Monday, October 4, 2010

Eco-nomics: Energy Storage and Knowledge Spillovers

From the NY Times' Green Blog, I learn about California's new mandate that will require energy companies to have storage capacity as well. The storage problem, due to the fact that some renewable energy sources like wind and solar are intermittent, is one that fascinates me and lots of interesting ideas have been proposed from using residential water heaters and plug-in car batteries to to massive spinning wheels in a vacuum that will store energy by converting it to kinetic energy.

But California thinks that the private incentives to invest in storage technology development aren't enough.

A potential remedy [to the storage problem] was just signed into law by Gov. Arnold Schwarzenegger of California, whose governorship has long had a greenish tinge. The state will now require utilities (first, investor-owned utilities, and later, publicly owned ones) to have storage capacity on hand that can quickly be put into use when the wind dies down.

As a technological and engineering concept, energy storage is as old as the concept of having two reservoirs at different altitudes (more about this in a minute) and as new as the lithium-ion battery. Like California’s renewable energy mandates, the requirement is meant to jump-start new battery and storage technologies by guaranteeing them a broader market.

Of course, it’s hard to imagine that battery designers need any more incentives, given the hunger of car manufacturers for a light, cheap, powerful battery that could take a car 300 miles on a single charge. But storage on the scale of power plants does present a different set of challenges.

So why might the private sector not have enough incentive to do this themselves? One reason might be due to R&D spillovers: the fact that one companies research can be quickly appropriated by other economic actors that do not pay for it. Thus the potential benefit of R&D by a single company is curtailed and thus so is the money thy put into it.  This is a common theme in R&D in general and the main reason that governments, like ours, do a lot of funding for basic research.  I don't know if this is a problem in this case but clearly Schwarzenegger does.

Oh and what of the two reservoirs?

The most common form of large-scale energy storage nationwide is hydro-storage, which involves pumping water from a lower-altitude reservoir into a higher-altitude one at times of low energy demand, when it is cost-effective to do so. When energy demands peak — or when the sun stops shining or the wind stops blowing — the water is released through narrow tunnels that house turbines that generate electricity. The turbines can be activated quickly and generate as much power as 300 megawatts or more.

The Sacramento Metropolitan Utility District has announced plans to build a new hydro storage facility near Placerville, not far from California’s Sierra Mountains.

This is potentially easy in a place like Oregon, but what happens in a drought one wonders.  Anyway, it'll be interesting to see what power companies come up with and how they respond in general to this mew law.


Dann Cutter said...

The concern with this entire idea is the efficiency loss when moving between kinetic and potential energy.

A far better bang for the buck can be found by instead improving infrastructure loss. IF you look at the huge amount of energy lost in the system just during transport, it quickly becomes apparent that the quickest and most technologically readily available way to cut usage is to prevent the loss. Lesser demand would allow current systems to easily meet off production peak demand.

And not just because I have a TON of stock in infrastructure plays.

Brian said...

Why might the private sector not have enough incentive to do this themselves?

The development of wind energy has been fueled by incentives, so adding energy storage costs to a form of energy that already requires a subsidy would have to be supported by another subsidy. In this case it looks like the subsidy is intended to come from simply mandating that utilities charge their customers (for costs plus a reasonable profit) for the development of storage.

The language of the law is vague, does not specify that anything would be subsidized with tax incentives, and does includes the phrase "cost-effective," which allows for the possibility that nothing will come of this. We have incentivized the development of intermittent energy production. We have not incentivized the development of energy storage.