Blackouts, brownouts and other power disruptions cost Americans an estimated $150 billion a year.  Unless we move quickly to modernize our electricity infrastructure, these problems are likely to worsen as the system ages and demand for peak power during the summer months increases.  

By all accounts, one weakness in our current power grid is a lack of energy storage.  This forces utilities to ramp different power plants up and down in response to shifts in electricity demand -- a process that is expensive and inefficient.  

To avoid power disruptions, the system has to respond to both large swings that happen over the course of a day (we use more power at 3 p.m. than 3 a.m.) as well as much smaller swings that happen moment by moment.  This challenge is growing more important as we rely on more wind and solar power, which can fluctuate when the wind stops blowing or a cloud rolls over.

Even a small increase in America’s energy storage capacity would make our system more flexible, stable, and reliable, and play an important role in our overall effort to reduce the number of costly power disruptions each year. 

One promising new technology for dealing with the moment-to-moment fluctuations in our power grid is flywheel energy storage.  The flywheels are “charged” by using electricity to spin them faster and “discharged” by using flywheels to spin a turbine and generate electricity.  In 2010, the Energy Department awarded a $43 million loan guarantee to Beacon Power to construct a state of the art energy storage facility in Stephentown, New York based on this cutting edge technology.  The plant is up and running, generating revenue and helping stabilize the power grid.  

The Stephentown facility is equivalent to a “shock absorber” for the power grid, in the sense that it can absorb sudden power surges and make up for sudden losses of power.  It is the first of its kind in the world and the largest operating flywheel or battery energy storage facility in North America.  Ultimately, similar facilities could be built around the country and exported around the world.  

This type of service is called “frequency regulation,” and it is crucial not only to the stability of the power grid, but to the reliable operation of many of the electric devices we use today.  

Beacon’s flywheel technology has significant advantages over its major competitor in the frequency regulation market -- natural gas and other fossil fuel plants.  Natural gas and other fossil fuel plants take minutes to ramp up and ramp down, whereas the flywheels can respond to changing demand in a matter of seconds.  Fossil fuel plants also suffer significant wear and tear in the process, reducing their output and shortening their useful life.  Prior to a recent ruling by the Federal Energy Regulatory Commission, however, the Beacon flywheel plant has generally been compensated at the same rate as natural gas plants – even though Beacon provides a much more valuable service.

Recognizing the unique importance of these services, on October 20, FERC, which is an independent agency, approved a rule that ties the market price to the speed at which frequency regulation providers can respond to changes in supply and demand.  This is intended to provide an economic incentive across the country for flywheel and battery systems that react more quickly.  

The ruling could ultimately increase the revenues generated by the Stephentown plant and improve the long term economics of flywheel technology.  These rulings generally take time to be implemented, however, and the impact has not yet been felt.  Unfortunately, the original pricing scheme, combined with declining natural gas prices and increased competition from additional generation bidding into the regulation market, has put enormous financial strain on Beacon.  The price of frequency regulation services in the New York market has declined significantly.  

It is important to note that the Department’s loan guarantee for the Stephentown project has many protections for the taxpayer.  The Department’s loan guarantee is for the project and Stephentown Regulation Services, LLC, not the parent company.  The loan was set up in a way that ensures that Stephentown Regulation Services, which owns the plant, is not responsible for the liabilities of the parent company.  

While Beacon and its affiliates have filed for bankruptcy, the Stephentown plant itself – which is collateral on the loan -- continues to operate and is generating revenue.  In addition, under the terms of our loan guarantee agreement, Stephentown Regulation Services, LLC currently has cash reserves and proceeds from the plant that it was required to hold as collateral on the loan.  Because the plant is nearly completed and under budget, $4 million of the loan guarantee amount has yet not been tapped by the company.  

Finally, this loan is the only senior, secured lender of the Stephentown project company, which owns the plant.

The Department has been keeping close track of the finances of both Beacon Power and Stephentown Regulation Services, LLC.  The Department has instituted regular communication with the companies and their advisors on the project to ensure the highest level of accountability for the taxpayer investment.  Protecting taxpayer dollars remains the top priority for Secretary Chu and the Department.