of approximately $171 million for the year, with higher cost-savings occurring in the high-demand summer months. The sources of these savings were peak shaving, reduced peak hour LMPs, ancillary services, and lower consumer bills. The bulk storage system experienced insufficient arbitrage opportunities and did not provide any significant benefits to the system.

The present value of the ratio of 15-year benefits to costs was 3.02 for the DES system, and 0.28 for the bulk storage system. The internal rate of return (IRR) for both types of installations was modest: the DES system was estimated at 4.6%, and the bulk storage system, 0.78%.

The following table summarizes the main results:

System Wide Savings

Bulk Storage ($millions)

Distributed Storage ($millions)

 Production Costs Savings/Net  Societal benefit



 Changes in Producer Surplus



 Changes in Consumer Surplus



 Congestion Cost Savings



This quantification does not include the value of increased local reliability for end-use customers related to DES, or the reduction in price volatility and potential deferrals of transmission or distribution capital expenditures for both types of storage installations.

11. DSC_0118-150x150-150x150Given the very large societal benefits of DES, consideration could be given to transferring some of that benefit to further increase the incentives provided to DES systems -- the objective would be to increase the IRR for such investments until volume production presumably reduces their $/kW cost. Of course, this consideration is based on the assumption that such systems are not owned/rate-based by utilities. In order to spread the risk fairly, this incremental incentive could be structured contractually to be paid out in performance-based increments over the life of the system, instead of as an up-front reduction of the capital cost.

All of the above simulations were conducted using the UPLAN software suite of LCG Consulting, and sponsored by EPRI (unpublished, but with permission).