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Plan to Zero (#16) Another link in the value chain

Doug Houseman's picture
Visionary and innovator in the utility industry and grid modernization, Burns & McDonnell

I have a broad background in utilities and energy. I worked for Capgemini in the Energy Practice for more than 15 years. During that time I rose to the position of CTO of the 12,000 person...

  • Member since 2017
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  • Mar 9, 2023


Classic value chains diagrams have revenue producing portions of the business in boxes on the bottom of the graphic and non-revenue producing portions across the tops of those boxes (overhead). In the classic electric utility value chain is was Generation, Transmission, Distribution and Customer boxes.

When deregulation came along, some utilities only received one of these boxes, and some added Energy Trading boxes, others Retail boxes, and still others dropped a box or two.

As the transition has moved along, there is need to add a different value chain box, which has mostly been treated as overhead for the last 100 years, Storage.

In the regulated utility space, storage should be treated as its own business and the assets should earn a rate of return, similar to what a distribution substation should earn, and its rate of return needs to be evaluated on not just the capital cost of the asset, but how long before it needs to be repowered. This means in many locations a new asset class(es) that support the installation of storage and provide incentives to install, not just daily 1-6 hour storage, but those longer duration assets (40-400 hours) that most people don’t see a value for, until it is too late (e.g., Texas Feb, 2021).

In the unregulated utility space, where markets exist, the market needs to honestly evaluate the value of firming non-firm resources. In Texas in Feb 2021, if there had been a 4 giga-watts of storage by 40 hours, there would have been no reason to allow market prices to rise to $9,000 per megawatt-hour, and more importantly no reason for rolling black outs. What value would the Texas market have to put on firm resources to cause that much storage to be built? To be maintained? What new market products would ERCOT have to invent to not only get storage build but to get storage to bid into the market both to charge and to dis-charge?

Recently there has been talk of “we don’t need stationary storage, we can do it all with electric vehicles.” If all one is looking to do is provide power for 1 to 4 hours, and every day there is excess electricity during the day, this comes close to true. Where it fails is where there are several days of not enough electricity, and there are not enough unselfish electric vehicles owners. In addition there are the issues, of what is the mechanism for the vehicles to get paid. FERC-2222 helps on the getting paid portion, if the ISO’s figure out the right rules.

Storage economics is still a work in progress that needs more focus. 


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Thank Doug for the Post!
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