Expressing concern about price volatility in the natural gas market, New Jersey, Virginia and Michigan regulators have directed local gas distribution companies to try fixed-price contracts and...
The Value of Storage: Today Gas, Tomorrow Electricity?
Open-access economics make stored energy something you can bank on. For natural gas and electric power.You can't store electricity, right?
The old shibboleth to some extent is literally true. The electric industry appears different from the natural gas industry in that demand must be matched immediately with production. No viable location comes to mind to put away some of that extra power until it is needed. But literal truth is not necessarily the whole story. Competition has a way of changing perception.
Gas storage acquired a new role after the Federal Energy Regulatory Commission (FERC) issued Order 636. Deregulation will do the same on the electric side. The roles and uses of electricity storage are likely to change in ways similar to changes already seen on the gas side.
Gas storage fields are now used more consistently throughout the year, as reflected by the increasing numbers of gas-injection and
-withdrawal transactions per field.1 Gas consumers and distribution companies now augment traditional seasonal storage with services like daily and monthly supply balancing and price hedging. They want services that help them resolve imbalances quickly and enable them to profit or protect themselves from short-term changes in gas commodity and transmission prices.
Demand for increased working-gas capacity and daily deliverability has altered the development of storage facilities.2 Historically, most storage facilities made use of depleted gas and oil fields. Now, salt-cavern facilities account for 68 percent of proposed additions to withdrawal capacity, as compared to 10 percent of total withdrawal capacity in 1993.3
Salt-cavern peaking facilities are designed to offer greater deliverability than traditional storage fields.4 They give buyers and sellers the operational flexibility they need to respond to quickly changing market conditions, or provide new services such as supply balancing.
With the "commoditization" of natural gas, hubs and market centers have sprung up to facilitate the physical movement and pricing of natural gas. Market centers offer a myriad of administrative, operational, trading, and financial services, including balancing, parking, and risk management.
Another byproduct of note: independently developed, owned, and operated gas storage facilities. Previously, only a gas utility or pipeline would possess such a specialized asset. Now that the values of these assets have become a function of arbitrage opportunities and versatility, entrepreneurs have entered the business.5
As it did in the gas industry, open access in the electric industry will change the analytical framework for evaluating electric storage technologies. These changes will follow from rising demand for services such as load balancing, and by the collapse of average-cost pricing. Electric storage will become a means of reducing costs and providing utilities, suppliers, and customers with vital operational flexibility.
Historically, the most common type of bulk electricity storage developed by utilities has been hydroelectric pumped storage (HPS). HPS provides fuel-cost savings by using power from coal-fired and nuclear generating plants (each boasting low variable costs) to pump water uphill during offpeak hours. The stored water generates hydropower during periods of peak demand.
By adding HPS plant to its generating mix, a utility can increase its use of