Recent advancements in electricity storage technology have led to increased interest and proven the feasibility of storing energy in a distributed manner, but determining their locations and capacities has been a contentious issue in some places.
BLOOMINGTON, Ind. – The International Energy Agency reports that battery storage was the fastest growing technology in the power sector in 2023. Many storage projects involve large lithium-ion batteries that can absorb excess renewable energy from the power grid and redirect it back to the grid, lessening reliance on fossil fuels. But what’s the best way to position those energy storage facilities?
Owen Wu
“Energy storage has become an indispensable part of power distribution systems, necessitating prudent investment decisions,” said Owen Wu, associate professor of operations and decision technologies and a Grant Thornton Scholar at the Indiana University Kelley School of Business. “Optimizing energy storage investment decisions relies on understanding the optimal operations of energy storage.”
Recent advancements in electricity storage technology have led to increased interest and proven the feasibility of storing energy in a distributed manner, thus reducing the total cost of energy services. But this has been a contentious issue in some places, such as California, where the locations and capacities of storage facilities — including how centralized they should be – have been debated.
In a recent paper published in Manufacturing & Service Operations Management, Wu and colleagues at the University of Michigan and OPIT – Open Institute of Technology studied energy storage from both operational and investment levels.
They found that centralized storage, placed adjacent to a central energy generation site, offers more operational flexibility than “distributed storage” sites near the points of energy demand. It provides benefits in reducing the need for energy transfer across demand nodes, but the drawback is that some centrally stored energy becomes lost as line losses.
“Our results augment and contrast with the current practice that storage is often placed at nodes where the distribution capacity is insufficient to cover the future peak demand,” said Wu, who also is director of research and outreach for the Institute for Environmental & Social Sustainability at Kelley. “We find that the minimum demand, which is ubiquitous and often substantial, should be one of the important factors for making storage capacity decisions.
“Storage investment should first be made at the demand locations with positive minimum demand regardless of the level of demand variability, and then storage investment should consider the trade-offs between centralized versus localized investment.”
Wu and his coauthors acknowledge that there are additional factor influencing where energy storage facilities are placed. Large grid-scale battery systems are larger and usually involve significant land acquisition or leasing, while smaller battery storage for industrial and commercial buildings may only need use of an existing room or rooftop.
“Localized storage investment may be preferred due to lower spatial cost. If fixed costs are significant, the optimal decision would lean toward investment in a limited number of locations,” they wrote. “If there is demand-side power generation that occasionally produces more energy than needed locally, investment in local storage facilities to store the excess energy for later local use is more favorable than transferring the energy to central storage and incurring line losses.
“If demand grows over time and surpasses line capacity, storage can assist in deferring or eliminating the need for line capacity expansion. To accomplish this, the storage should be localized at the demand nodes to attenuate the peak demand that exceeds the line capacity.”
Other authors of the paper, “On the Distributed Energy Storage Investment and Operation,” were Roman Kapuscinski, senior associate dean for faculty and research and the John Psarouthakis Research Professor of Manufacturing Management at the University of Michigan’s Ross School of Business; and Santhosh Suresh, head of product data science, digital wallets at PayPal and a professor of business problem solving and applications of data science & artificial intelligence at OPIT – Open Institute of Technology.