The market for grid frequency regulation services open to new service providers in the United States in 2004 was valued at nearly US$360 million--and is expected to increase in 2005--according to a Technology Brief issued yesterday by Ardour Capital Investments, LLC. Frequency regulation is the target market for Beacon Power's Smart Energy Matrix flywheel energy storage system, two demonstration systems of which are being built under contract to the California Energy Commission (CEC) and the New York State Energy Research and Development Authority (NYSERDA). The technology brief is available online at www.ardourcapital.com, under "Ardour's Energy Tech Updates."

According to the report, the U.S. frequency regulation market today is characterized by increased visibility, greater accessibility to new service providers and continuing expansion. Since the start of industry deregulation in the 1990s, a number of the independent system operators (ISOs) and regional transmission organizations (RTOs) who run the power grid have opened up their markets to new entrants to provide greater competition, lower cost and improved service. The report focuses on four of these markets, representing approximately 28% of the total U.S. power market (by megawatts), which are now accessible to independent providers of frequency regulation services.

"This report validates our own frequency regulation market research," said Bill Capp, Beacon Power president and CEO. "Based on this data and our ongoing product and technology development, we are confident that our Smart Energy Matrix design is ideally suited to address a market that is strong, growing, and available to new participants - such as Beacon Power. The two contracts we recently signed with the CEC and NYSERDA call for us to demonstrate that flywheel energy storage systems are not only a viable alternative to conventional frequency regulation methods, but also cleaner, better-performing, and more cost-effective."

Continued Market Growth Driven by Multiple Factors

The Ardour Capital report states that as the industry evolves, additional ISOs and RTOs are expected to follow suit and allow access to their frequency regulation markets--beginning later this year with the Midwest ISO. The other currently accessible frequency regulation markets (with corresponding 2004 market sizes) are: ISO New England ($38.0 million); New York ISO ($42.4 million); California ISO ($99.7 million); and the PJM Interconnection ($178.5). According to the report, "...as other regions of the country develop their own RTO power markets, readily accessible markets for frequency regulation could continue to increase for many years."

The report also states that the pricing for such services is directly linked to the price of electricity, which is also trending upwards.

The frequency regulation market is expected to receive a further boost as more wind power generation is deployed, in response to statewide Renewable Portfolio Standards (the percentage of a state's power that must be generated from renewable resources). Because of its more competitive costs, wind power has become the predominant renewable resource being implemented. From a performance standpoint, wind is less stable and subject to greater fluctuations than other generation sources. In addition, as wind assets are deployed, they often replace older generation systems that normally provide frequency regulation services in their area. These trends are expected to increase the need for frequency regulation services in areas where wind is used.

About Frequency Regulation

One of the most challenging aspects of today's electricity grid is that the amount of power generated and the amount consumed must be in exact balance at all times. When imbalances occur, the frequency of electricity (60 hertz in the U.S.) that end users require will not be maintained, which adversely affects grid stability. The constant balancing of power demand and production to maintain a constant frequency is called frequency regulation.

Beacon's Smart Energy Matrix is a flywheel-based energy storage system that is intended to be a long-life, environmentally friendly solution for frequency regulation, with no fuel consumed and no emissions generated. The equipment could be located nearly anywhere, including at a substation or within the distribution system, where additional benefits such as voltage regulation, backup power, or reactive power can also be provided for even greater value.