Aug. 26 (Bloomberg) -- Public Service Enterprise Group Inc. plans to spend $20 million to develop devices that compress air to store power, unlocking potential electricity production from wind turbines and solar cells.

PSEG, the Newark, New Jersey-based owner of that state's largest electric utility, announced a joint venture today with Michael Nakhamkin, an inventor whose system is used at the only North American power plant that stores energy underground in the form of pressurized air. When electricity demand rises, the trapped air is released to turn a power turbine.

The technology, which works like a battery, might widen use of renewable-energy plants because they could bank surplus power made when sunlight or wind is exceptionally strong. The venture, Energy Storage & Power LLC, will improve compressed-air technology to make low-polluting generation more efficient.

``Anything that does commercial-scale energy storage is huge,'' said John Gardner, a professor of mechanical engineering at Boise State University, who is not involved in the venture, in an interview yesterday. ``It can completely change the economic prospects of a wind farm.''

PSEG will market and license the technology using patents held by Nakhamkin, who is chief technical officer of the new venture and works in Basking Ridge, New Jersey. The systems can be used to generate from 15 to 450 megawatts of power, Nakhamkin said in an interview yesterday. One megawatt is enough to power about 900 average U.S. homes.

Alabama Plant

The 110-megawatt power plant in McIntosh, Alabama, that opened in 1991 uses natural gas-powered compressors to store air that is later used to power a generator turbine. A newer design will make the system cleaner and more efficient, he said.

``Technologically, this is not rocket science,'' said Arshad Mansoor, a vice president at the Palo Alto, California- based Electric Power Research Institute, a consultant on air- storage projects. ``We are looking at things that could be made to scale in a cost-effective way and could be deployed in the next five to 10 years.''

About three quarters of the U.S. has geologic formations that could be used for compressed air storage, Mansoor said. There could be 20 to 50 power plants producing 100 to 300 megawatts each that use the technology by 2020, he said.

Nakhamkin's design requires an additional fuel source such as natural gas to help heat and expand the pressurized gas. Still, power plants using compressed air can deliver three times as much electricity for the same amount of gas as conventional generators, he said.

Cost Comparison

Generating electricity this way can cost ``substantially'' less compared with the most-advanced natural-gas stations, said Stephen Byrd, president of PSEG Energy Holdings, a unit of PSEG, in an interview yesterday.

High fossil-fuel prices, a push for more renewable power and concerns over the U.S. reliance on foreign oil will boost the market for compressed-air energy storage, Byrd said. T. Boone Pickens, the billionaire Texas investor, promoted a national energy plan in July that was designed to cut U.S. dependence on foreign oil through the greater use of wind.

``We do think this is a game changing technology,'' Byrd said.

Storing power this way works like systems at hydroelectric dams that pump water up a hill, saving the potential energy for use later. Both methods complement nuclear power plants, which can't be turned off and on as easily as natural gas or coal generators when demand falls, Mansoor said.

Underground Cavern

``Pumped hydro emerged in the late '60s and early '70s when the nuclear reactors were built,'' Mansoor said. ``We need to figure out how to store electricity in the nighttime so the nuclear plant can run, and to store wind energy.''

The compressed-air power plant in Alabama can fill an underground cavern with enough air to generate 110 megawatts for 26 hours, Mansoor said. One drawback to the technology is the availability of suitable underground storage space, said Gardner, who published a paper on the technology last year.

Energy Storage & Power could license its technology to utilities seeking to help manage power demand or build new, stand-alone power stations. A new plant using the technology could be built in about three years, Byrd said.

``I'm taking people to Alabama to show that it works,'' Nakhamkin said. ``The project can be executed by any professional company.''

To contact the reporters on this story: Jim Efstathiou Jr. in Washington at jefstathiou@bloomberg.net.

Last Updated: August 26, 2008 10:18 EDT