Private and External Costs and Benefits of Replacing High-Emitting Peaker Plants with Batteries

Falling costs of lithium-ion (Li-ion) batteries have made them attractive for grid-scale energy storage applications. Energy storage will become increasingly important as intermittent renewable generation and more frequent extreme weather events put stress on the electricity grid. Environmental groups across the United States are advocating for the replacement of the highest-emitting power plants, which run only at times of peak demand, with Li-ion battery systems. We analyze the life-cycle cost, climate, and human health impacts of replacing the 19 highest-emitting peaker plants in California with Li-ion battery energy storage systems (BESS). Our results show that designing Li-ion BESS to replace peaker plants puts them at an economic disadvantage, even if facilities are only sized to meet 95% of the original plants’ load events and are free to engage in arbitrage. However, five of 19 potential replacements do achieve a positive net present value after including monetized climate and human health impacts. These BESS cycle far less than typical front-of-the-meter batteries and rely on the frequency regulation market for most of their revenue. All projects offer net air pollution benefits but increase net greenhouse gas emissions due to electricity demand during charging and upstream emissions from battery manufacturing.