Canadian underwater energy storage company Hydrostor is eyeing US$1 billion of contracts to replace decommissioned U.S. peak power plants in the next two or three years, its chief executive said.

So-called "peakers," electrical generators which are turned on only when demand is highest, are a critical but expensive element of the electricity grid.

Hydrostor and its engineering partner AECOM are targeting dozens of mostly coal-powered facilities of at least 100 megawatt capacity across the U.S. that either shut down in 2016 or will shut this year.

Hydrostor buys off-peak electricity to compress air it stores underwater in balloon-type accumulators. It then reverses the process to generate power and feed it back into the grid when demand is high.

"We are now by far the lowest cost storage solution, we can be built at scale, we've got our partnerships in place and we're going to start marketing it here in the next month or two," Curtis VanWalleghem, Hydrostor's chief executive, said.

Hydrostor will compete for the attention of utilities against battery companies and new, more efficient gas-powered facilities.

"Most of the utilities in the U.S. that are starting to get their feet wet with storage are typically going with these battery plays, mostly because they're a little more flexible," said Craig Sabine, a strategic advisor for utilities at Navigant, a consultancy.

Utilities may also prove reluctant to turn away from gas given years of record shale production which pushed prices in 2016 to their lowest since 1999.

"The silver bullet has yet to be defined," said Richard McMahon of the Edison Electric Institute, which represents U.S. investor-owned electric companies. "There's a place for a lot of these technologies and certainly there remains a place for gas peaking when you've got those conditions, low gas prices," he said.

VanWalleghem said Hydrostor's capital cost of between US$1,000 and US$2,000 per kilowatt compares to at least US$3,500 per kilowatt for batteries, and makes it comparable to the cost of a new gas-fired plant, although with lower operating and maintenance costs.

He says the company, which had only built or contracted for projects of less than 2 megawatt capacity before inking the AECOM deal last year, can build facilities of up to 200 megawatts. One megawatt can power about 1,000 homes.