How behind-the-meter storage could make up 50% of the U.S. market by 2021
Falling costs for residential solar systems and changing net metering policies play a part
This article has been updated to clarify comments from energy storage analyst Brett Simon. A previous version of this article also said rooftop solar was beginning to pencil more in other markets. That is incorrect.
The behind-the-meter energy storage market is small now, but is expected to grow rapidly over the next several years.
According to estimates by Brett Simon, an energy storage analyst at GTM Research, BTM applications will account for 50% of the U.S. storage market by 2021 as measured by megawatts installed. BTM applications now account for only about 15% of the market.
In the third quarter of 2016, BTM deployments accounted for 86% of the storage megawatts deployed, according to the U.S. Energy Storage Monitor report by GTM and the Energy Storage Association. However, Q4 will likely even out since a record low amount of utility-scale storage projects came online in the previous quarter.
Simon adds the caveat that the storage market is still relatively small, especially when compared with solar and wind power deployments. GTM estimates that energy storage will hit 2 GW in 2021.
Several factors are driving the growth of the BTM market, Simon said, among them improved system economics, changes to net metering policies and utility rate structures, increasing viability of demand-charge management for non-residential customers, and increasing interest in reliability and resiliency.
Hawaii is a good example of the changes that are driving the adoption of energy storage and setting the stage for the BTM storage market to flourish . In the Kauai, the Kauai Island Electric Cooperative (KIUC) and AES Corp. are combining a 28-MW solar farm with a 20 MW, 100 MWh battery system that will enhance the dispatchability of the solar power to the grid. While the deal is in front of the meter, it is notable because KIUC has agreed to pay $0.11/kWh for the output from the solar-plus-storage system, which is below the island's current cost of baseload power ,and represents a 30% drop in costs from a deal signed less than two years ago when KIUC signed a power purchase agreement with SolarCity for $0.145/kWh.
Another factor that could be a boon to BTM storage market growth is the falling costs of residential solar systems. According to a Lawrence Berkeley National Lab report, the cost of a residential solar systems has fallen to around 25 cents/kWh to 30 cents/kWh. Add in federal and state subsidies and tax benefits, and the figure drops to about 15 cents/kWh. Generally speaking, if the retail rate for electricity is less than that, solar is a poor investment; if it is more than that, rooftop solar is a good investment.
Even more important for the BTM storage market are Hawaii’s policy changes. The state aims to be powered 100% by renewable power by 2045, but it also has rescinded its net metering program for distributed solar, replacing it with two interim options until they come up with a more permanent compensation rate.
Customers can elect a self-supply option under which they are restricted to how much electricity they can send back to the grid and are not paid for those exports. Under the grid-supply option, rooftop solar customers can export electricity to the grid but are compensated at the lower wholesale rate rather than the retail rate of the previous policy.
Net metering policies' role in future BTM markets
Net metering policies are in flux all across the country. Most recently a bill was introduced in Indiana that would end the state’s net metering policy by 2027. Similar challenges have been mounted in Nevada, Arizona, Maine and Arkansas.
By pairing storage with solar power in BTM applications, customers can take advantage of declining solar power costs and can offset the lack of net metering revenues by using storage to store solar generated power and shift their load to reduce the amount of pricey peak power they buy from their utility.
In addition to playing an offsetting role, BTM storage is getting a positive push in states such as Nevada, Arizona and Vermont that are starting to provide mechanisms for BTM storage such as net metering and rate reform.
Right now the bulk of the BTM storage market concentrated in four regions: California, New York, Hawaii and PJM, according to GTM. But as costs fall and more financing becomes available, the market will inevitably grow to new state markets.
There is no dominant financing model for BTM storage right now, but some models, such as shared savings, leases and variations on power purchase agreements, are beginning to emerge, and being used on a smaller scale. Residential financing is rare right now, said Simon, but “as the market matures and monetizable value streams emerge, more financing will become available.”
That is particularly true for the C&I market, which Simon expects to grow faster than the residential BTM market. “For the next few years, the non-residential (C&I) market is expected to outpace the residential market in megawatt terms,” he said.
The key drive in the C&I market, said Simon, is the ability to monetize revenue streams, especially multiple revenue streams, which companies such as Advanced Microgrid Solutions, Green Charge and Stem make available to customers such as office buildings and municipal irrigation systems.
The residential side is less developed, and it is more difficult to pick a real winner, said Simon. In many cases, residential storage is still an “emotional” decision that “doesn’t pencil out,” he said. But he cites Hawaii as one place where residential storage is “starting to pencil more than other markets.”
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