Compressed Air Can Compete and Thrive in Lithium Age: Q&A

By Iain Wilson, BloombergNEF. This article first appeared on the Bloomberg Terminal.

Lithium-ion batteries have captured the public’s imagination in recent years with the growing popularity of electric vehicles, but they “make absolutely no sense” in places where you have high renewables production and the need for long-term storage of that energy, according to Curtis VanWalleghem, chief executive officer of Toronto-based Hydrostor Inc.

“As penetration grows, you keep needing longer-duration storage and now in many pockets of the grid, they are requiring and demanding over 10 hours,” VanWalleghem said in an interview with BloombergNEF. “Lithium-ion is not a fit in that market. This is where compressed air, flow batteries, certain types of thermal applications will really kick in and take over.”

Hydrostor, based in Toronto, is banking on a system that stores energy by injecting compressed air into deep underground caverns. Off-peak or excess electricity either from the grid or renewable energy is used to run a compressor and produce heated compressed air. Heat is extracted from the air stream and stored for later use. The compressed air is stored in a cavern where it’s kept under constant pressure. To convert back to electricity, hydrostatic pressure forces air to the surface where it’s recombined with the stored heat and expanded through a turbine to generate electricity.

Founded in 2010, Hydrostor first attracted attention with a project in collaboration with Toronto Hydro that stored the air in balloons tethered to the bottom of Lake Ontario off Toronto Island. Hydrostor is now focusing on using underground, purpose-built caverns to retain the compressed air. Besides the Toronto Island project, which is being de-commissioned, Hydrostor has two other projects — a facility in Goderich, Ontario, to provide peaking capacity for Ontario’s Independent Electricity System Operator, and a system under construction in South Australia that is expected to begin service this year.

In September 2019, Hydrostor announced $37 million in growth financing, including strategic partnerships with Meridiam, an asset manager with an interest in clean-energy infrastructure, and Baker Hughes Co.

According to a recent report from BloombergNEF, providers of alternative technologies to lithium will continue to attract investors, but they will need to chart a careful course if they are to reach commercialization.

“Non-lithium energy storage technologies struggle when it comes to capex costs when compared to lithium-ion, so instead they must try to play off their other attributes,’’ BNEF analyst James Frith said in an email. “We are now starting to see some niche applications where these technologies can play on a more level playing field with lithium-ion, by providing services like inertia.’’

BNEF spoke to Hydrostor’s VanWalleghem by phone in mid-January. The edited transcript follows:

Q: Can you describe how compressed air stores energy?

A: Compressed air energy storage is a proven, mature technology. Plants were built at the multi-hundred megawatt scale in the 70s and the 80s. This is what we call conventional compressed air. The way it would work is that you run an air compressor. It sucks out the air and pressurizes it. When you pressurize air, it gets hot and they would just vent the heat to the atmosphere, send the air deep underground into a salt cavern, and a valve holds the air. When the power is needed again, the valve is open, the pressurized air comes out — you have to pre-heat the air before it expands through a turbine otherwise it will freeze up any hydrates in the air and any moisture — so they would burn a little bit of natural gas to pre-heat it and then send it through a turbine.

Hydrostor has made two innovations. The first one is rather than venting the heat and burning gas we store the heat from compression and reuse it instead of gas, making it emissions-free. The second is that instead of relying on salt formations, we dig into rock – so any reasonably competent bedrock – and flood it with water and push air in and lift water out of this rock hole. That allows us to build in really 70% of the landmass of the earth with no emissions, so we can go right into cities and whatnot.

Q: Can you update on your project with Toronto Hydro?

A: For our technology to dig these caverns in rock, you really need a 100-megawatt project or larger, so you’re now into multi-hundred million-dollar projects. Starting out as a company, you don’t really go from a concept to a few hundred million to build a full-scale plant. Instead, we’ve looked for opportunities where we can prove these two innovations and how the innovations combined with standard equipment can deliver a far superior storage solution compared to batteries.

One of the ways we’ve done this is through the Toronto Hydro/Toronto Island project. There we sunk balloons and ballasted them on the bottom of the lake about 65 meters deep and would pump air into those and it would expand those balloons underwater but keep the constant pressure. We then had a plant on land with our thermal management systems showing that heat recovery and re-injecting that heat back in.

We had some hope early on that these balloons would serve a purpose in serving the Caribbean marketplace. As we built that plant, it was clear that it had potential but you really needed huge projects and those huge projects are really too big for many of the Caribbean nations we were looking at.

We then focused on rock caverns flooded with water [which] demonstrates the exact same physics principle, which is this hydrostatic compensated air cavern. We got a lot of great data. We put in, I think, three different thermal systems, optimized our control systems, got a lot more intellectual property and patents out of it just from the unique things we uncovered in going through that process and we were able to secure our first commercial contract with the IESO [Ontario’s Independent Electricity System Operator) for a project which we just put into service – about a 10 megawatt-hour facility. That’s led to a project we’re constructing in Australia and a big pipeline of projects. We’re not really doing the balloons anymore but it served its purpose. We had a five-year window to test and optimize. That five years is wrapping up so we are in the process of de-commissioning that facility.

Q: In terms of using this for energy storage, where is this best suited?

A: We have a pipeline of projects that we’re developing – about 15 in Canada and the U.S., Chile and Australia – representing about 4 gigawatts. The typical size for us would be about 200 to 500 megawatts and about 10 hours of discharge duration.

The typical applications that we look at are replacing coal or gas infrastructure – so where they’re decommissioning a coal plant – because we can flexibly site. They can’t build pumped hydro there but we can co-locate at the same interconnection point and provide a synchronous rotating equipment alternative to the coal that’s there. We can also go in high-penetration renewable regions where they’re curtailing a lot of wind, and locate to help optimize that renewable mix. Non-wire alternative is another big opportunity where they’re looking at new transmission lines but putting in storage helps move the power flows through the existing lines more effectively, thereby eliminating the need for another transmission line. This application involves deferring or avoiding the need for new transmission lines by using energy storage as an alternative. And then going right into urban centers and cities and offering peaking capacity that’s emissions-free right in the city.

Q: At what point in terms of project size does compressed air storage not make sense?

A: The size of the cavern is really the governing principle. It’s not about the technology. It’s an economic minimum scale. We look at 1.5 gigawatt-hours being about the minimum scale. You could do 100 megawatts for 15 hours or you could do 200 megawatts for 7.5 hours. Anything that gets you to roughly that 1.5 gigawatt-hours, that’s about our minimum scale to be cost-effective versus the alternatives.

As you get bigger, our cost profile improves. It’s really a world-leading cost profile in the energy storage space. I think most technical people would agree that, theoretically, pumped hydro and compressed air have the lowest cost profiles. The benefit we have over pumped hydro is the ability to flexibly site in far more locations.

Q: What are we talking about in terms of kilowatt-hour for a compressed air plant cavern?

A: On the projects we look at, at scale, our cost profile looks something like about $1,000 fully installed for the first kilowatt-hour of energy storage capacity, but then only about $20 for every hour added on thereafter. If you compare that with a lithium-ion battery on a fully installed basis, they’re about $300 to $350 per hour but that’s really linear for every hour. If you need five hours, they’re going to be at $1,500, $1,600 a kilowatt. For us, we’re more like $1,100 a kilowatt. When you start looking and say in a high wind region that you need 48 hours of storage, then lithium makes absolutely no sense and again we’re still probably in the $1,500 a kilowatt range. It’s the long duration that’s really tailored to our cost profile and that we focus on.

Q: Can you speak a little bit about the project development timeline?

A: It’s a construction period of about three years with the final permits overlapping that. So another year or year and a half on the development side. All in, four to five years from thinking of a region to having something in service. For comparison’s sake, a pumped hydro plant would be 10-plus years, a new transmission line would be 10-plus years, a gas plant about the five-year mark. Batteries will do it faster – about a year’s timeframe including development and construction. Once we’re installed, it’s a 50-plus year asset unlike lithium-ion, which would need replacing every 5 to 10 years.

Q: Why is compressed air energy storage not more widely used?

A: Pumped hydro is the dominant storage technology, at 98% of worldwide installed capacity, so pumped hydro has lapped lithium-ion a hundred times over in terms of installed capacity. Why is that? It’s because it’s a super-long-life asset with a great cost profile. I can’t foresee a day when lithium-ion will have a bigger installed base than mechanical-based storage. Mechanical is way more cost-effective full stop. But in terms of pumped hydro, there aren’t that many good sites remaining, therefore other technologies have had to step in. Lithium-ion has stepped in in a big way. That’s occurred because if you add more renewable to the grid, you’re first wind turbine and solar panel don’t need any storage. They’re a drop in the bucket. As your penetration increases, you eventually need to start smoothing out these surges. You need 10, 15 minutes.

Flywheels and lithium-ion with their millisecond response time were a great fit. That’s where the market stood for a number of years. As penetration continued to increase, you needed to start doing two hours of storage. You look at a compressed air cost profile of $1,000 for the first hour and $25 for the next. You could still do two lithium-ions for $700 so you would still chose lithium-ion. As the penetration grows you keep needing longer-duration storage and now in many pockets of the grid they’re requiring and demanding over 10 hours. Lithium-ion is not a fit in that market. This is where compressed air, flow batteries, certain types of thermal applications will really kick in and take over that market. It’s still nascent. It’s still coming up, but it’s at the start of a 50- to 100-year run. As a company, we’ve taken what we know is the winner, which is pumped hydro, mechanical, long-duration cost profile, and made it so it can be sited virtually anywhere and go where the grid needs it.

Q: On the question of efficiency, how competitive is compressed air energy storage?

A: The theoretical efficiency of compressed air is in the 70% range but you’re not going to achieve that in the field. We’re showing about 65% but we put guarantees in our contract of about 60%, meaning that if the system ever performs below 60% we compensate the utility. If you compare that with lithium-ion, they’ll have a theoretical of 85%, maybe even 90%, but when you operate it in a frequency response – ie. Charge/discharge very rapidly every millisecond – they can say, hey we’re technically at that efficiency. If you ask them to store power from day to night or a 24-hour period and give it back, they’re not at that efficiency.

Our efficiency really is measured at the meter of the transmission system on units in, units out. If you take a lithium-ion battery in a hot or cold climate and the same sort of measurement, I’ve had utilities tell me their number can be as low as 50%.

Q: Are safety concerns about other storage technologies something you’re hearing more about as you pitch compressed air energy storage?

A: Definitely there are safety concerns (with other technologies) and I would even say the recyclability liability and the decommissioning costs are other major factors. If you think about a lithium-ion developer, they’re buying the batteries, it’s a commodity that they’re buying from Panasonic or whatnot. So they bid against each other and they get very low IRRs [internal rates of return) for the project and then the batteries don’t last as long as they thought, they have some extra fire risks, and then someone at the end of the day is going to be stranded holding that bag on decommissioning and recycling and paying to dispose of those batteries.

People are worried about that. The fire risk and the recycling cost and liability are real factors when considering developing those projects and they do come up in conversation.


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