First-of-its-kind rail energy storage project targets role in CAISO ancillary services market

A California startup is targeting ancillary services as the use for the grid-scale rail storage project
By Peter Maloney | April 26, 2016 Printprint

e newest entrant into the energy storage market bears a passing resemblance to cutting edge 19th century technology.

It is a rail car with no passengers or freight that goes nowhere. But if the California company working on this technology is right, its rail cars could make big inroads in the energy storage market.

At heart, though, the concept is simple. Electricity powers an electric motor in a locomotive that hauls a heavy load up hill. Sitting at the top of the hill, the rail cars store energy. When the energy is needed, the cars are released to roll down hill and the electric motor runs in reverse to generate electricity.

The company, ARES, is a start-up based in Santa Barbara that is named after its technology, Advanced Rail Energy Storage.

Any resemblance to 19th century rail technology belies the high tech workings of the system and the fact that ARES holds three patents for its technology.

The same electro-mechanical principle that powers the ARES system supplies the regenerative braking power in electric vehicles like a Toyota Prius or in wayside regenerative braking systems such as the one being installed on the metropolitan Philadelphia commuter rail line: When an induction motor that powers a train or car is reversed, it produces electricity.

ARES now hopes to put those principles to work in Nevada where it just won approval from the Bureau of Land Management for its first commercial project.

ARES wants to lay a nearly 5.5 mile track up an 8 degree slope, gaining about 2,000 feet top to bottom. ARES would then put up to seven 8,600-ton trains on the track with each train comprising two locomotives and four rail cars. The entire system, including substation and control systems, would occupy about 43 acres of public land near Pahrump in Clark and Nye Counties.

ARES is partnering with Valley Electric Association, an electric cooperative based in Pahrump, which will provide interconnection with California, where ARES plans to sell ancillary services such as frequency regulation to the California ISO (CAISO). ARES hopes to begin construction in late 2017 or early 2018 with operations starting early in 2019.

Size matters

One of the striking things about the ARES project is its size: 50 MW of power capacity and 12.5 MWh of energy. That would be large for a battery storage project, but for ARES, it is on the low side. “Fifty megawatts doesn’t get us to economies of scale,” CEO James Kelly said. “We are more efficient as we get larger.”

Kelly said ARES projects can be sized anywhere from 50 MW to 1 GW. “If we had a 500 MW project, we could double the capacity and it would only increase capital costs by 20%,” he said.

For the Nevada project, it turned out that size does matter. Even though California has a mandate to add 1.3 GW of storage by 2020, so far most of that capacity has been contracted through smaller power purchase agreements. That pushed ARES’ project out of the RFO process and into the merchant market.

That also presents challenges when it comes to financing, at least using capital markets and traditional project finance mechanisms.

Basing a merchant project on arbitrage opportunities – buying (charging) low cost power and selling (discharging) higher cost power – can be a risky business. It has scuttled more than one pumped storage hydro project.

Kelly said the Nevada project is not going to rely on arbitrage to earn a return on capital. He also said the project is not going to be financed in the capital markets. Instead, it will be financed through a combination of “high net worth individuals and family offices.”

He puts the total capital costs at “a little under $55 million” and said about 60% of the funds have been raised so far and hopes to secure the remaining funds in the next few months.

Instead of arbitrage, the Nevada project will bid into the CAISO ancillary services market, responding to the signals the grid operator sends every four seconds to help balance supply and demand. In that scenario, Kelly said multiple trains could be moving up or down (charging or discharging) hundreds of times a day in response to the ISO’s needs.