California batteries taking bigger bite out of gas-fueled energy

Large-scale battery storage power stations in the US reached several major milestones in 2024, penetrating deeper into power markets while eclipsing annual natural gas capacity additions for the first time and leapfrogging pumped hydroelectric storage.

No grid operator has seen a bigger jolt from electrochemical energy storage than the California ISO. On several evenings in April, lithium-ion batteries filled mostly with excess solar generation briefly became the largest source of power on the CAISO system, grid operator data shows, marking a significant breakthrough for the technology in US electricity markets.

"We've been expecting to see this for a while now because we know that the battery fleet is growing so much and has the impact to change the way the grid operates and how other resources operate," said Annie Gutierrez, a senior research analyst with S&P Global Commodity Insights.

CAISO-connected battery peaker plants displaced nearly 30% of monthly demand for natural gas generation last spring, Gutierrez and Sam Huntington, director of North American power and renewables analysis at Commodity Insights, wrote in a September report.

The California battery fleet, consisting largely of systems designed to discharge for up to four hours, displaced an estimated 30 Bcf of natural gas through the first eight months of 2024, as much as in all of 2023, according to the analysis. That displacement amounted to 6% of power sector gas demand in the CAISO market through August, compared with 3.5% in 2023.

"The magnitude did surprise us a little bit because getting to 5% or 6% of gas burn is pretty significant, [and] getting to about 30% of total monthly gas burn in the spring was definitely quite high," Gutierrez said.

That might just be scratching the surface of what is possible in California and the broader western US, however, where batteries could displace nearly a quarter of annual power sector gas demand by 2035, according to the Commodity Insights analysis.

California 'charging during solar-rich hours'

California had nearly 12 GW of large-scale batteries in operation as of late November, and over 5 GW was under construction or in the advanced stages of development, according to S&P Global Market Intelligence data.

Those batteries, most of which are inside the CAISO footprint, have grown from 1.3 GW at the end of 2020.

California's battery additions are expanding into real-time and day-ahead energy markets, where they now generate most of their revenues, after having already conquered ancillary services such as frequency regulation, Commodity Insights analysts said. They pointed to abundant energy arbitrage opportunities, allowing batteries to charge at lower prices in off-peak hours and discharge at higher prices during peak demand.

During summer peaks, however, gas displacement is much lower than in the spring, and batteries often charge on a gas-heavy grid, the analysts added. Batteries even boosted demand for gas on some days in July and August 2024.

Overall, batteries complement California's renewables portfolio standard, under which retail electricity suppliers must rely on solar, wind, geothermal, small-scale hydropower and other eligible resources to cover 60% of their sales by 2030. The state's targets for renewables and other carbon-free sources together grow to 90% by 2035 and 100% by 2045.

The California Public Utilities Commission in February approved a preferred portfolio of resource additions by 2035, including 19 GW of new large-scale solar, 14.1 GW of onshore wind, 4.5 GW of offshore wind, 15.7 GW of additional four-hour batteries and 2.8 GW of eight-hour batteries. The portfolio does not include any new gas by 2035 and shows 2.7 GW of gas retirements.

More arbitrage in Texas

Nationwide, batteries could displace about 1,118 Bcf of gas in 2035, or roughly 5.8% of total gas demand in that year, the Commodity Insights analysis found. Large-scale battery systems in parts of the West outside of California could displace about 24% of power sector gas demand by 2035, the analysis estimated.

The Electric Reliability Council of Texas Inc., whose fast-growing battery fleet is dominated by short-duration systems taking advantage of ancillary services, could see batteries displacing almost 4% of power sector gas demand by that time.

Batteries in Texas "are starting to do more arbitrage, and the arbitrage potential is there, but it is just not quite in the same phase as California is with the very defined, predictable revenue spread," Gutierrez said.

In general, batteries follow solar markets, and the two resources are often built together at the same location in hybrid configurations.

Developers plan to bring online an additional 143 GW of nonhydro energy storage resources across the country by 2030, according to Market Intelligence data, led by planned resources in Texas, California, Nevada and Arizona.

Call for balanced approach

Batteries are expanding quickly despite having only just begun making deeper inroads into US power markets. Battery capacity additions likely far outshined natural gas for the first time in 2024 in terms of new resources installed, according to preliminary data.

US Energy Information Administration data through October showed over 7.7 GW of completed battery power storage resources in 2024 and another 6.5 GW of planned 2024 battery capacity undergoing commissioning or under construction. That compares with less than 1.6 GW of new gas capacity completed in 2024 through October, with only about another 1 GW planned to come online in the year, EIA data shows.

Commodity Insights' latest outlook for US capacity additions, released in December, shows 12.3 GW of battery resources coming online in 2024, second only to solar among all new resources and well ahead of only about 3.3 GW of anticipated new gas-fired capacity. US battery resource additions remain ahead of gas-fired additions through 2028 in the outlook before gas resources at least temporarily bounce back in front.