THE CART BEHIND THE HORSE:

THE ENERGY STORAGE REVOLUTION

Ari Allen
Georgetown University Law Center
02/16/2010

FINAL

I. Introduction: Comprehensive National Energy Policy

Energy is the animating force of life and the cornerstone of civilization.1
Unsurprisingly, it has recently become vital to interstate commerce, national security,
public health, and ecological integrity not to mention international stability in those
same spheres. Ominous clouds are converging over the entire province of energy
complications are multiplying and externalities are intensifying.
In 2008, the price of gasoline spiked from $2.80 in August 2007 to $4.10 in July
2008, only to retreat back to $1.64 within the following four months.2 Volatility is harsh,
and prices unstable. Furthermore, national security concerns are implicated by our
dependence on foreign oil. More recently, we have been confronted by unstable regimes
in pursuit of nuclear energy. Uranium is refined in Iran with the stated intent of providing
civilian nuclear power, yet the world remains convinced it is producing nuclear weapons
to carry through with another stated intent wiping Israel off the map. Economically,
China and Russia are fiercely competing to become the fertile crescent of the green
revolution, leaving American economic hegenomy hanging in the balance.
Fuel combustion emits harmful pollutants into the atmosphere, and whether one
believes in climate change, or not ecological systems are increasingly imbalanced,
biological habitats are continually destroyed, and public health is suffering. In short, the
mitigation of pollutants is desirable regardless of political ideology or scientific opinion.
Simultaneously, the economy is suffering. Unemployment is at its highest in
decades. Fuel and electricity prices are providing improper price signals strangling

In 1920, Frederick Soddy noted most profoundly: The history of man is dominated by, and reflects, the
amount of available energy.
2
U.S. Department of Energy, Retail Gasoline Historical Prices, Energy Information Administration (Jan.
2010).

American consumers and industries. One must only reflect on the sudden shockwave felt
by the airline industry following the exploding price of oil. Black swans are no longer
tolerated by the masses. The hyper-information age is too complex and interdependent to
tolerate such sudden systemic shocks crises spiral into self-perpetuating panics. Simply
stated, the energy market is too big to fail.
In this presence, the lack of a comprehensive national energy policy (CNEP) in
the United States remains inexcusably self-evident. A wide array of policymaking
domains have directly converged on the issue of energy; yet its regulation remains
disjointed, incoherent and often contradictory. As a fundamental civilizing resource, the
effective regulation of energy requires no further justification it is both necessary and
desirable. This paper aims to explore the means by which we can bring this vision to
fruition.
Fundamentally, CNEP would provide a basis for promoting stability amongst
energy commodity markets traditionally characterized by extreme volatility. On a
deeper level, the possibility of formulating CNEP provides an opportune, if not
inescapable, moment of reflection in which the entire world must decide how to balance
the many interests essential to the future of our planet. As a result, it seems clear and
obvious that it is time for Congress to explicitly legislate its intention to preempt state
law and provide a clear direction toward resolving the many issues implicit in the energy
industry.
This paper will argue that CNEP should focus on a smart grid that revolves
around the implementation of new storage technologies as a focal point. The analysis that
follows in Part II will be organized according to the following intuitions: (1) energy

markets are composed of diverse energy commodities, though electricity plays a special
role in the energy industry; (2) electricity markets are inefficient because capital
expenditures cannot always be fully utilized (the peaker problem), consequently the
grid has multiple systemic vulnerabilities; (3) energy storage can be promoted through a
smart grid that allows the bidirectional flow of electricity (net-metering) in order to
encourage both distributed and centralized, generation and storage, of electricity (the
smart grid); (4) storage has the potential to transform the economics of renewable
energy, as it buttresses intermittent generation with reliable reserves (the intermittent
resource problem) and (5) different storage technologies will have different optimal
applications. In Part III, I will conclude with a reflection on the magnitude of the impact
of the forthcoming energy storage revolution.

II. Analysis: The Impact of Energy Storage

1. Energy Commodities: The Special Case of Electricity
Energy itself cannot be commoditized, in the general sense, because it is not
necessarily storable, usable or tradable in all its forms (e.g., my cars internal combustion
engine cannot run on any type of energy, only petroleum). On the other hand, narrower
subsets of energy (fuel sources) can be commoditized. Crude oil, natural gas, ethanol, and
propane are all independently traded energy commodities. They are tradable because they
are backed by the energy that they store intrinsically similarly to wheat, which is a
commodity backed by the nutritional energy it stores within. Simply, the strength of a
commodity reflects its ability to act as a store of value. Problematically for the United
States, these tradable energy commodities are often natural resources found abroad

increasing our trade deficit against adversarial foreign nations. Notwithstanding these
purely American concerns, these natural resources emit harmful emissions the root of
our public health, environmental and climate concerns. However, these emissions are the
natural residue of irreversible energy sources. Scientifically, chemical and heat energy
have an intermediate energy quality (free energy to bound energy ratio).3
Consequently, the end-user energy market is bound up in a higher quality, more
reliable form of energy namely electromechanical energy. Electrical and mechanical
energy are reversible the same generator than generates electricity can be run in
reverse, as a motor, and exert mechanical work. Moreover, whether we are speaking of
electronics or vehicles, the energy that performs work tends to be electromechanical in its
consumption. This is important because it contains the messiness of fuel choice within
the production and generation segment of the market chain providing us with greater
control and fewer complications when attempting to address the issues arising from the
use of these different sources.
Fundamentally, a functional market would allow for easy substitution between
these energy commodities. Interoperability and standardization of these commodities
would allow a meta-market to emerge in which each sub-market would become more
elastic, allowing for greater flexibility within both the demand and the supply curves. In a
word, these independent energy commodities are already joined in a greater energy
market: electricity. Notably, this market is still growing as hybrid cars and electric
vehicles begin to steer away from internal combustion and toward overnight charge-ups.

Free energy is energy that is ordered and can produced work. Bound energy can only be transformed into
heat. These concepts are implicitly bound up in the fundamental notion of entropy.

Unsurprisingly, the next revolution in the transportation industry depends upon the next
revolution in the energy industry as a whole energy storage.
Some of the consumption of these energy commodities takes place in centralized
generators, in which electrical energy is generated from these fuel commodities. Yet
some of their consumption also takes place in a more distributed fashion (e.g., the
transportation sector) and involves internal combustion that drives mechanical energy.
However, the divided structure of national energy consumption provides a
clarifying distinction that allows the possibility of addressing national energy issues
under the same umbrella namely, electricity. Electricity can be viewed as a
standardized form of usable energy. Regardless of where it is generated from, if energy
consumption were to rely on electricity alone, then the negative externalities associated
with using energy would be concentrated at the generation phase of electricity
production, rather than being distributed throughout the distribution/retail phase that
defines the consumption landscape (e.g., internal combustion engines). More simply
stated, establishing CNEP becomes more feasible when energy consumed is treated as a
uniform commodity. Consequently, the myriad of ways energy is produced can receive
the attention it both needs and deserves. Electricity provides the foundation for a metamarket within which narrower energy commodities can be exchanged. In a word, e
pluribus unum.
2. The Peaker Problem: Underutilized Capital Investments
Electricity markets are particularly inefficient because they depend upon the
demand for instantaneous power rather than the demand for stored energy (e.g.,
gasoline). Enormous capital investments are made to meet growing peak loads, even

when the current generation capacity is large enough to meet demand almost all of the
time. However, because demand is for power, and not for energy, utilities must meet that
instantaneous demand, even if that means making an enormous investment for the sake of
providing a little extra juice for merely a split-second. Indeed, [w]ithout storage, an
industry must develop and maintain an entire delivery network capable of meeting the
highest peak of the year at any given moment.4
This industry structure results in an extremely low return on investment.
Consequently, fixed costs are distributed within a narrow end-market leading to higher
prices throughout (especially due to the missing money problem,5 in which price caps
force utilities to look elsewhere in recovering the losses inherent in these costly periods
of production). Simply put, we have invested a tremendous amount of capital in
developing vastly underutilized electricity generation potential. In fact, according to a
2006 analysis by the Department of Energy, if we were to fully utilize spare generation
potential, existing U.S. power plants could provide enough juice to switch 84 percent of
the 220 million American vehicles on the road from gasoline to electricity.6 However,
for now, we cannot utilize these peakers to their fullest potential, because generation
cannot surpass consumer demand in an electrical market based on instantaneous power.
To eliminate the peaker problem (or the phenomenon of peak loads), we must
transform the very foundation of the electricity market from a focus on instantaneous
power supply to an accumulative storage of energy wealth. Energy storage will provide a

Jason Makansi and Jeff Abboud, Energy Storage: The Missing Link in the Electricity Value Chain,
Energy Storage Council (May 2002), at 3.
5
William Hogan, Acting in Time: Regulation and Wholesale Electricity Markets, New England Energy
Conference (May 17, 2007), p. 11.
6
David Biello, Spare Power Sufficient to Fuel Switch from Gas to Electric Cars, Scientific American
(Dec. 3, 2006).

solution because, as observed over 50 years ago, the phenomenon of peak loads is
characteristically found where the product or service is technologically not storable.7
The problem with a market based on power rather than energy becomes obvious
when we examine recurring market failures. Demand is unresponsive to price changes
because pricing is not provided to end-users in real-time and thus, demand remains
inelastic. Similarly, supply must meet instantaneous demand to avoid blackouts and
disruptions in power quality. As such, supply is also inelastic. This dual inelasticity
creates a fragile and volatile market a fragility that has been witnessed quite clearly in
recent years. Indeed, [w]ithout a storage component, the market will not function
properly and price spikes, instability and volatility will remain chronic problems.8
3. Net-Metering: Maximizing Distributed and Centralized Resources
In order to implement storage effectively, it must be installed throughout the
electricity market. Centralized storage would allow public utilities more flexibility (and
supply elasticity) in generating electricity, while distributed storage would provide
consumers with flexibility (and demand elasticity) in consuming electricity.
Consequently, the market power associated with holding larger accumulations of stored
energy assets would be allocated symmetrically to both producers and consumers
ensuring efficient and competitive market outcomes.
Distributed storage provides the opportunity for effective demand response
without requiring a change in consumption patterns (which is so heavily resisted).
Rather, the consumer can buy energy now, and consume energy later. This separation of
the moment of purchase from the moment of consumption allows the purchase to be
7

Peter Steiner, Peak Loads and Efficient Pricing, The Quarterly Journal of Economics, Vol. 71, No. 4
(Nov. 1957), p. 585.
8
Makansi, at 3.

responsive to the price of production, while the consumption can remain responsive to
instantaneous human demand. In the meantime, [without] storage, the industry must
operate within a just-in-time framework that is dependent on variable end-use
demands.9
On the other hand, centralized storage provides transmission service operators and
other grid-level participants with a new tool in maintaining the integrity of the grid. It
also provides public utilities the same flexibility that it provides consumers: arbitraging
the production price and a more uniform load factor for the generation, transmission,
and distribution systems.10
In this regard, storage generally provides a mechanism through which energy can
be traded. Less obviously, it empowers consumers with the opportunity to join in and
participate in electricity production (e.g., distributed generation). For example, a
consumer would have a greater incentive to install solar panels and wind turbines in
his/her backyard because there would be the assurance that momentary power generation
will not be wasted if the consumer is not home to consume it. Rather, energy can be
stored until later, and utilized when needed. Furthermore, the consumer could potentially
install as little, or as much generation capacity as desired because excess production can
be sold back to the grid, and stored in centralized energy banks. In this way, distributed
generation would become a lucrative household investment opportunity, and energy
efficiency would become an encouraged method of household financial savings.
The effective development of distributed generation would require a smart-grid
capable of net metering, in which the bidirectional flow of electricity allows consumers to

Makansi, at 3.
Makansi, at 11.

10

sell excess energy generation back to the grid.11 However, [t]he current system of
paying retail for electricity from the grid, but being paid only wholesale rates for
supplying electricity to the grid, discourages most actors from developing a grid
connected power generating system.12 As such, net metering needs to be effectively
implemented and regulated in order to tap distributed generation potential. Moreover,
both centralized and distributed storage are required in order to make net metering and
distributed generation a reality.
In this context, system-wide energy storage would create the very foundation of a
market in which energy could actually be traded. The ability to trade tangible energy (as
opposed to futures contracts and power scheduling) would create a real market in which
all market participants can actually participate. Demand and supply curves would become
more elastic, and purchases would become decisions rather than automatic responses to
the whims of an inelastic and volatile marketplace.
4. The Intermittent Resource Problem: Renewable Energy and Reliability
Energy storage also solves economic problems in the emerging renewable energy
market. Most renewable energy sources are intermittent, and as such, also unreliable.
There are times when the wind stops blowing. More inevitably, sunlight disappears every
night. These are undeniable facts about two of the renewable sources most commonly
discussed in the industry.
Storage however, provides a missing link in the electricity value chain, and allows
captured energy (whether solar, wind, or any other) to be utilized at a later time. As such,
wind and solar could be built with a large enough capacity to reserve some of the
11

Makansi, at 10.
Center for International Environment and Resource Policy, Distributed Energy: The Way Forward,
Fletcher School of Law and Diplomacy, Tufts University (July 2008), at 8.

12

generated energy for later hours when generation is not possible. As such, effective
energy storage is a prerequisite for the reliability of renewable energy. According to a
Department of Energy report, energy storage can be used to store energy generated
during periods of low demand and deliver it during periods of high demand.13 This
application of energy storage is called firming and shaping because it changes the
power profile of the renewable resources to allow for flexibility with the timing of
dispatch. 14
Additionally, intermittency and variability in wind generation output due to
sudden shifts in wind patterns can lead to significant imbalances between generation and
load that in turn result in shifts in grid frequency.15 However, while such imbalances
are usually handled by spinning reserve at the transmission level, [] energy storage can
provide prompt response to such imbalances without the emissions related to most
conventional solutions.16
Interestingly, according to the same study, while energy storage has great benefits
to offer to the renewable energy industry, the increasing penetration of renewable
resources into the energy market may make energy storage more lucrative as well
allowing both emerging technologies to mutually reinforce their own value.17 As such, it
is clear that energy storage is essential to transforming the energy market and to our
independence from dirty energy commodities. In the meantime, dirty resources will

13

US Department of Energy, Market Analysis of Emerging Electric Energy Storage Systems (July 31,
2008), p. 23.
14
Id.
15
Id.
16
Id. at 22.
17
Id. at 54 ([t]he increasing penetration of intermittent renewable generators in the electricity grid could
enhance the economics of future [electrical energy storage] projects).

retain a competitive advantage because they have a flexibility that only became
available by leveraging storage capacity.18
5. Types of Storage: Grid-Scale and Distributed Technologies
The energy storage market is evolving very quickly, with new technologies
continually emerging. However, energy storage can generally be distinguished into five
primary categories: (i) pumped-hydro; (ii) compressed air; (iii) electrochemical batteries
(including fuel cells); (iv) electromechanical batteries (or flywheels); and (v) emerging
technologies such as superconducting magnets.
Pumped-hydro is one of the oldest storage technologies and functions by pumping
water to an upper reservoir during times of excess power supply, and allowing the water
to flow into a lower reservoir during power shortages. As such, pumped-hydro could be
effectively used as a load balancing and peak shaving mechanism. However, due to high
construction costs and the requirement for large amounts of land, pumped-hydro will be
optimally installed as centralized grid-scale storage, rather than as a distributed
technology.19 In fact, pumped-hydro currently exists in sizes up to 1,800 MW,20 and
currently there is a 20 GW capacity in the United States 2.5% of total summer
generating capability.21 New sites for pumped-hydro facilities should be investigated
thoroughly as a potential sink for large-scale energy reserves.
Similarly, compressed air has similar limitations to pumped-hydro: high
construction costs and large land requirements. As such, compressed air would also be
optimally installed as centralized grid-scale storage. Recently however, compressed air

18

Makansi, at 3.
Makansi, at 16.
20
Richard Baxter, Energy Storage: A Nontechnical Guide, PennWell Books (2006), at 64.
21
Id. at 60.
19

storage solutions have gained more attention [b]ecause of their large scale and fast
reaction capability.22 Specifically, there is a particular interest in coupling compressed
air storage with wind farms because of its flexibility as a source and sink of bulk
energy.23 In conjunction with pumped-hydro, compressed air storage facilities should
receive heavy investments in order to ramp up our sink capacity for energy reserves.
On the other hand, electrochemical batteries can be used as both distributed
storage, or, in series as centralized grid-scale storage. In particular, this scalability of
electrochemical batteries seems to provide it with a secure seat in the future of energy
storage especially within the transportation industry. The capacity of prismatic lithiumion batteries is quickly approaching its maximum potential at about 160 Wh/kg.24 In
the meantime, new metal-air batteries have great promise, with speculations that they
may be able to hold about 1370 Wh/kg almost ten times the capacity of lithium-ion
batteries.25 This is a major advance toward what Bill Gates recently described as a
needed global energy miracle: battery improvements by a factor of 100 times.26
Electromechanical batteries, or flywheels, are gaining greater attention as an
ancient invention emerging renewed. Their round-trip efficiency ratings are remarkably
high (sometimes higher than 80%) as engineers begin to experiment with frictionless
magnetic bearings.27 These batteries also have the advantage of being mechanically
based, creating a charge/discharge ratio of 1:1 and the capability of cycling tens of

22

Id. at 72.
Id. at 72-73.
24
Electronic-labs.com, How to rebuild a Li-Ion battery pack, available at http://www.electronicslab.com/articles/Li_Ion_reconstruct/.
25
Bruce Mulliken, Metal Fuels on My Mind, Green Energy News (Oct. 2009), available at
http://www.green-energy-news.com/arch/nrgs2009/20090083.html.
26
John Sutter, Bill Gates: We Need Global Energy Miracles, CNN (Feb. 12, 2010).
27
Baxter, at 129.
23

thousands of times.28 As such, flywheels could potentially be used in both distributed

and centralized applications, and it is no surprise that [f]lywheels currently represent
20% of the $1-billion market for the energy storage component of the high-powered UPS
market.29 There is something about the simplicity of the flywheel that leads it to be an
intuitive choice for a seat at the table of clean energy technologies.
Other emerging technologies such as superconducting magnetic energy storage
remains in the premature stages, but are evolving quickly. However, due to the
uncertainty of safety, costs and other concerns, many of these technologies are too young
to provide a solution anytime soon. Additionally, due to the myriad of alternatives at
hand, it is not clear that a focus on these technologies is crucial at this moment. Rather,
the proper implementation of a combination of the conventional technologies may be
enough, so long as they are developed to their full potential.
III. Conclusion: Reflections on a Forthcoming Revolution
Sometime in early prehistory, humankind established early civilization by settling
into villages effectively ending the necessity of the hunter/gatherer lifestyle. The
impetus for this great revolution is often attributed to the sudden use of pottery, a
technology that allowed human beings to store and accumulate the most vital of their
survival resources food, or nutritional energy. Historians often consider this
accumulation to be the earliest form of wealth. Similarly today, the utilization of new
storage technologies promises a great revolution that would likely ripple beyond the
incredible transformation of the energy industry it would create a new type of wealth.

28
29

Id.
Baxter, at 133.

Storage is a crucial component of every market (whether it be in the form of

inventory, capital reserves, or currency as a store of value) because storage allows an
asset to be fixed, tangible and physically tradable. Storage also creates resource security,
providing a potential reserve in times of high demand or low supply. Its transformative
effect is obvious when viewed from these perspectives both historically and crossindustrially.
The task ahead is not simple and will require great investment, foresight and
sacrifice. Some may say it is impossible. Yet, impossibilities only exist until man
imagines their possibility. As Einstein ironically stated early in his career: There is not
the slightest indication that energy will ever be obtainable from the atom.30
As with any crisis, this is another great human opportunity an obstacle to be
overcome. The energy revolution represents more than reinventing the wheel, it is the
transformation of the way we transform things the way we use energy. Indeed, we may
be a modern-day Prometheus recreating fire only this time, through the
transformation of other natural elements such as air and water. Nonetheless, fire must be
stored and contained if we are to avoid burning down the house. As such, energy storage
will prove to be a transformative technology that allows this great revolution to occur
providing shelter from the storm of volatile demand, and a cart in which we can harness
the supplied horsepower of the wild horses we have already built.

30

R.M. Youngson, Scientific Blunders: A Brief History of How Wrong Scientists Can Sometimes Be, at 13.