How Can Smart-Grid Storage Grow Your AES Investment?http://www.fool.com/investing/general/2014/02/04/how-can-smart-grid-storage-grow-your-aes-investmen.aspx Bill Foote
February 4, 2014
AES (NYSE: AES) deploys smart-grid technologies alongside its regulated utility and power plant asset base. Its latest innovation automates grid scale battery storage at Dayton Power and Light in western Pennsylvania. This innovation is the latest in securing reliable electricity from a diversity of renewable and non-renewable sources.
With 150 Megawatts, or MW, online, AES Storage helps utilities free up expensive reserve capacity, better meet peak power demand, and make more effective use of intermittent generation from resources like wind and solar.
AES independently develops and operates electric power plants and infrastructure, now in 20 countries. It typically receives fixed revenue contracts for power off-take and services, much like a utility tariff. It also operates two U.S. utilities: Indiana Power and Dayton Power and Light. Battery profits from AES Storage can drive new market interest, operational efficiencies, and revenue growth. AES owns and operates over $100 million of storage assets globally.
An old and new, tried-and-true technology
Storage has clearly been demonstrated as a critical method for making transmission and distribution of electricity more reliable and resilient to disruption. Typical battery storage grid services include frequency response, black start, voltage support, and rapid demand support. All very technical, but industrial rate payers will definitely notice something is wrong when power ebbs ever so slightly. The result for a generic drug manufacturer is that a tank full of biologics dies and halts a vaccine supply chain in its tracks. A recent study estimates that an industrial outage of eight hour duration could cost over $200,000 on average.
The Tait storage project benefits financially from PJM's new tariff for fast-response regulation designed to comply with FERC Order 755. Enacted in 2011, Order 755 increased the tariff rate for "fast" responding sources like batteries or flywheels that are bidding into frequency regulation service markets. AES Storage has now installed 100 MW of storage in PJM.
California is next
In this market, AES Storage would operate as a systems integrator and program manager of a complex set of storage projects. At one end it would engineer, procure, and construct battery-based and other storage option site projects. At the other end it would manage offtake capacity contracts, manage regulatory relationships, and arrange project financing.
AES, through its Silver Ridge Power joint venture with Riverstone Holdings, is teaming with Google to develop the 265 MW Mount Signal photovoltaic project in California. This project will deliver power to San Diego Gas and Electric under a long-term power contract. Grid stabilization using electric storage will be a significant component of integrating solar power on the California grid.
Returns for investors?
Earnings are tied to long-term fixed power purchase contracts through a base in power pl