Grid-scale batteries do not currently reduce emissions. Here's how they could.

Energy storage as deployed on the US grid today has a dirty secret — it actually increases carbon emissions. In this episode, Tierra Climate founders Jacob Mansfield and Emma Konet discuss their vision to incentivize emission reductions by making batteries and other energy storage eligible for carbon offset.

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David Roberts

It is widely understood that decarbonizing the grid will require a large amount of energy storage. What is much less widely understood is that batteries on the grid today are generally not reducing carbon emissions — indeed, their day-to-day operation often has the effect of increasing them.

Yes, you heard me right: most batteries on today's grid are responsible for net positive carbon emissions.

I was quite disturbed when I first found out about this, mostly through the research of Eric Hittinger at the Rochester Institute of Technology, and I wrote a piece on it on Vox way back in 2018.

Contemporary research suggests that nothing has changed in the ensuing five years — most batteries still behave in a way that increases emissions. But a new startup called Tierra Climate is trying to change that. It wants to incentivize emission-reducing behavior in batteries by making it an eligible carbon offset.

Just as a renewable energy producers can make extra money through the sale of renewable energy credits (RECs), battery operators could make extra money through the sale of carbon offsets on the voluntary market — but only if they change the way they operate.

It’s an intriguing idea and the only real solution I’ve seen proposed to a problem that no one else is even talking about. So I wanted to chat with founders Jacob Mansfield and Emma Konet about why batteries increase emissions today, what incentive they would need to change their behavior, and what’s required to set up an offset product. And yes, I recall that Volts recently featured an episode extremely critical of carbon offsets — we’ll get into that too.

So, then, with no further ado, Jacob Mansfield and Emma Konet. Welcome to Volts. Thank you so much for coming.

Emma Konet

Thanks for having us.

David Roberts

Emma, let's start with you. You worked at a battery company before jumping to this startup. Let's walk through a few basics here. Let's just start with this question. If I'm an investor and I want to build a big battery and attach it to the grid, how would I make money? What are the sort of routes through which I could make income with a battery?

Emma Konet

So batteries typically have three ways in which they make money. The first one is, I think, what everyone traditionally thinks of a battery doing, and it's called energy arbitrage. And basically that just means that a battery buys power when the price is low and it sells power when the price is high.

David Roberts

Right.

Emma Konet

And the difference between those prices is what the battery is paid. Of course, some energy is lost through the process of storing it, and so batteries are not 100% efficient. So that's kind of the traditional idea of how batteries operate. But that's actually not really what a lot of batteries are doing on the grid today. Instead they provide what are called ancillary services and those are basically products that help to keep the grid frequency at 60 Hz. It's really important for reliability, just in everyday power grid operations, that that happens and the grid operates more efficiently when it's in a tighter band, around 60 Hz.

Batteries are really good at providing those products because they can very quickly ramp up and down and they can provide those products around the clock.

David Roberts

Yeah, this is a really cool thing about batteries, just to sort of insert kind of an aside here is those grid services used to only be able to be provided by giant spinning mass, giant fossil fuel power plants. So it's very cool that we have this basically digital source now of these grid services — is much more precise.

Emma Konet

Exactly. And just much more efficient. So that's the second revenue stream available to batteries and then the third is what's called capacity revenue. And this is not available in every market, but it's basically available in every deregulated market outside of Texas. And it's like long-term grid planning. So the grid operator looks at the expected demand forecast on the time horizons of years rather than days or weeks and determines how much power plant generation capacity it's going to need to satisfy that demand in the future. Then it creates a market to establish the price of what basically it costs to bring new generation online to meet that demand and also to satisfy power plants that are retiring and going offline and that we need to backfill. So that is another service that batteries can offer.

David Roberts

Paying them to be available basically.

Emma Konet

Exactly. Yeah, exactly.

David Roberts

And you mentioned this, but maybe it's worth clarifying a little bit. Capacity payments are obviously only available in areas with capacity markets, so that is restructured areas other than Texas. Because as Volts listeners may or may not know, Texas has this energy only market with no capacity market. So what about in areas where there are still vertically integrated old school utilities? Can batteries make money in those areas, and is it the same way?

Emma Konet

So that's actually a really good question. And there's a lot less transparency in vertically integrated markets, so it's not obvious to say exactly what batteries are doing. And basically the utility decides the operating mode of the battery. And I think the biggest distinction between vertically integrated and deregulated markets are that in vertically integrated markets, utilities can rate base the cost of bringing new generation online, whereby in deregulated markets that has to be supported by the fundamental economics of the power market. And that's why deregulated markets are so good at getting lowest cost dispatch. And that was why basically they deregulated in the 90s. It's basically that batteries functionally do the same thing, they're providing frequency services and probably doing some energy arbitrage and are online for capacity in vertically integrated markets. There's just much less transparency on how they're being paid and how much of that is essentially being subsidized by rate payers.

David Roberts

And let's just say a little word about grid services, because, as we mentioned, it's very cool that batteries can provide these services, sort of voltage regulation and stuff like this, but I think people should understand that this is not a large burgeoning market. Like the actual demand for grid services is relatively limited and close to being saturated now. Or sort of like how much headroom is there in that particular slic