Greater than the sum: How aggregation is making storage into a software business
Grouping customer-sited batteries can deliver the same benefits as grid-scale storage, DNV-GL says
In battery energy storage, the sum can now be much greater than the parts — great enough to change the way the grid works.
The installed capacity of U.S. battery storage continues to rise rapidly. The 65 MW deployed in 2014 turned into 221 MW put online in 2015, according to the U.S. Energy Storage Monitor from the Energy Storage Association and GTM Research. In the first quarter of this year, 18.3 MW were deployed, versus 5.8 MW over the same period in 2015.
On the strength of the 2015 performance and the 127% year-on-year growth in Q1, the Monitor projects a annual deployments of over 2 GW by 2021. That year the market will be worth a projected $2.9 billion — six times the value in 2015.
As storage comes to scale, once-prohibitive costs are coming down, but that's not the only important factor in its growing role in the power sector. As important as the batteries themselves, insiders say, is the software that allows utilities and grid operators to aggregate and control numerous storage sources on the grid.
“In the last 2 years, the business of developing software platforms that aggregate solar, batteries, and other distributed energy resources has become viable," said DNV GL Americas Energy Storage Leader Davion M. Hill. "Those software platforms will send us into the next era of growth.”
Software spurs the next era of growth
Other numbers from the ESA/GTM Monitor further point toward what Hill, also president of the National Alliance for Advanced Transportation Batteries, foresees as the next era of battery growth.
In front of the meter, utility-scale storage continues to lead the sector, reaching almost 10 MW in Q1 2016.
But behind-the-meter storage is also coming on strong. There were 8.9 MW added in Q1 2016 and behind-the-meter demand is forecast to go from 15% of the 2015 market to 49% of the market in 2021.
By then, the utility-scale segment of the storage market will reach an annual value of $1.2 billion, according to the report. But the combined residential and commercial-industrial behind-the-meter segments will have a projected annual worth of about $1.6 billion.
The rise of behind the meter storage heralds the next era in battery storage in which “behind the meter storage is utility-scale storage,” Hill said.
Policy Director Ted Ko of Stem, a leader in the aggregated storage market, agreed.
“Policymakers fail to see this," Ko said. "‘Behind-the-meter’ is not even an accurate characterization because aggregated smaller-scale storage can provide the same services that utility-scale storage can provide.”
It is not just battery technology that will lead to the next era of storage, Hill said. Enabled by the newest software platforms, aggregations of distributed energy resources (DER) will increasingly be able to provide megawatt scale power over long durations with unprecedented flexibility.
“People keep looking for a super battery like Lithium Air or Lithium Sulphur or the next great graphene thing,” Hill explained. “They are cool but they are academic.”
With software platforms that allow more and more efficient aggregation capabilities, “there is no need for a disruptive technology to emerge,” he said. “With technology off today’s shelf, it is possible to make a virtual battery that has energy and power and duration. And the software will continually advance.”
Cost, duration and policy
Just a few years ago, utility-scale battery energy storage was provided by nearly exclusively by sodium sulfur and lead acid chemistries, Hill said. “We are now in a new era with completely different chemistries and much different cost structures.”
Based on current projections from battery manufacturers like LG and Tesla, a reasonable estimate of the average lithium ion cell cost would be $200/kWh to $250/kWh, Hill said. For the full battery system, including non-battery hardware, the full cost is about $1000/kWh to $1,500/kWh.
EV and consumer batteries continue to drive prices down, Hill noted. “The EV market is a huge factor in driving down the stationary storage market because it is about 10 times the size.”
The price drops have not been the product of earth-shaking breakthroughs, he added, but come from consistent, 8% to 10% improvements in power capacity, discharge and density for lithium ion technologies.
“Compounded over 6 years to 8 years, that comes to the numbers we see now," Hill said.
Those new low costs, combined with the comparable incremental drop in the installed cost of photovoltaic solar led to the emergence of an affordable solar plus storage solution. That led “to new ways energy storage can be integrated,” Hill said.
Until 2015, duration matched power and most battery systems had equivalent MW and MWh ratings, Hill said. But in recent years, demand for short-duration, fast-discharge batteries has increased. As a result, behind-the-meter systems designed to meet power applications had a higher MW than MWh rating because the discharge duration there were built for was less than an hour.
Hill believes that ratio will shift in the opposite direction in 2016 because of California’s storage mandate.
“Most of the California utilities are pursuing storage systems with 2 hour to 4 hour durations to combat the Duck Curve and to do peak shaving,” Hill said. “There will be variations in power and duration year to year.”
New, long-duration battery chemistries are also emerging. There are commercial batteries available today with durations of 10 hours or more, he said. Vanadium redox, zinc air, and zinc bromide also have longer durations.
These new chemistries are following lithium ion down the cost curve, though not as rapidly, Hill said. “Statistics show 90% of the 2015 market was served by lithium ion and it will likely continue to dominate.
Policies that support solar continue to appear. California’s AB 2514 mandates 1.3 GW of storage. Together with the state's Self-Generation Incentive Program (SGIP), Hill expects the major growth in storage there.
A recent IRS notice suggests the 30% federal investment tax credit (ITC) can include the cost of battery storage if it is paired with solar and 75% or more of the battery charging is from the solar.
“That means you can start building financing around tax equity for solar-plus-storage packages,” Hill said. “That is a big growth enabler.”
Rulings from the Federal Energy Regulatory System (FERC) on the use of battery storage for bulk transmission system services like frequency regulation created crucial revenue streams. The potential for rulings on other such services could be equally supportive.
Finally, New York's landmark Reforming the Energy Vision (REV) proceeding is expected to “overhaul the way utilities do distribution system upgrades,” Hill said. The reforms are likely to necessitate a very high functioning software platform for the utilities or the independent power producers who manage those operations, he believes.
“That reinforces the likelihood of imminent growth of the software platforms that can aggregate and optimize DER,” Hill said.
Software and the next era
Before the potential of advanced software became clear, storage was expected to shave peak or firm renewables, Hill said. Software optimizes storage so it can do both and more.
“In the long run, storage is a software business," Stem's Ko agreed.
With today's software, “storage at a site can save a customer demand charges while firming up solar on the roof and providing frequency regulation to the transmission system operator and allowing the distribution system operator to defer an upgrade,” Hill said. "That software also allows each of those values to be quantified and monetized.”
Utilities are also recognizing the potential of software to reliably obtain these multiple services from storage and other distributed energy resources, Hill emphasized.
“Pacific Gas and Electric just announced it was taking 13 planned distribution system upgrades off the books as no longer needed and saving their customers over $190 million because the utility can get those services from the DG on their system,” Hill said.
“Probably half the companies that won bids in the California utilities’ bidding for storage were more software companies than battery companies,” he added.
New software platforms are permitting the stacking of applications that were previously thought to be “mutually exclusive,” Hill said. He listed a wide range of relatively new providers like Geli, Intelligent Generation, Greensmith, Stem, Tesla, and Advanced Microgrid Solutions. He also mentioned established players like NEC, GE, and Landis+Gyr.
Some of them are trying to design “an operating system for the grid” and others are adapting software already used in successful products for the new space, he said. GE’s recent introduction of DER aggregation software “is an indication the market is maturing.”
“It would not be surprising to see some of the established players acquiring companies with the capabilities to do aggregation,” Hill speculated.
In fact, multinational oil and gas conglomerate Total recently acquired battery vendor Saft for $1.1 billion, “the first billion-dollar-plus deal in the storage space,” ESA/GTM reported. “With its previous acquisition of a controlling stake in SunPower, Total has positioned itself for a leadership role in the renewables-plus-storage domain.”
Currently, utility scale storage is fulfilling capacity contracts, providing grid operators with frequency regulation, allowing distribution system upgrade deferrals, and dispatching and firming renewables.
Commercial-Industrial scale storage is allowing businesses to lower demand charges reductions and control their electricity costs.
Residential storage is allowing customers to use the electricity generated by their own solar at times of their own choice and to have back up emergency power.
A software platform allows a single battery system to do all these things, Hill said.
CEO Brett Hauser of Greenlots, which designs software to integrate electric vehicle charging into larger networks, agreed.
“Each of these battery assets can perform different functions but have conflicting priorities at times. Using software for aggregation can optimize grid services and ultimately increase the utilization and ROI of the system,” he said.
'Learning every day'
By stacking value streams, “you are providing value for different pieces but they are all happening at the same time,” Hill said.
This is possible, he explained, because the software allows aggregating batteries with differing characteristics.
"The system becomes a virtual battery that has really amazing characteristics,” Hill said “It can have a lot of flexibility on long durations by combining short duration batteries. By adding batteries, the aggregate can have both a wide range of power output and a wide range of energy output."
Operated by a capable software platform, each individual battery also continues to meet the purposes for which it was installed because it is used only for a short period of time, he said. A wider range of capabilities is achieved because the software "can optimally stagger and stack functions and becomes a very flexible power system in the aggregate.”
Aggregations can be any size and they can have any power and duration ratio, Ko affirmed. “One big battery is not as flexible as 100 smaller batteries.”
Wind developers can get a utility scale battery solution from aggregated behind the meter storage, Hill said.
“Storage aggregators like Greensmith or Greencharge Networks with portfolios of customer-sited batteries can contract with utilities to provide a specified amount of capacity without interrupting their primary customers,” he added.
“A Stem can use its customer portfolio to contract with Walmart to provide a certain level of demand charge reduction and bill management and take a share of the savings," he went on. "That would not compromise the services it provides to the customers who host the onsite storage or the revenue stream it derives from them."
Software platforms can incorporate prior historical demand trends, weather, and demographics, "and can even make decisions based on the remaining useful life of the battery," Hill added. "Long term profits may be tied to decisions between incremental battery degradation and economic opportunities."
Some software providers are thinking about energy trading, he said. Revenues might be enhanced by decisions about whether it is more profitable to sell energy or store it until it becomes more valuable and whether it is more profitable to sell at one system node or another.
“The software makers are learning everyday about more things they can do,” Hill said. I can’t wait to see what innovations they come up with.”