120418 Grid-Saver Benefits 1

Grid-Saver Benefits Assessment Report

LEGAL NOTICE
This report was prepared as a result of work sponsored by the California Energy
Commission (Energy Commission). It does not necessarily represent the views of
the Energy Commission, its employees, or the State of California. The Energy
Commission, the State of California, its employees, contractors, and subcontractors
make no warranty, express or implied, and assume no legal liability for the
information in this report; nor does any party represent that the use of this
information will not infringe upon privately owned rights. This report has not been
approved or disapproved by the Energy Commission nor has the Energy
Commission passed upon the accuracy or adequacy of the information in this report.
COPYRIGHT NOTICE
2012,
Transportation Power, Inc.
ALL RIGHTS RESERVED
120418 Grid-Saver Benefits 2

Figure 1. Artists conception of a Grid-Saver unit, nominally a one megawatt-hr size.
Grid-Saver allows the storage of sufficient electrical energy that significant power can be fed to (or
taken from) the electrical grid to enhance grid stability and to compensate for the inherent fluctuations of
variable energy resources such as wind and solar power. With the use of high speed digital sensing local
corrections of power line voltage can be made nearly instantaneously from battery storage, reducing
fluctuations in grid voltage and frequency. Alternatively, the California ISO
1
ADS (Automated Dispatch
System) can be used to command charging and discharging of the Grid-Saver such that the grid power
generation system and the spinning reserves are relieved of some of the demands for sudden increases and
decreases of power. Although this is beyond the scope of the present Phase One contract, the long term
objective is that small Grid-Saver units be used for local use to stabilize the local power distribution
grid and that large units be sited with large variable energy generation resources such that the fluctuations
of wind or due to clouds passing over the array can be quickly compensated, and further, that in response
to CaISO commands the Grid-Saver can provide needed ancillary services to the grid, thus earning
revenue in accord with the rules and bidding of the ISO system.
Herein we briefly show the Grid-Saver concept, provide a cost estimate, and proceed to a cost-
benefit analysis leading to a detailed description of the developing regulatory and pricing structure. An
artists rendering of a Grid-Saver unit is shown in Figure 1.
The Grid-Saver design will directly address the needs for affordable electrical energy storage,
needed for expeditious implementation of renewable energy as depicted in the recent CEC funded study.
2

1.0 System Description
The Grid-Saver concept includes electrical energy storage by means of a large lithium ion battery
system (ESS, Energy Storage System) with automated charging and discharging in response to the needs
of the grid. The objective is to provide fully responsive grid ramping and ancillary services at attractive
cost, as well as active support of renewable energy installations that may benefit by energy storage over
periods of minutes to hours.
Grid-Saver System Requirements include:

1
The Independent System Operator monitors and controls the California electrical grid.
2
Andris Abele et.al., 2020 Strategic Analysis of Energy Storage in California, CEC-500-2011-047 November 2011
http://www.energy.ca.gov/2011publications/CEC-500-2011-047/CEC-500-2011-047.pdf
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1. A large (100kWh or larger) lithium ion ESS, using 120 or more large format storage cells.
2. The ESS includes a BMS (Battery Management System) suitable to maintaining the cells at
near equal state of charge and reporting cell condition to a master controller (BCU, Battery
Control Unit).
3. An Inverter-Charger Unit (ICU) suitable to taking power from the battery and putting it on the
grid as AC of correct voltage and phase, and later recharging the battery from available energy
on the grid. This ICU is commanded by the GCU (Grid-Saver Control Unit).
4. Communications with the ISO Automated Dispatch System (ADS) suitable for control of the
Grid-Saver through the GCU. This final item ISO communications - is not part of the
present contract, and will be simulated for the contractual testing. However, as the
communications link is essential to the Grid-Saver working with the grid, there will be a
limited effort directed towards understanding the limitations imposed by said link and
designing the architecture, insofar as possible, to meet ISO requirements.
Table 1. Summary of Grid-Saver System Requirements.
Title Function Discussion
Cells Electrical energy storage Choice is Li-phosphate, large format cell, based
on safety and lowest cost per kw-hr.
Support
structure
Physical support even
during earthquake
Structure shall be enclosed in structure such that
system is protected from rain and dust
Fuses Protects cells and wiring For truck use 350A fuse in a manual service
disconnect, one in each series string. Fuse rated
700Vac (UL), rated for DC use. Higher voltage fuses
to be used for Grid-Saver.
Contactor Opens circuit instantly at
any fault
One or more in each series string.
BMS (Battery
Management
System)
Voltage & temperature
measurement, cell balancing
Present system choice uses resistive dissipation,
drawing 1 ampere pulses from cells, duty cycle to
70%
BCU (Grid-
Saver
Battery
Control Unit)
Communicates with BMS
and commands cell balancing,
limits cell depletion
Tracks cell condition keeping appropriate cell
condition parameters, varying shunt voltage as
needed.
ICU (Inverter
Charger Unit)
Converts battery DC to AC
to grid, and line AC to DC
suitable for battery charging
Proposed 250 kW module design is derived from
electric vehicle ICU co-developed by TransPower
and EPC Power Corp. to minimize R&D costs and
maximize economies of scale in production
GCU (Grid-
Saver
Control Unit,
independent
or ISO
connected)
Either controls the Grid-
Saver unit in accord with
self-contained control logic, or
in larger cases commanded by
CaISO to provide energy as
needed, and recharging of
battery when solar or line
energy available.
Small Grid-Saver units may be placed with
solar or other alternative energy generators with
algorithms designed to store energy and use it
advantageously at peak demand times. Alternatively,
communicates with ADS (Automated Dispatch
System), exercises algorithms to optimize return
from sale of energy or charging, commands ICU.
GH (Grid-
Saver
Housekeeper)
Monitors and logs
temperature, ADS
communication, line voltage
Responsible for assuring Grid-Saver
environment is suitable for operation. Incorporates
alarms for failed communication, line voltage, smoke
and temperature alarms. Will call for help giving
diagnostic information as needed.
1.1 Energy Storage System The ESS contains the battery cells, BMS units, and the Battery Control Unit
(BCU).
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Cells The ESS will use one or more strings of 300 Ah Lithium
Phosphate cells, each cell of nominal 3.2 volts. Present string size is
112 cells (used in the TransPower port truck implementation),
yielding a string of nominal 358 volts. It is expected that strings of
as many as 288 cells will be used in Grid-Saver implementation,
yielding a string voltage as high as a nominal 922 volts and
approximately 276kWhr energy storage for such a string. Four such
strings in parallel provide a megawatt hour of electrical energy
storage. Figure 2 schematically represents a pair of strings. The four
string (or more or less) configuration would be similar but with more
strings in parallel. The strings are packaged as modules of 16 cells
mounted in a supporting frame; the frame with cells weighs
approximately 360 pounds. (Note that a megawatt system will weigh
some 13 tons and include some 1152 cells.)
Each string of cells will incorporate electrically driven contactors capable of interrupting currents of
hundreds of amperes, manual disconnects and fuses. Multiple strings will each have these disconnects
and fuses, and in addition must involve sensing hardware and intelligence such that before connection to
the others each string will be of like voltage in order to connect without high currents and damaging
arcing.
Grid-Saver operational voltage must be appropriate to interfacing to the electrical grid. The San
Diego area distribution grid has high power lines at 12,000 volts, stepping down typically to 480 volts for
industrial service and 208 volt Y-connection for residences. The voltage choice is reasonably narrowed
to whether one interfaces at the 480 or 208, and for a megawatt of power the higher voltage will likely be
more suitable as even it involves currents of 1200 amperes. The inverter design for 480 VAC output will
have an input of above 480*SQRT(3) or 830 volts, hence the battery system will be of a high voltage
design well above that used on vehicles.
Battery Control The BCU periodically (typically, every four seconds) interrogates each cell and
saves voltage and temperature information. BCU software will analyze the voltage data and return
commands to the BMS units as to which cells require balancing action and at what voltage the BMS
should shunt current, so as to reduce cell voltage. The BCU software shall dynamically vary shunt levels
during the charge cycle
3
, and if that is inadequate shall have the capability to shunt current (balancing
cells) during rest and discharge cycles as well.
Further, the BCU shall protect the ESS from over and undercharge.

3
The dynamic balancing algorithm includes:
Measure the strings highest and lowest cell voltages - Vh and Vl while charging.
If the difference between the highest and lowest is over 10 mv, then shunt current from those cells of
voltage over Vl+0.01 (allowing some of the charge current for that cell to be bypassed)
As Vh attains the charging goal (say, 4 volts) the charging current will be reduced such that Vh stays just
below the goal. The bypass current will remain constant, hence becoming a larger portion of the charge
current.
Charging shall be terminated either with a time switch or when the charge power is disconnected.
However, if the lowest voltage cell has not caught up with the higher volt cells to the extent that the
difference is below 10 mv, then the balancing action will continue with shunt power being drawn from the
higher voltage cells. This continues until all cells are within 10mv of the lowest.
Figure 2. Illustrating two
strings of Lithium ion cells in
parallel.
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During the charge cycle, as the highest voltage cell approaches Vmax (typically, 3.6 volts) the
charging shall be tapered such as to maintain that cell at Vmax.
During the discharge cycle, as the lowest voltage cell approaches Vmin (typically stipulated at 2.8
volts) the pack current shall be limited such that the lowest voltage cell does not drop below
Vmin.
1.2 Inverter Charger Units The ICUs incorporate IGBT circuitry
to switch DC power to the AC lines, with appropriate filters such
that the power will constructively add to grid power. The ICU
operation is commanded by the GCU through a Supervisory
Controller incorporated as a part of each ICU.
EPC, a TransPower development partner, is developing
the ICU, a preview picture (of the vehicle unit; the grid application
unit will be similar but with larger inductors) is in Figure 3 at
right. Each ICU unit will switch up to 250kW. The Grid-Saver
unit illustrated in Figure 1 would have from four to six of the ICU
units.. Each ICU would act together to switch power from the
battery cells to the line.
2.0 Grid-Saver System Architecture
The cell wiring shown in Figure 2 above illustrates a
system architecture with series strings of the lithium ion cells,
expandable to larger batteries by adding more series strings of
cells. This Paralleled-Series connection has been used for the
first TransPower electric vehicle applications. In this
configuration each cell is monitored by the BMS system for
voltage and if the voltage is high some of the energy of that cell
alone is bypassed so as to reduce the cell voltage to the end of maintaining relative cell to cell balance.
This automatically controlled balancing is intended to allow the use of cells of slightly different
characteristics while using feed-back control to bring the cell voltages to similar numbers.
2.1 Architecture beyond this CEC Contract
Influences of Interconnection Standards The above centers on the architecture of the cells
and their connections, but it may develop that the more important architecture is in the planning and
software to meet the needs of the utility and the ISO. In California, the CPUC Rule 21 Interconnection
Standards for Non-Utility Owned Generation may be the best indication of the requirements that will be
imposed on electrical energy storage units.
Consistency with ANSI/IEEE 1547, the 2003 Standard for Interconnecting Distributed
Resources with Electric Power Systems is required in the SDGE Rule 21 interpretation
4
.
Section J of Rule 21 Certification and Testing Criteria details that equipment which
interconnects to SDG&Es distribution system includes testing to meet UL 1741, and
IEEE 929

4
http://regarchive.sdge.com/tm2/pdf/ELEC_ELEC-RULES_ERULE21.pdf
Figure 3. Interior of an Inverter
Charger Unit.
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Influences of Users and Their Needs It is apparent that in the new world of the Smart Grid and the
utility built around a complex and responsive communication network, energy storage will take many
forms, ranging from the megawatt size now being developed by this contract (as well as prior work by
such as A123, Beacon Power, and larger systems such as the NAS systems fielded by NGK Insulators)
through hydroelectric pumped storage units. Further, there is need for small systems as well, such as the
50kW Capable Community Energy Storage units and 1 MW size storage, both being installed by
SDGE.
5
Figure 4 shows EPRIs conception of Community Energy Storage.
Figures 5a and 5b on the next page show the effect of varying insolation caused by clouds passing
over a 1MW solar PV facility on the SDGE primary circuit. These figures, presented in December 2010
in support of the 2012 SDGE tariff application, were used to support their argument for investment in
energy storage.






5
Described in testimony to the CPUC by Dr. Thomas Bialik, December 2010
http://sdge.com/sites/default/files/regulatory/SDG%26E-11-CWP%20Bialek_Z.pdf
Figure 4. EPRI conception of Community Energy Storage (p168 of ref. 2).
120418 Grid-Saver Benefits 7







































Figures 5a, 5b. Measurements showing the effect of passing clouds on the SDGE
primary circuit.
120418 Grid-Saver Benefits 8


3.0 Cost Estimate
The Grid-Saver cost estimate is directed towards large scale implementation of this technology in
the form of 1 megawatt-hr units of 1152 cells at 300 Ah. The arrangement will be in compartments of 16
cells, nominal 51.2 volts per compartment, with each compartment individually replaceable if needed.
The BMS modules would be incorporated with each compartment. It is envisioned that 72 such
compartments would be supplied, possibly in the form of drawers that would slide on rails within a
battery mounting frame, all housed in a 20 shipping container that would also house the inverters, switch
gear and communication to allow convenient shipment to a site and installation directly to a 3 phase
feeder line of 1500kVa capability.
Table 2 provides preliminary estimates of the market pricing for a Grid-Saver system capable of
storing 1 MWh of energy and delivering 1.5 MW of peak power. As indicated, the total estimated price
for such a system is $1.5 million, just over half of which is battery-related. This particular configuration
would have an installed cost to the user of about $1 per watt and $1.50 per watt-hour of energy storage
capacity. These figures will vary depending on the mix of batteries and inverters, and the scale of the
overall system. Extrapolating to a 40 MWh unit capable of 40 MW peak power, TransPower projects a
likely price of about $40 million, which results in the same $1 per watt of peak power but reduces the cost
per unit of energy storage to $1 per watt-hour. A system with 40 MW of peak power but much less
energy storage would cost far less per watt of peak power delivered, perhaps with prices as low as 30-40
cents/watt. The lower limit on energy storage, for systems with large battery packs but with much lower
peak power needs, is on the order of 75-80 cents per watt-hour.
Table 2. Costs for Grid-Saver with 1 MWh Storage Rated at 1.5 MW Peak Power

Component
Preliminary Pricing
Estimate ($)
Batteries 475,000
Battery integration (modules, BMS, connectors, etc.) 300,000
Inverter-charger units 450,000
Enclosure and mechanical structures 50,000
Grid-Saver control unit and other electronics and wiring 25,000
Integration labor, contingency, and profit 200,000
TOTAL 1,500,000

One should note a wide discrepancy between these numbers and some estimates in the literature. In
particular, the recent CEC Strategic Analysis of Energy Storage in California cites numbers of over
$3000/kW.
6
If the present project results in a Grid-Saver system with pricing similar to the above
estimate, the ownership cost would appear to be at most half of the estimates quoted in the footnoted
reference. These estimates circa Q1 2012 will change as the battery production capabilities change
and experience impacts our designs and production. The expectation would be that prices will drop with
time, but TransPower believes it is prudent to proceed on the basis of these best current estimates.


6
Andris Abele et.al.
120418 Grid-Saver Benefits 9

4.0 FERC, CPUC, ISO and Utility Progress Towards a Fair Reimbursement System.
For decades the electrical transmission and distribution networks have depended on rotating reserves
for maintaining line voltage and frequency. In 2005-2006 the California Energy Commission and CaISO
collaborated in an evaluation of high speed regulation using a high speed flywheel system. A 100 kVA
high speed flywheel was located at the Distributed Utility Integration Test Facility (DUIT) in San Ramon,
CA.
7
The ISO supplied an ACE (Area Control Error) and frequency signal to drive the flywheel instead
of a traditional AGC (Automatic Generation Control) signal. This faster signal creates many more charge
and discharge cycles for a ten minute period than with conventional generator control and is more
compatible with the operating characteristics of the storage system.
The success of that test and other indications that fast regulation was double or more effective than
the old way led to renewed investment in battery as well as flywheel means of electrical energy storage.
The need for special tariff structures was acknowledged in FERC Order 890, which enjoins all public
utility transmission providers, including RTOs and ISOs, from undue discrimination and preference in
transmission service. This was the impetus to the ISO developing tariff charges structured such that non-
generation resources such as storage could participate in Ancillary Service Markets. More recently,
FERC Order 755
8
requires RTOs and ISOs to compensate frequency regulation resources based on the
actual service provided, including a two part payment structure: a capacity payment that includes the
opportunity costs and a payment for performance that reflects the quantity of frequency regulation
service.
CaISO responded quickly to Order 755, in four months a sequence of straw proposals culminating in
a Draft Final Proposal, dated Feb. 13, 2012. The proposal is for:
1. The ISO to continue to pay resources for regulation capacity, noting that that payment includes
opportunity costs.
2. The ISO to pay resources responding to a regulation up dispatch at the real-time Resource-
Specific Settlement Interval (10 minutes) locational marginal price for the energy the resource
provides. Further, when a resource responds to a regulation down dispatch the resource is paid
the real-time Resource-Specific Settlement Interval (10 minutes) locational marginal price.
3. The ISO is adding a mileage payment which will be proportional to the cumulative up-down
regulation. The Draft Final Proposal goes into some detail describing how this will be
structured and priced.
4. The ISO is also adding an Accuracy Adjustment, measuring the resources response accuracy.
The accuracy record of the past week will be a multiplier in the payment for the services of
that resource.
Separately but in parallel with the FERC-ISO rulemaking, the CaPUC (Public Utility Commission) is
responding to direction from the California Legislature
9
in opening a proceeding to determine appropriate
targets, if any, for each load serving entity to procure viable and cost-effective energy storage systems,
and to by October 2013 to adopt energy storage system procurement targets (if determined to be
appropriate) to be achieved by each load-serving entity by the close of 2015 and of 2020.

7
These notes from a David Hawkins CaISO draft dated 5/28/2008.
8
Issued October 20, 2011
9
Assembly Bill 2514, approved by the Governor and filed with the Secretary of State September 29, 2010.
120418 Grid-Saver Benefits 10

These energy storage mandates, or rather the possibility of such, have stimulated constructive
discussion and filing of briefs by parties as disparate as the utilities and the Sierra Club. The utilities have
responded by documenting, to a limited extent, their ongoing investment in storage systems. SDGE, as
noted above, has deployed 50 kWh systems in the distribution system and megawatt sized systems as
well. Their CaPUC testimony indicates SDGE budgeting of $25M and $30M, for storage systems in
2011-2012 respectively. Also worthy of note: the testimony suggests that the average price of storage
was to be $820/kwh.
The ISO proceedings are highly significant, as the opportunity cost and mileage payment structure
will provide the bidding structure and hence affect the profitability of energy storage in the California
electrical system in future years.
4.1 CaISO Non-Generator Resource Market Simulation The design of the CaISO market system has
progressed to the point of an Implementation Plan
10
which sets forth an action list leading to simulation
exercises. The first of these requires a registration (which was due, Dec. 20, 2011) and is for Limited
Energy Storage Resources using REM (Regulation Energy Management). The documentation required
includes:
A 223 item description of the generator characteristics.
IOU ( Investor Owned Utility) tariff approval.
Engaging with the ISO in the form of ISO Grid access, filling out a New Participant Contact
Form, initiating having the NGR (Non-Generator Resource) being included in upcoming model
builds.
Reviewing metering and interconnection requirements.
Scheduling Coordinator agreement.
A training exercise for this simulation was held March 26, 2012, the first simulation exercise is scheduled
for 9 April 4 May.
5.0 Cost Benefit Analysis
Storage of electrical energy, the most fleeting form of energy, has always been a challenge. In the
past decade the fast development of lithium ion batteries and their unique and favorable properties,
coupled with the development of rotating mass electrical energy storage to unprecedented capabilities, has
led to the consideration of these technologies as one component of the SmartGrid. SmartGrid is a high
priority topic with the DOE (US Department of Energy) following being mandated by the 2007 EISA
(Energy Independence and Security Act). The DOE took the lead in distributing ARRA funds in support
of SmartGrid projects, including energy storage funding of $185M.
More recently California Senate Bill 17 of 2009 codified the EISA into California Law as well as
adding some elements such as requiring Smart Grid Deployment Plans of California Investor Owned
Utilities. Defining the benefits (or, for SmartGrid detractors, defining the costs and damage!) has of late
become a major effort, even while the technologies are in development and hence the capabilities in a

10
California ISO Non-Generator Resource Regulation Energy Management Project Implementation Plan Version
2.0, February 4, 2012 http://www.caiso.com/Documents/Non-
GeneratorResourceRegulationEnergyManagementImplementationPlan.pdf
120418 Grid-Saver Benefits 11

state of flux. EPRI (the Electric Power and Research Institute) Report 1020342
11
, although now two
years old, summarizes some of this work and presents a most comprehensive survey employing both
monetary and non-monetary quantification of the benefits.
Herein TransPower has a much narrower scope, focused only on the benefits of megawatt scale
electrical energy storage systems. The CaPUC and the CEC as well have narrowed the scope, as directed
by the legislatures AB2514. However, the CEC presentation to the March 9, 2011 Preliminary
Workshop on Energy Storage (by Avtar Bining) made clear the long history of interest of the CEC in
energy storage by a number of technologies starting with pumped hydro. The $13M of matching funds
by the Pier Program for ARRA projects was matched 100:1, including $427M from the DOE, directed
towards 18 projects in Northern and Southern California.
Even within this relatively narrow scope of electrical energy storage by batteries, the Cost/Benefit
analysis involves a complex range of variables for both costs and benefits:
5.1 Ameliorating Factors for Costs The 2020 Strategic Analysis of Energy Storage in California
12
report
details possible financial incentives that may buy down the cost of energy storage systems. Of particular
interest:
1. Investment tax credit: This is subject to Congressional action. Presently it applies to
generation facilities such as wind farms and solar electric systems, but not to storage systems.
For a party with profits to offset and funds to invest, such as banks, the renewable energy tax
credit can effectively reduce the investment cost by 30%.
13
Considering the improbability of
any constructive congressional action in this election year, the possible benefits of an
investment tax credit are not included in our analysis.
2. SGIP (Small Generation Incentive Program): The SGIP is operated by the IOUs in carrying
out the direction of the CPUC and certain legislative directives. Incentives are available in
support (on a dollar/watt basis) of renewable and waste energy capture, Combined Heat and
Power (CHP) systems, and emerging technologies that include Advanced Energy Storage
(AES). The SGIP incentive for AES is presently $2/Watt storage unit power. The AES unit
must be able to discharge its rated capacity for 2 hours, hence the incentive is somewhat less
than $1/Wh of rated storage. Rating for 80% depth of discharge, the incentive is 80
cents/rated Wh. Our megawatt-hr system could thus merit a benefit of $800,000 if ready for
deployment.
5.2 Variability of Benefits Grid-Saver can address at least two local markets and a number of larger
markets which are more formally defined through regulatory control by a local ISO :
Small Grid-Saver systems could be co-located with intermittent renewable generators, such
as rooftop solar systems, for instance, and smooth the peaks from the output while providing
power as needed to reduce grid demand at critical times. Here the Grid-Saver is either local
to the customer, or is part of the utility distribution system and will act in a transparent way to

11
Methodological Approach for Estimating the Benefits and Costs of Smart Grid Demonstration Projects, EPRI
Report 1020342 by Mike Wakefield, January 2010
http://www.smartgridnews.com/artman/uploads/1/1020342EstimateBCSmartGridDemo2010_1_.pdf
12
Andris Abele et.al.
13
http://online.wsj.com/article/BT-CO-20120202-715811.html
120418 Grid-Saver Benefits 12

provide a more continuous flow of power on the grid in response to a controlling algorithm
which could either be integral to the Grid-Saver or incorporated in a communication device
controlling multiple distributed storage units. Similar such local storage units have been
referred to as Community Energy Systems (CES). As noted above, SDGE, in their recent
Rate Filing, indicated that they have been installing 50kW capable local storage units, with
intent to put in 11 in 2011 and 14 more in 2012.
Grid-Saver systems of megawatt or larger may be used by the utility to address either local
power flow smoothing or ancillary services. Here again, the local utility SDGE is providing
substation energy storage at the rate of 4MW per year for 2011 and 2012. The total budget for
these units and the 50kW units is $25M and $30M for the successive years. SDGE, in its rate
case, argues the use of these systems on circuits with high penetration of customer
photovoltaic systems and energy storage systems will be strategically located in substations
to mitigate the impact of multiple circuits with PV. It is interesting to note that the Utility is
pleading for clearance to spend on these systems at the rate of approximately $5.4/watt. Herein
and elsewhere pricing is more commonly in relation to energy stored, $$/watt hour.
Large Grid-Saver systems may be grid connected with use of a Scheduling Coordinator
(SC)
14
such that they will be used for regulation energy management as directed by CaISO
15
.
The rules for this are only in partly in place, as CaISO tariff section 8. As discussed above in
section 4, the CaISO is in process of complying with FERC Order 755, issued October 20,
2011, through a proceeding process labeled Pay for Performance. The FERC Order observes
that current compensation methods for regulation service in organized markets fail to
acknowledge the inherently greater amount of frequency regulation service being provided by
faster-ramping resources and that some ISO practices result in economically inefficient
dispatch of frequency regulation resources. The order proposes to ensure that providers of
frequency regulation receive just and reasonable and neither unduly discriminatory or
preferential rates.
The CEC 2020 Strategic Analysis (Ref. 2, above) provides a slightly different breakdown, offering
Scenarios Analyses for:
1. Area and Frequency Regulation,
2. Renewables Grid Integration and
3. Community Energy Storage/Distributed Energy Storage Systems (DESS).
We proceed to look in detail at these and other specific market areas.
A most specific approach is to simply list ways storage could be used and be profitable. The Sandia
report
16
provides a series of examples, and quantitative evaluation resulting in their graphical presentation

14
Scheduling Coordinators act for an organization, which may be a utility or may be a trader such as Shell or DTE
Energy Trading, to interface with CaISO to assure transactions meeting ISO rules.
15
California Independent System Operator, which has recently received FERC approval of proposed tariff revisions
that allow direct ISO control of non-generator resources using real-time dispatches to control the resource operating
point to support regulation demands. (FERC Docket ER11-4353-000, issued November 30,2011 and effective
December 1, 2011) http://www.ferc.gov/EventCalendar/Files/20111130145236-ER11-4353-000.pdf
16
Jim Eyer, Garth Corey, Energy Storage for the Electricity Grid: Benefits and Market Potential Assessment
120418 Grid-Saver Benefits 13

which we copy and present below. Eyer and Cory discuss in detail twenty-six Benefits, the most
notable of which they quantitatively price. Their presentation graphic presents several of these benefits as
having a value above $1000/kW and is shown in Figure 6.
We discuss some of their categories, adding quantitative examples in some cases:
1. Buy at night, sell in the day This type of arbitrage is commonly done. The pumped hydro
facilities such as those in the mountains north of Los Angeles for instance, daily move water to
make additional power available to the city Department of Water and Power during the day.
Could this be profitable using batteries? Storage round trip efficiencies are reportedly a bit
over 80% for the pumped hydro facilities, a level that batteries can approach. Considering a
simplification of numerous trading opportunities, day prices for wholesale energy tend to be
about $40/MWh , while night time prices range from $10 to $30. (and are occasionally
negative!) Over a 3000 cycle life at 80% charge-discharge the revenue could approach
$100,000. Appropriate siting could totally transform this, for instance retail rates on the

Guide http://prod.sandia.gov/techlib/access-control.cgi/2010/100815.pdf
Figure 6. Eyer & Cory presentation of the benefits of electrical energy storage.
120418 Grid-Saver Benefits 14

Island of Hawaii are approximately 40 cents/kWh ($400/MWh), and the large wind farm at the
southern end of the isle reportedly curtails megawatts every night. With the right commercial
agreement at this location the revenue from daily cycling of a one megawatt unit could
approach $1M (for 3000 cycles). For a 1 MWh storage system estimated to cost $1.5M as
discussed in Section 5.0, this level of revenue would not in itself represent a satisfactory return
on investment.
2. Adding to Electrical Supply Capability To what extent can adding battery storage substitute
for building new generation capability? To the extent that offering local grid support can
alleviate the need for permitting and building new generators, a modest expenditure for Grid-
Saver equipment could offset major investment in a generator. This is similar for paying for
demand not used, currently an offering of tariff structures. It is our sense that this feature is of
interest during peak summer days, and may not be appropriate as major commercial users are
ready to offer this service on an occasional basis at a much lower annual cost than is needed
for offsetting battery and inverter.
3. Load Following Load Following relates directly to the ability to Ramp Up in the morning
and possibly in the summer afternoon as air conditioning demands, and Ramp Down in the
evening. Increasingly, the ramps are impacted by uncertainties related to the use of wind and
solar power (see the plots of Figs. 5a, 5b), which installations are being built up at
unprecedented rates. This capacity can more quickly be derived from storage, and the proposal
is increasing power being drawn from storage as compared to increasing generator heat of a
turbine. Again, this would likely be a once a day use of the battery capacity. However, it
could yield payment both for ramp capacity (regulation up) and for energy. The regulation up
payment is as low as $4 to 8/MWh during recent (January, February 2011, 2012) winter
months, to a monthly
average as high as $20
during spring (when
hydro plants are being
paid for generation
from winter runoff).
This payment adds to
that of the first
example, but still uses
only one cycle per
day. Eyer and Cory
run an analysis of the
cost of gas turbine
powered generation,
which is commonly
used for these
services, and end up
pricing the benefit at
$800/kW. This being
similar to the cost of
Figure 7 - 2011 Regulation Up/Regulation Down Pricing (Courtesy
of Mike Ferry)
120418 Grid-Saver Benefits 15

Grid-Saver, and being a massive market more detailed analysis will be appropriate at a
later time.
4. Area Regulation. The individual home, store, or factory has wide variations of power demand
as lights, motors and electric heaters are turned on or off, and one can imagine that the larger
community is demanding power from the summation of all these sources. Hence the load
following referred to above slowing climbing for all of California from the 4am demands
through the morning increases to a peak of some 30,000 MW mid-day, and then again peaking
after dark only to fall as the community darkens is accompanied by relative small
perturbations about the mean, but relatively small is megawatts and larger (depending on the
size of the community one includes in the local grid). Area regulation acts to respond to these
ongoing perturbations, maintaining frequency and voltage quality of service with response
times in seconds or at most minutes. Here the large generators are of service only in that they
have inertia and this rotational momentum is a kinetic energy reserve that can be quickly be
converted to electricity, but then quickly that rotational velocity must be maintained by adding
turbine power (steam or whatever). The capacitive (or flywheel) energy storage is ideally
poised to provide these services to the extent that energy management is available, avoiding
total depletion or over charging.
The rules for rewarding these services are in flux, with mileage payments definitely a part of the new
paradigm as stipulated by Order 755 and the following tariffs now being developed by ISOs. Fair pricing
is ordered by FERC, and based on the experimental results that fast regulation control (by flywheel or
battery energy storage) is more than twice as effective as rotating mass means, it appears that reliable and
reasonably priced electrical energy storage will be an active part of the new developing electricity
infrastructure. It appears too early to do useful analysis of how these payment rules will develop or even
how much mileage will be asked of battery storage devices. It may be useful to recollect that fast energy
storage was found to be twice as effective as older means of area regulation. Will the remuneration
reflect this?
5.3 Overview of the Ancillary Services (AS) Market and the Developing Market Software The California
ISO in recent years has procured four ancillary services (AS) in day-ahead (DAM) and real-time markets
(RTM).
Regulation up provided by grid synchronized generators which can quickly add power to the
grid after receiving automated signals from the ISO. (must be synchronized and be able to
receive AGC (Automatic Generation Control) signals, and to be able to deliver the AS award
power within 10 minutes) Supplies bid a given amount of available energy and are paid for that
amount, even if none is demanded.
Regulation down the ability to decrease power output at guaranteed rate. An hourly payment
is made to online generators that can guarantee this ability.
Spinning reserve keeping generators running at reduced power, just to be ready for immediate
response. The supplier is paid to keep the bid MW available to ramp up within 10 minutes.
Non-spinning reserve generators paid to be ready to start on command. (also, in newer
tariffs, demand contracted to shut down on command).
120418 Grid-Saver Benefits 16

5.3.1. Recently Implemented Changes in Modeling and Control of the California Electricity
Market Subsequent to the total meltdown of pricing in the California electricity market in 2000-2001
(due to exercise of market power by Enron and other suppliers which artificially restricted supply) the
CaISO has developed increasingly effective means of controlling the California electricity market. In
2009 and again in 2011 the CaISO implemented major redesign of Californias electricity markets.
In April 2009 CaISO incorporated use of a full nodal model of the California network with
capability to reflect the physical power system and market conditions and limitations. Nodal
pricing, focused on the limiting constraints of the transmission grid, result in locational
marginal prices which represent the additional incremental cost of serving the next increment of
demand at each of some 3000 distinct nodes. The day- ahead market bidding allows a supplier
to separate his bids so as to be separately reimbursed for start-up costs, for operating at
minimum loads (for spinning reserve) and for energy supply. The supplier can simultaneously
bid for energy supply (ES) and ancillary services (AS), with the ISO to calculate and accept an
optimized combination of ES and AS. An example is given: The supplier with a 100MW
generator can bid 90MW of energy at $20/MW and 20MW of spin at $5/MW. The ISO may
award 90MW energy and 10MW spin, or 80MW energy and 20MW spin (or any combination
which may not exceed 100MW), if that much AS is required. Other higher bids being
required to make up the needs for the Day Ahead Market, the settle prices of $50 (energy) and
$5 for spin, resulting in the settlement of $90*50 +10*5=$4550. Had the choice been to accept
the full 20MW spin services, the supplier would have been awarded $4000 for the energy, plus
$100 for the spin services PLUS compensation for the lost opportunity of providing the
remaining 10MW of energy bid at the difference between the award price of $50 and the
suppliers bid price of $20, or a total of $4000+100+300 or $4400.
Convergence bidding, a virtual bid scheme intended to narrow the gap between the day ahead
and real time market by allowing any creditworthy entity (even if they do not own physical
means of generating electricity) to buy or sell in the day ahead market was implemented at the
start of February 2011. The virtual bids allow the generating entities to hedge their bids. The
intent is that this should allow CaISO a narrower spread between the Day Ahead and Real Time
prices. Although the market developed to some $20 million of transactions per quarter in mid-
2011, it fluctuates greatly month to month, and significant differences still exist between the
day ahead bids and the real time pricing. The differences between the hour ahead and near term
bidding is even larger, as the average absolute real-time price has been over $10 over the hour
ahead price nearly all months.
17
The net effect of the convergence bidding appears to be
constructive, as evidenced by net revenues paid out to bidding entities which dropped to $9M in
Q3 and then to $2M in Q4. There continue to be issues and evolution of the rules for the use
of virtual bidding, particularly with respect to energy imports and inter-tie resources.
In August 2011 CaISO implemented day ahead AS bidding using dynamic ramp rates,
introducing software which removed artificial constraints and better represented the operating
characteristics of generators which ramp at differing rates at varying power levels. Quoting
from the Q3 report on Market Issues and Performance: Dynamic ramping of ancillary services
takes into account both energy schedules and operational ramp rates, leading to more effective

17
Refer to Fig. 1.4 of the Q3 report for 2011. http://www.caiso.com/Documents/QuarterlyReport-
MarketIssues_Performance-November2011.pdf
120418 Grid-Saver Benefits 17

ancillary service procurement. Indeed, both the quantity of ancillary services procured and the
prices of ancillary services in real-time dropped significantly in August from previous months
after deployment of the new dynamic ramp rate feature.
On October 7, 2011, the CaISO submitted proposed tariff revisions to FERC (which were
approved December 12 and implemented the following day) implementing a flexible ramping
constraint in its real-time market process. CaISO indicated it had experienced insufficient
ramping capability, that is, it was unable to adjust the power output of committed resources fast
enough to match real-time supply with real-time demand.
18
The shortages in ramping
capability were a result of the CaISO scheduling process which optimized to meet a scheduled
forecast which did not have any allowances for weather changes or other changes from the
expected scenario. Due to lack of ramping capability CaISO had been relying on regulation
capacity and operating reserves, most particularly during the morning and evening load
increases. They explain that CaISO operates two real-time market processes: the real-time unit
commitment process that runs every 15 minutes, and the real-time dispatch process that runs
every 5 minutes to dispatch available resources to economically meet the load. It had been
experienced that spinning and non-spinning reserves and regulation service procured in the 15-
minute real-time unit commitment process do not provide sufficient ramping capability and
flexibility to meet actual conditions that arise in the 5 minute real time dispatch interval.
The implementation of this Flexible Ramping Constraint is being used to procure upward ramp
capability from committed, flexible generation resources and proxy demand response resources that are
not designated to provide regulation or contingent operating reserves, and whose upward ramping
capability is not committed for load forecast needs. CAISO notes that its on-going Renewable
Integration Market and Product Review Phase 2 stakeholder initiative is addressing the creation of a new
flexible ramping product with bid-based pricing.
The Q4 2011 Report on Market Issues and Performance (issued February 2012) closes with a review
of early experience with the new Real-Time flexible ramp constraint performance. It is noted that the
total payments to units providing flexible ramping capacity during the month of January 2012 totaled
around $2.5 million, compared with a monthly average payment of $1.2M for spinning reserves resources
for the same period. (It is noted that FERC appointed a settlements judge to adjudicate on the cost
allocation methodology. This proceeding is continuing, likely into May 2012.) The flexible ramping
shadow price in January peaked the week of January 10 at an average of $44.95
19
, dropping as the
month progressed to $30.95 the last week of January.
This CaISO evolving software design appears to be increasingly efficient at distributing the
generation resources and assuring electricity delivery with minimal incidence of shortage.
20
Further
changes are in planning stages, particularly related to the use of energy storage. Two proceedings,
Regulation Energy Management and Pay for Performance, are particularly of interest. A third

18
FERC Order on Docket ER12-50-000, issued December 12, 2011 http://www.caiso.com/Documents/2011-12-
12_ER12-50_FlexiRamporder.pdf
19
Per MW, we presume!
20
The meltdown of service last Sept. 8 was due to events which occurred outside of California, and service was
restored by morning. There were no scarcity events in February, and the costs achieved lows of $0.19 for AS and
peak hour electrical energy prices averaged below $30/MWh (3 cents/kWh)
120418 Grid-Saver Benefits 18

proceeding, a Market and Product Review related to Renewable Integration was in process and has also
resulted in significant changes in market rules.
5.3.2. Pending Changes Regarding Renewable Integration The CaISO has been making changes,
starting in 2010, to implement the integration of renewables stipulated by the upgraded Renewables
Portfolio Standard. Although there was confidence that integration of 20% renewables into the California
grid was supportable, it was judged that further market design changes were needed to accommodate 33%
renewables. Early changes included modifications to AS guidelines to support non-generating resources,
such as energy storage, which included
1. Removing resource type restrictions and reducing the minimum rated capacity to 500kW,
2. Reducing the minimum continuous energy requirement from 2 hours to 30 minutes for real-
time Regulation Up/Regulation Down (Spin/non-spin is also 30 minutes, but the Day-Ahead
Regulation requires a full hour commitment).
In September 2010 the CaISO initiated Phase 1 of a formal Renewable Integration Market and
Product Review, specifically focused on short term solutions for accommodating variable energy
resources (VER), but in fact opening up the considerations to a wide range of changes in practices
including how to accommodate the CaISOs increasing need for dispatchability. One key focus was in
revising the PIRP (Participating Intermittent Resource Program
21
) to incorporate a staged approach to
lowering the negative bid floor. Federal energy tax credit incentives, renewable energy credits, and other
factors pay wind and solar energies to produce power even when the state does not need more electricity.
The prior bid floor of -$30/MWh was not a sufficiently strong incentive to curtail output, and the
increasing amount of VER compounds the issue. CaISO states:
22
price responsive curtailment of
renewable resources is a more efficient solution to economically meet downward-flexibility requirements
which will continue to increase as more variable energy resources are added to the system. Hence the
Board approved new floor level is -$150/MWh, and this will automatically be lowered to negative
$300/MWh next year.
A CaISO White Paper was issued on the expected impact on the PIRP suppliers and the market
23
and
the CaISO Market Surveillance also commented with a final opinion
24
. Generally, it is expected that
contractural commitments of vintage installations will prevent curtailment despite the incentive of
significant negative pricing, and that thus there will be pressure for new contract form to emerge.
5.3.3. Regulation Energy Management While the list of changes implemented in the past three
years, above, focus on the modeling, the disparity between forward and real time markets, the
restructuring of the regulatory mechanism to allow the generators to deliver the needed ramping
(increasingly due the increasing amounts of variable energy resources), and appropriate incentives to
attain curtailment when too much power is going to the grid, there are also the beginnings of major
changes in process in the ancillary services regulatory structure. These stem from the demonstrations of

21
PIRP dates back to 2002 as a joint development of the Governors office, AWEA, CEC, CPUC and IOUs directed towards
supporting investment into renewable energy enterprises by waiving some of the CaISO market rules and adding limited
forecasting capabilities and data telemetry.
22
Draft Final Proposal, Renewable Integration: Market and Product Review, Phase 1, Nov. 4, 2011
http://www.caiso.com/Documents/DraftFinalProposal-RenewableIntegrationMarket-ProductReviewPhase1.pdf
23
http://www.caiso.com/Documents/WhitePaper-
PotentialImpacts_LowerBidPriceFloor_Contracts_DispatchFlexibility_PIRPResources.pdf
24
http://www.caiso.com/Documents/MSC_Final_Opinion_RenewableIntegrationMarket-ProductReviewPhase1.pdf Final
Opinion on (Renewable) Integration by Market Surveillance Committee.
120418 Grid-Saver Benefits 19

the possibilities of modular fast response energy storage, and the pressures to use these new technologies,
in addition to the large facility investments in pumped hydro or even compressed air energy storage,
25
in
combination with the ISO expectations that variable energy resources will increase the need for regulation
capacity.
In 2008 FERC issued Order No. 890 which required that regional transmission organizations (RTO)
and independent system operators (ISO) allow non-generation resources (including demand response, but
particularly including flywheels and battery sysems) to provide ancillary services when technically
capable. CaISO subsequently made tariff revisions to facilitate the provision of ancillary services by non-
generator resources (accepted by FERC in September 2010) as noted above under 7.3.2. CaISO then
(August 2011) requested more extensive changes to allow greater participation by non-generator
resources in the ISOs AS market. Key is the design and implementation of regulation energy
management (REM), which will enable the ISO to manage the non-generating resource by controlling its
operating set point through the ISOs energy management system with the objective of maintaining the
resources preferred operating point.
26
When a resource has a physical MWh limit, the ISO will observe
this constraint during real-time dispatch.
FERC approved the CaISO request, and staff has issued an implementation plan including a sequence
of market simulations for participants to exercise and test the new software. The plan is that REM will go
into operation in the CaISO system late in November 2012, following the completion of these market
simulations.
5.3.4. Pay for Performance As a result of FERC Rule 755 the concept of Pay for Performance has
led the CaISO to approve regulatory tariff changes
27
stipulating payments to frequency regulation
resources based on:
a. A payment for capacity reserved for regulation services, and
b. A payment for performance based on the amount of frequency regulation provided by
resources accurately following the automatic generator control (AGC) dispatch signals
provided by the ISO
There also may be a payment for net energy added to the grid, which is made at the real time energy
price.

25
As fast as the ISO systems can be adapted to these new possibilities, the commercial realities are pressing. In recent months:
Altairnano, one of the early demonstrators of battery storage on a utility scale, has been saved only by purchase by a
Chinese firm. The public stock has dropped to well below a dollar.
Beacon Power, founded in 1998 with innovative flywheel technology intended for telecom backup has operating utility
storage systems in the 20MW scale. It has filed for Chapter 11 reorganization and recently received some additional
funding.
A123, an American battery firm, has placed utility scale systems starting in 2008. It has also aggressively pursued
automotive projects with more success than most, but that has not been reflected in the market perception of the firm.
It has recently had failures in automotive battery packs, is faced with a recall program and a $50M writeoff, a stock
price under a dollar and lawsuits from disappointed institutions.
As of April, 2012 the shakeout of the battery supplier community is a sobering reminder of the commercial difficulties attendant
on implementing large scale technological shifts where there is substantial infrastructure involvement without a strong national
commitment.
26
From CaISO filing of 22 Aug. 2011 to Secretary Bose of FERC
27
http://www.caiso.com/Documents/DraftTariffLanguage-PayforPerformanceRegulation.pdf Also see the Market Surveillance
Committee Opinion of March 7, 2012 http://www.caiso.com/Documents/MSC-FinalOpinion-Pay-for-
PerformanceRegulation.pdf and the proposal as amended http://www.caiso.com/Documents/Addendum-DraftFinalProposal-
Pay_PerformanceRegulation.pdf
120418 Grid-Saver Benefits 20

The major change here is the proposed addition of the payment for performance mileage payments,
of mechanisms to track the accuracy of the response of a resource, and of limiting the payment by a factor
incorporating the accuracy record of the resource. The term mileage payments refers to the distance
traveled as the resource responds to repeated increase-decrease commands, or as the ISO words it the
absolute change between AGC set points between 4 second intervals. To make up an example:
T=0 AGC commands increase and Grid-Saver responds from 0 to 1 MW from storage to grid
[mileage of 1MW]
T= 1minute, AGC commands 0 power, and Grid-Saver ceases providing power. [adding to
prior 1MW up, total mileage is 2MW]
T= 1minute + 20 seconds, AGC commands -1MW [total mileage now 3MW]
Note that in the first two of these the Grid-Saver responds.. if in the third there is a failure to
respond, the AGC total mileage of 3MW differs from the Grid-Saver output. The ISO proposes to
measure the accuracy of the resources response to AGC as the absolute value of the difference between
the AGC set point and actual telemetry for each 4 second regulation interval. The accuracy will be
reflected in an accuracy percentage value which can range from 0 to 100%. The amount of payment
received will be the mileage (commanded by AGC) times the mileage marginal clearing price times the
resources accuracy.
5.4 Historical Valuation of Ancillary Services The CaISO Department of Market Monitoring
issues analysis reports weekly, monthly, quarterly and annual Market Issues and Performance Reports, (of
which the 2010 issue
28
is the most recent annual available). The 2010 cost of Ancillary Services (AS)
was just under $0.4 per MWhr of load served, but still totaled $84M total (California ISO ancillary
services cost). These monies covered Regulation Up, Regulation Down, Spinning Reserve and Non-
Spinning Reserve.
Figure 6.1 of the report on the year 2010 illustrates the progress made in recent years with Ancillary
Service costs dropping from $0.96/MWh (2.4% of the wholesale energy cost) in 2006 to $0.38 (just under
1%) in 2010. More recent results are further dramatically improved, to $0.22 in January 2012 and $0.19
for February 2012.
29
(The average prices paid in February were $4.07/ for Regulation Up, $4.35 for
Regulation Down, $1.43 for Spinning Reserve and $0.17/MW for Non-Spinning Reserve.) Certainly
some of these decreases are due to the very low natural gas prices, but it appears that the CaISO has also
notably reduced the AS costs through their continued market redesign.
It is notable that the cost of ancillary services peaks during the spring, when hydro plants are using
the run-off to provide electricity rather than regulation, and during the summer, when high demand makes
the operation more critical (as illustrated in Fig. 7).
One might expect continued success in reducing the AS cost, especially with the increasing
availability of designed to serve tools such as flywheel storage, battery systems, and the recent attention
on designing the ISO system to provide fast response systems. However, the increasing amounts of solar
and wind add to the task such that it is not clear that the cost can continue to come down.

28
http://www.caiso.com/2b66/2b66baa562860.pdf
29
CaISO Market Performance Report February 2012
http://www.caiso.com/Documents/MarketPerformanceReport_February.pdf