What Is a Battery Energy Storage System and How Does It Work?

Why Do We Need Battery Energy Storage Systems? 

As the US aims to use more renewable energy, battery energy storage systems are increasingly critical. Without energy storage, the grid has to produce power at the exact same time that consumers demand it. 

However, renewable energy generation sources are intermittent, which means that they rely on uncontrollable environmental factors to function. Wind and solar power can only generate power when the sun is shining or the wind is blowing, meaning some days they produce too little energy, and on extremely sunny or windy days renewable energy sources can even produce more power than needed. While this may seem like a good thing, the power grid must balance energy supply and demand, and excess power can jeopardize the grid’s stability. 

Battery energy storage systems lend stability to the grid while using more renewable resources.  

Energy storage also allows operators to store power when it’s cheaper and release it when prices are higher. 

What Are Alternatives to Battery Energy Storage Systems? 

Grid-scale battery energy storage systems aren’t the only method for storing energy, nor are they the most common in the US. Pumped storage hydropower, or pumped storage, is a highly effective form of storing energy and accounts for 93% of all grid-scale energy storage in the US. The International Hydropower Association figures that pumped storage projects globally store up to 9,000 gigawatt hours of electricity. However, hydro-storage needs certain geographical factors, such as a higher and lower reservoir, to function, and it can be harder to scale than battery storage. 

The US currently has more than 400 batteries with a power capacity of 8,842 MW, compared to 22,008 MW of power capacity for pumped-storage hydro.

Texas and California lead the way on grid-scale battery energy storage systems. 

How Do Battery Energy Storage Systems Work? 

First, let’s define a few terms. 

• Rated power is the maximum amount of power the battery can discharge at any given time, measured in megawatts. 
• Duration is how long the battery can discharge at full power. 
• Energy capacity is measured in megawatt hours. 

For example, if a battery has a rated power of 10 megawatts and an energy capacity of 20 megawatt hours, that means that it can discharge at full power for two hours. 

It’s essential to know exactly when to discharge the battery though. Battery operators use software with algorithms to coordinate energy production and computerized control systems to choose when to store or discharge energy to the grid. They rely on power market data from vendors like Yes Energy to better understand market drivers for energy load, supply, and congestion, as well as algorithms to coordinate energy production and computerized control systems to choose when to store or discharge energy to the grid. 

This allows operators to increase grid reliability and to make money by storing energy when it’s less expensive and releasing it when it’s more expensive. This is called arbitrage.  

What's Ahead for Battery Energy Storage System Capacity?

More than $5 billion was invested in battery energy storage systems in 2022, according to a recent analysis — almost three times the investment from the previous year. 

This is partly needed because more solar and wind projects are planned, especially in California and Texas. For example, Texas has 37.2 GW of wind capacity, more than any other state, and developers expect to add an additional 5.3 GW by 2025.

The Inflation Reduction Act also helped incentivize building more battery energy storage system capacity.

As more battery projects come online, they’re also increasingly larger. In 2020, the largest US battery storage project was 40 MW. Now, located in California, the world’s largest battery energy storage system is lithium-ion, with a total capacity of 750 MW/3,000 MWh.  

How Do Companies Earn Revenue with Battery Energy Storage Systems? 

To earn revenue with battery energy storage, you need to charge the battery when prices are low and discharge it when prices are high. This means you need consistent volatility in prices. 

Ideally, battery asset developers need a site that has a daily price swing, creating an area of opportunity. When siting, it’s also important to know what types of volatility metrics to use and the market factors driving that pricing.

Conclusion

Grid-scale battery energy storage systems are becoming less expensive and increasingly essential as power grid operators look to increase the reliability of the grid and to employ more renewable energy. In the past two years especially, battery energy storage system use has spiked in the US. This trend is projected to only grow as these systems become more critical as the world tries to meet climate goals and as they become more economical. 

Operators looking to site or manage a battery can use Yes Energy’s solutions to determine how to do it optimally. We broke down how asset developers can site a battery at an ideal location using Yes Energy tools. Download the white paper to see how.