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Eye on the Market | November 21, 2011 J.P Morgan Topic: The quixotic search for energy solutions There’s no room to go through the complexities of the storage technologies shown below. Here are a couple of generalizations: e Less expensive options like pumped hydro and compressed air storage require favorable sites with the right geology, which are rare in nature and expensive to build from scratch (and often not located near electricity demand centers), and in the case of compressed air, require co-located gas turbines for compression e Many battery-based technologies suffer from high upfront capital or operating costs; low energy storage volumes; delayed response times; safety issues (such as zinc bromine); or short lives (limited number of recharge cycles) I had a meeting a few weeks ago which was notable for its The cost of electricity storage options optimism and enthusiasm. I met with the managers of Eos Range of levelized costs, $ perkWh Energy Storage, which is working on a zinc air battery solution $0.60 which aims to conquer all of the obstacles outlined in the second bullet point above. If the Eos projections bear out, they will offer battery storage at a capital cost of ~$160 per kWh, in the form of a 1 MW battery that is the size of a 40 foot shipping container (for 6 MWh of storage). As with the table on page 2, the concept —g9.40 of “levelized cost” synthesizes upfront costs, financing costs, useful life, fuel costs and ongoing maintenance expenses. Rather than looking projections of capital costs per kWh, levelized cost $0.30 comparisons are more useful. As shown, Eos aims to be the cheapest option that can be scaled, and flexibly and safely located where needed. Note as well that they expect to be cheaper than natural gas peaking plants. This is a relevant benchmark, since most utilities rely on natural gas peaking plants to meet daily $0.10 peak load requirements and to compensate for intermittent renewable generation of wind and solar. If storage works, the need for lots of peaking facilities could disappear. $0.50 $0.20 Pumped Hydro Sodium-Sulfur Zinc-Bromine Vanadium Redox Zinc-Air Redox Eos has a prototype of its Zinc-Air technology that has run around 2,000 cycles so far; we should all pray either for their success, or for the success of similar efforts undertaken by their competitors. Based on the outcome of energy dreams shown on p.1, we should always be skeptical of breakthrough claims, given the complexity of the challenge. Let’s hope for the best. CAES (Below ground) CAES (Above ground) Advanced Lead-Acid lron-Chromium Redox Proposed Zinc-Air Solution Gas peaking plants Source: EPRI, Electricity Energy Storage Technology Options, 2010, Eos. CAES: Compressed Air Energy Storage. Here’s another look at the financial rewards to anyone who can figure this out. Note how demands on the Texas electricity grid (ERCOT) are almost 100% inversely correlated with when the wind blows. Either ERCOT gets connected to the national grid, storage solutions are invented, or a lot of wind energy continues to be underutilized. On the right, what happens when 70% of the grid’s transmission lines, transformers and circuit breakers are 25-30 years old: rising congestion problems, signified by rising loading relief requests. Grid storage has the potential to alleviate some of this congestion. Texas electricity demand vs. actual wind output Transmission loading relief requests Megawatts Megawatts Numberof incidents, 2002-2008 70,000 7,400 90 65,000 Demand 80 Independent Coordinator of Transmission for Entergy 60,000 5,920 70 m= Midwest Independent Transmission System Operator | 55,000 go | =™PJM Interconnection (Southeast/Midwest) 50,000 4,440 50 Tennessee Valley Authority 45,008 mu Southwest Power Pool 40,000 2960 40 35,000 30 30,000 ; 1,480 920 25,000 Wind output 40 20,000 0 0 ent Bir Bait" Bean 8/5/11 8/6/11 8/7/11 8/8/11 2002 2003 2004 2005 2006 2007 2008 Source: Electric Reliability Council of Texas. Source: North American Electric Reliability Corporation. 6 HOUSE_OVERSIGHT_030819