How solar owners' post-hurricane demand for batteries could impact utilities
As more customers see solar-plus-storage as resilience boosters, utilities could see less revenues
As Hurricane Irma receded last September, thousands of Floridians sheltered in 115 well-lit schools, drinking hot coffee and communicating with the world through cell phones charged by solar-plus-storage systems.
Funded by a $9.8 million 2009 Recovery Act grant, the solar-plus-storage systems powered the schools despite the overcast weather, while 6.7 million utility customers had no electricity. Like last year’s hurricanes in Houston, Puerto Rico and the U.S. Virgin Islands, Irma made vivid the value of shelter from the storm.
And given those recent natural disasters, there is “significant” investment in energy storage, Rocky Mountain Institute (RMI) Electricity Practice Principal Mark Dyson told Utility Dive. This has obvious implications for the solar photovoltaic (PV) and battery industries. But its importance to utilities is no less significant because responding wisely could benefit them and not responding wisely could cost them.
“With the cost of storage coming down, the economics of solar-plus-storage are compelling,” Dyson said. “Once you start considering what resilience might be worth, they just get better.”
As it becomes unavoidably clear that an extreme weather-driven emergency can hit anywhere, the pace of adoption of solar-plus-storage will accelerate, he added. Recognizing this, utilities from Vermont to Hawaii are looking into the technology and economics of grid-scale and customer-owned storage.
The rise of solar-plus-storage
Green Mountain Power is a utility-leader in the rise of solar-plus-storage.
The utility has several initiatives to deploy solar and battery energy storage throughout its territory. President and CEO Mary Powell said the company's strategy could be described as “resiliency as a service” because “customer interest in resilience is a big part of the transformative products and services we're offering.”
Almost a third of the leases in Green Mountain Power’s just-launched Tesla battery offering are already subscribed and it expects to fill out the program by the end of 2018, Powell told Utility Dive. “A big majority of customers say they are participating for resilience.”
This way of looking at solar-plus-storage systems could be a game changer in the marketplace, according to a new paper from the National Renewable Energy Laboratory (NREL) and Clean Energy Group. “Valuing resilience can make PV and energy storage systems economical in cases when they would not be otherwise,” it reports. Where adding storage is already cost-effective, “valuing resiliency can increase the size of the cost-optimal PV and storage system.”
The resilience value of solar-plus-storage is important to utilities because it “could lead to an acceleration of load defection,” Dyson said. “Customers may add storage for backup power but discover that it allows them to reduce their purchase of the utility’s electricity at times when it is most expensive, leading to lower utility revenues.”
But smart utilities like Green Mountain Power could take advantage of customer investments in storage and other emerging smart products and services, Dyson added. Forthcoming RMI research shows these customer-owned technologies could help utilities reduce their peak demand burden as much as 25%.
The value of resilience
Adding battery energy storage to a residential solar system typically costs an estimated $450/kWh to $800/kWh, plus an installation cost, according to Nick Liberati, spokesperson for online solar market manager EnergySage. Costs for commercial systems may vary, depending on size and need.
The exact value of resilience is elusive because there is no exact cost for an “anticipated” outage, the NREL/Clean Energy Group paper says.
As a result, the “resilience benefit” of solar-plus-storage is typically not accounted for when investigating cost-effectiveness, according to “Valuing the Resilience Provided by Solar and Battery Energy Storage Systems.”
For power systems to be resilient, they "must be capable of islanding and operating independently from the grid during outages,” the paper says. They must have “transfer switches, critical load panels, and appropriate controls” that allow them to “act as self-sufficient microgrids, generating energy and powering critical loads until utility services are restored.”
Diesel generators have long been used for backup power, but fuel supplies can be uncertain in emergencies, the paper adds. Buildings are likely to increasingly be designed with solar-plus-storage resilience capabilities “as outages occur more frequently.”
NREL Senior Energy Advisor and paper co-author Joyce McClaren said there are few technical challenges and mostly manageable regulatory challenges to getting more resilient power systems in place. “The biggest challenge is that resiliency hasn't been quantified and there is no agreed-on metric,” she told Utility Dive.
Estimated utility bill savings from a solar-plus-storage system can be incorporated into a payback calculation, the paper says. But the resilience value only becomes clear in “allowing businesses to stay open or residents to shelter in place” and “powering critical facilities such as hospitals and emergency shelters” during an outage or emergency.
Even when building owners see this value, there is no dollar amount they can use in a payback calculation, McClaren told Utility Dive.
NREL and the Clean Energy Group used the avoided cost of an outage as “a proxy for the value of resilience,” McClaren said. It is based on data in a 2015 utility customer survey by the Lawrence Berkeley National Laboratory that derived Customer Average Interruption Duration Index values.
It is a conservative estimate because it was limited to quantifiable losses like productivity and revenue, she said.
The researchers calculated the net present value (NPV) of resilient power supplied by solar-plus-storage systems for three types of precisely standardized buildings. They are a “typical but hypothetical” elementary school, large hotel and large office building, McClaren said.
NPV is “the net difference between the benefits and the costs of the project.” If the NPV is negative, the cost to install and maintain the system is greater than the bill savings. NPV is positive if the cost of building and operating the system is less than operating without it.
The dollars and sense of solar-plus-storage
Seth Mullendore, a vice president at Clean Energy Group and McClaren’s co-author, said NREL modeling tools were used to optimize a system for each building and maximize its economics over the 20 year system life.
In a scenario in which no resilience value was attributed, “the cost associated with the outage is assumed to be zero (i.e., no assets were damaged, and no business was disrupted),” the paper says.
In a second scenario, the value of resilience in dollars lost per hour of outage was applied. In that case, “the cost of outages can be reduced by the ability of a resilient power system to survive some part, or all, of anticipated grid disruptions,” according to the paper.
For the school, solar-plus-storage “was found to be economically viable without any kind of resilience value in the calculation,” McClaren said. When the value of resilience was added, “we could increase the optimal size of the system, shortening the payback period and improving the hypothetical return on investment.”
Solar, but not solar-plus-storage, “was economically viable for the large office building,” she said. “Adding battery storage was too expensive until the avoided cost of outages was added to the calculation.”
“When accounting for the cost of outages, the model increased the ideal PV size on the office building by 35% and added a 271 kWh battery energy storage system,” the paper says. Compared to the smaller PV system without storage, “the solar-plus-storage system increases the net benefit for the customer by $178,000 throughout 20 years, a 160% boost in NPV.”
McClaren said neither solar nor solar-plus-storage was economically viable for the large hotel without the resilience value. But valuing resilience made the economic case.
“Incorporating the value of resilience alters the optimal solution from that of no system at all to a resilient power system with 134 kW of PV and 79 kWh of battery energy storage capacity,” the paper says. “In this case, valuing resilience enables PV and storage to become the least-cost solution.”
Clean Energy Group’s Mullendore stipulated that these calculations assumed no extra costs for islanding. “Islanding costs are site specific, highly variable, and could increase cost,” he said.
For the systems analyzed, “the maximum cost to island ranged from 3% to 21% of the non-islandable system cost, with an average maximum of 12%,” the paper says.
How utilities can benefit
A close look at the numbers shows there is an upside for utilities in supporting customer demand for solar-plus-storage and minimal downside.
The paper makes it clear that, under the right circumstances, placing a value on losses due to outages can make solar-plus-storage “a fiscally sound investment.” But it is unlikely there is a downside in customers seeking to build systems larger than they need in order to take advantage of compensation policies like net energy metering (NEM), Clean Energy Group’s Mullendore said.
“Most NEM policies limit system sizes and most resilient power systems are built to meet critical load, which is more like 50% of the building’s total load,” he said. “And hotels and office buildings are cautious about capital costs.”
Green Mountain Power’s Powell said her utility has “been very bullish on storage” because it is likely to benefit the utility and all its customers. “It gives us the opportunity to move from an economically inefficient grid and power system to a system centered on homes, businesses and communities, which is a more resilient, economic and environmentally sustainable system,” she said.
“It makes sense for customers with solar-plus-storage systems to stay connected to the grid because the economics are more compelling. And you get to use this beautiful five-trillion-dollar transmission and distribution system we've spent over a hundred years building.”
Rocky Mountain Institute, Electricity Practice Principal
The key to valuing storage is its stack of benefits, she added. It can be used to manage system voltage or provide ancillary services, but "resilience is also an increasingly important part of the stack."
The stack of storage benefits serves more than just one commercial or residential customer because storage can also “lower or flatten peak demand, reducing the utility's operating costs," Powell said. “The storage owners and hosts are compensated for the values they provide and they provide values that go to all grid-connected customers.”
RMI’s Dyson said Green Mountain Power is an example of a utility avoiding the serious downside from customers valuing resilience by reducing their usage and taking advantage of the potentially bigger upside by using their customers' systems to strengthen the distribution system.
“It makes sense for customers with solar-plus-storage systems to stay connected to the grid because the economics are more compelling,” he said. “And you get to use this beautiful five-trillion-dollar transmission and distribution system we've spent over a hundred years building.”
That discourages grid defection but not the threat of load defection.
Staying connected allows customers to use grid electricity when it is least expensive and use the stored electricity their solar-plus-storage systems generate when grid electricity is most expensive. But with systems further justified by valuing resilience, that load defection could accelerate.
Utilities are “going different ways” with rate structures in response to revenue losses that are already appearing, but are still very small, according to Dyson. Utilities can structure demand charges and time-of-use rates in ways that optimize customers’ electricity use and allow the utility to use customer demand to reduce its cost to serve, he said.
Some utilities are carefully designing rate structures to give customers incentives and price signals to use their systems in ways that support the grid, Dyson said. “Xcel Energy’s just-proposed time-of-use rate pilot is a good example of a tariff that has the incentives structured correctly.”
Well-designed rates enable utilities to put the full range of distributed energy resources to work for customers who own them and for the system at large, Dyson said. RMI research on the concept of demand flexibility shows distributed energy resources, like solar-plus-storage systems, may be purchased as backup power and then paired with smart energy management technologies to benefit both the customer and the system.
“If you couple solar-plus-storage with a smart thermostat, or a smart water heater, or a smart EV charger, their programmable software can make certain the demand of the home or business is met and multiply the grid benefits,” he said. “Our research shows demand flexibility could reduce peak net load, across a wide geographic range, by almost 25%.”
NREL’s McClaren said regulators can be instrumental in opening these opportunities by removing barriers to permitting and interconnection of solar-plus-storage systems.
Clean Energy Group’s Mullendore agreed. “It is a good idea for regulators to be thinking about new ways to protect customers during outages,” he said. “Streamlining interconnection of resilient systems and considering the regulatory framework that is needed to incorporate them would be important steps in getting more system resilience in place.”
With regulators opening the way, utilities and customers could find solar-plus-storage to be the basis for a partnership that will lead them both toward a collaborative 21st century power system.