Andrew Jones of S&C Electric suggests that both options will be required and says they should be a part of any grid development process

Electricity storage and demand side response (DSR) are two of key technologies that are undergoing trials and early adoption to help decarbonise and manage the energy system.  Both will play a major role in balancing the grid: storage by capturing and storing renewable energy generated at the “wrong” time  and DSR by dynamically managing demand and diverting unused capacity back to where it’s needed.  Currently, the majority of grid balancing is supplied by switching on expensive peaking power stations to increase supply.  National Grid’s reliance on peaking power providers costs £15-20/MWh or £0.7-5 million per MW.  Energy storage and demand side response can both increase the amount of renewable power brought onto the grid and its utilisation within it, but how do they match up in terms of cost and reliability?
Government has recognised that both have different characteristics to generation and has designed the capacity market to ensure that demand reduction and storage can participate effectively, by running capacity auctions ahead of when capacity is expected to be required.
In setting the Capacity Market auction guidelines National Grid has prescribed the reliability for each balancing technology class available.  With a rating of 89.7% DSR is ranked as more reliable than combined cycle gas turbines, coal, hydro, oil or nuclear power.  However, energy storage comes out even higher as the most reliable technology class, with 97.38 % reliability.
The difference may sound marginal, but with National Grid facing new levels of urgency to protect the grid from brown or blackouts, every MWh may end up counting.  The capacity margin is predicted to fall to around 2% by 2015/16 – just 2,133 MW.
The additional capacity from storage comes at a cost, of course.  Battery systems are estimated to cost £0.5-1.8M/MW, whereas a “no build” balancing solution, like firm frequency response, costs only £0.05-0.15M/MW.
From a low-carbon perspective, energy storage helps the grid to balance capacity and supply and protects the grid during stress events.  If used alongside substations it can reduce the need for, and cost of, traditional reinforcement.  For example, Europe’s largest battery storage trial, a 6MW/10MWh battery storage project currently being installed, is expected to save UK Power Networks £6 million over 15 years, compared to traditional reinforcement methods.  If proven, replication across UK network operators could conservatively provide savings of more than £700 million by 2040 compared to business-as-usual approaches.
One of the most interesting aspects of DSR is tweaking the flow of power to machinery, which helps alleviate grid stresses, saving money and generating revenue for businesses that provide that service.  In the UK only 60% of grid capacity is used, so increasing utilisation is a cost-effective balancing method.
However, DSR depends on companies having surplus capacity.  In some areas where capacity is not available, energy storage could be added to alleviate the pressure.
And while DSR is effective at balancing the grid, it remains to be seen how effective it is at regulating supply from renewable energy on days when the wind and solar power are at their strongest.  To make green energy work for us, we need at times to deliberately increase demand to absorb large surges of renewable energy.  Until DSR uptake increases significantly, storage currently provides the most predictable means to raise demand.
While it is useful to compare them, it doesn’t necessarily follow that energy storage and DSR are opposing grid balancing technologies.  Technology classes perform differently according to their situation and scale.  Neither storage nor DSR is a panacea and as the grid gets smarter, we can expect there to be more cases of these technologies working together to harmonise power flow, voltage, system stability and system balancing.
What’s vital is at each stage of its modernisation, the grid is mapped in a detailed way to allow for the integration of current technology, as well as for future developments.