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I was rather surprised that the energy transfer loss is only 10% in batteries, but 15% in flywheels. It's pretty amazing that the chemical process in a li-ion battery (developed in the last 50 years) is more efficient than our best engineering efforts in the simple wheel and axle design (over 5500 years old).

On a side note, an engineer at our local power plant once told me that the inertial energy available on "the grid" was sufficient to cause one of the steam turbines at our local power plant to "jump out of the floor" should someone fully engage it out of phase.

The US might benefit from some investment in Nickel-Iron batteries. These were invented by Edison in 1901. They have a basic service life of 20 years (as opposed to 3-5 for Li-ion) and can be stretched to 50 years with electrolyte replacement. The battery tech is worked out, but investments in manufacture and economies of scale would enable market access to a technology with lower cost than Li-ion. (Also, the materials used in NiFe batteries are cheap and available domestically. They are a bit challenged with regards to high currents, though.)

Wind and solar plants “introduce some additional variability that you don’t have with traditional thermal units,’’ Mr. Zaharuncik said. With a system that has a lot of renewable energy generators, he explained, “you need some other kind of resource that complements it. ‘’

I'm surprised that flywheels aren't a bigger deal because of wind and solar power. Why doesn't someone make a flywheel unit the size of a major appliance, incorporating inverters and regulating hardware, for home wind and solar?

Perhaps safety issues[1]?

[1]http://news.ycombinator.com/item?id=309413

Flywheel safety isn't such a big deal if you can bury the flywheel chamber in your backyard. Decades ago, there were fiberglass flywheels whose fibers simply unraveled when they failed, becoming a mass of very hot fuzz.
Flywheel technology were an area of research over a decade ago when battery research was still in its infancy. IIRC, GM had an electric car concept that had a huge fly wheel behind the cabin. But your options were slow, heavy (thus inefficient) flywheels or light, fast flywheels. And by fast I mean 100,000 RPM. At those speeds they were using Kevlar to keep it from flying apart, making it impractical because of the price of kevlar.
At the last company I worked for, which was a manufacturing facility. They installed a giant flywheel as a line conditioning device. (We manufactured NAS, and it is terribly costly when a power outage interrupts 5 days worth of testing forcing you to start over). I think it gave us about 17-18 seconds of power, in the event of any brief interruptions in power (Most of the outages we received were 1-2 seconds in length)
Some datacenters (eg the Miami IPX/NAP) use flywheels the size of large trucks to provide failover until the generators kick in. They are seriously scary machines up close.
If you're doing these on an industrial scale a liquid salt battery might be worth while.
Are you referring to the sodium sulfur batteries that NGK makes?
Sodium Sulfur, Sodium Aluminumchloride, Potassium, whatever. This actually seems like an "almost there" technology which would blossom if there was a big demand for it.
Nickel is not a cheap metal and NiFe batteries are not efficient[1]. Nickel is much more damaging to the environment to extract.

LiFePO4 batteries have lifetimes exceeding 15 years (no one really knows how long yet -- they were invented in 1996). Their efficiency is well above 90%. Its raw material costs are less than NiFe.

[1] http://en.wikipedia.org/wiki/Nickel-iron_battery

I don't think it's the wheel and axle design that limits the flywheel efficiency, it's more likely the electric<->mechanical energy conversion.
What about the bleed-off? Flywheels loose energy due to friction, and batteries slowly self-discharge.
Indeed. I have done some research on flywheels and I believe that they can be much more efficient than batteries. Another huge benefit to flywheels is that they are consistent and do not suffer loss of capacity over their extremely long lifespan.

Flywheels really should be used for this type of thing, not batteries.

Regarding efficiency, the following is from a 2003 report:

"Various losses in the system, including bearing losses, and electrical losses (stator losses, power converter losses), contribute to the overall conversion efficiency. The power electronics switching losses usually dominate the total losses, and the overall efficiency is a function of power, usually > 80% for power in the range 10% to 100% rated. The maximum efficiency quoted by some manufacturers is 96%. This gives rise to a typical maximum in-out efficiency of 92%."

- http://www.itpower.co.uk/investire/pdfs/flywheelrep.pdf

I was rather surprised that the energy transfer loss is only 10% in batteries, but 15% in flywheels.

Unrelated, but this led to an interesting thought for me. When flywheels fail, they shatter into explosive shrapnel fragments, killing everyone nearby. When shipping containers full of LiIon batteries fail, they blow up and leave a crater the size of ... well, big, probably.

Why such energetic failures? Because that's what they do, concentrate a lot of energy all in one space. Electricity and explosions are both energy.

I know this is obvious but it made for an interesting few seconds of mental dialogue so I thought I'd share :)

What about some sort of hydraulic "battery"? I have seen water pumps that can be used as generators and vice/versa, especially during offpeak periods, water is pumped uphill, and during peak demand, water is sent downhill to generate electricity.

Would a hydraulic turbine/pump/generator be feasible?

Well yes, and that's what the system you mentioned does. In addition to pumped hydro, there are schemes for pumping air into underground caverns.

You need too much volume to make artificial tanks cost-effective. That's why natural formations are used.

That pneumatic system sounds interesting. Do you have any links, por favor?
I don't think so, since the article states that the system needs to vary its output in 5 second intervals, the generators that use water will take too long to start spinning up to keep up with a sudden strong current draw.
Pump power storage facilities have been online for decades. They are often near nuclear facilities which can not easily throttle up and down:

http://www.nypa.gov/facilities/blengil.htm

I think your analogy to a battery is correct for these pump storage operations while a container of batteries is, by analogy, closer to a capacitor: able to deliver high pulses of current quickly but only for a very short time.