2015 was a banner year for energy storage. New entrants to the utility storage market like Tesla attracted national attention to the sector, and companies deployed more batteries and other storage technologies than ever before.
A recent report from GTM Research estimated that storage installations will hit 192 MW this year, triple the amount of storage put in place in 2014.
Some of the largest gains came from the behind-the-meter market, which grew by a factor of 16 in 2015, but in 2016 expect to see front-of-the-meter applications continue to make up the lion's share of new deployments.
“The behind-the-meter market will continue to take a back seat until 2020,” Brett Simon, energy storage analyst at GTM Research, said.
As the behind-the-meter uses for energy storage become better understood, the market will expand, Simon told Utility Dive. In addition, GTM Research is predicting “significant” storage price declines by 2020 that will make the economics of storage more attractive.
Colette Lamontagne, a director in the energy practice at Navigant Consulting, also sees a strong year for energy storage in 2016 with in-front-of-the-meter installations continuing to dominate. “2016 will be an in-front-of-the-meter year,” she says.
Policy pushes front-of-meter growth
Despite big gains for behind-the-meter applications in 2015, policy initiatives already in force will continue to drive wider deployment of energy storage solutions.
In the near term, California will continue to dominate the market for energy storage on the strength of AB 2514, the landmark legislation that requires the state’s investor owned utilities to procure 1.3 GW of energy storage by 2020. It is the highest procurement target for energy storage in the world, and it will increase the state’s energy storage capacity sixfold.
One of those utilities, Southern California Edison, has signed contracts for a total of 263 MW of storage resources, including a contract for a 100-MW storage facility being installed by AES Corp. in Long Beach.
By the end of 2016, AES Energy Storage will have doubled the MW capacity of its operational battery fleet, according to Brian Perusse, vice president of international market development. As of November, AES had 96 MW of energy storage in operation, and had announced a total of 384 MW of projects in operation, under construction or in late-stage development globally.
Batteries for many of those projects will be supplied under a deal with LG Chem under which AES will purchase 1 GWh of lithium-ion battery from the South Korean manufacturer. “The deal demonstrates that energy storage is ready to scale and meet growing industry demands,” Perusse said, citing a Navigant market forecast that sees 11 GW of energy storage capacity in place by 2020.
California may have trail blazed the storage market, but other states are following suit. In June 2015, Oregon passed energy storage legislation, Bill 2193-B, that requires the state’s two main utilities to have 5 MWh of storage in service by Jan. 1, 2020.
Frequency regulation market drives growth
Aside from state mandates, much of the ground gained by storage in 2015 continued to come from the frequency regulation market, particularly in the PJM Interconnection region that stretches from Illinois to New Jersey.
Since the Federal Energy Regulatory Commission implemented Order 755 in 2011, the use of battery storage to provide frequency regulation services has grown dramatically in PJM. In 2014, two-thirds of the 62 MW of storage deployed in the U.S. was in the PJM territory, but rapid growth has also saturated the market.
PJM has put a temporary halt on its Reg D fast responding frequency regulation market, the market served by battery storage, while they study the issue. The result is not yet clear, but the likely outcome could be a reduction in the frequency regulation market opportunity for energy storage in the region, Simon said.
But opportunities could open in other competitive wholesale markets such as the Southwest Power Pool and the Midcontinent Independent System Operator where energy storage has yet to play a role in frequency regulation.
Utilities in the Electric Reliability Council of Texas (ERCOT) market are also increasing their use of energy storage for regulation and other grid services, though market rules prohibit them from utilizing storage in generation-like functions, such as peak shaving or shifting renewables shifting. Texas utility Oncor and the Brattle Group estimate that 5.2 GW of storage could be made cost-effective on the ERCOT system if the facilities were allowed to perform multiple functions for the grid.
Moving to long-duration storage
PJM’s actions are part of a wider trend playing out in energy storage. While the short-duration market will likely grow in regions where storage has not yet caught on, more mature markets will see long-duration opportunities grow.
“There's a lot more that will get built out over the next couple of years than has been built out in basically all of the history of energy storage in the U.S.,” Shayle Kann, senior vice president at GTM Research, said in mid-December at GTM’s Energy Storage Summit.
There is a big transition under way, Kann said. The market is shifting from a frequency regulation market to a market largely dominated by California where the value proposition is built around capacity value or deferral.
"That means that in megawatt-hour terms, the market will be growing faster than it will in megawatt terms. It means the average duration, at least in our forecast, will go from a low this year of about a half an hour up to something like three hours by 2020,” he said.
But while that may be the longer term trend, there are still barriers to longer duration energy storage applications. Except in certain locations, the economics of long duration storage can be difficult to justify.
The long-duration market is not going to catch up with short-duration market in 2016, Craig Horne, vice president of business development for energy storage at RES Americas, said. But with applications like network deferral and peak demand management growing, “we will see a marked uptick in the amount of long-duration systems installed both in front of and behind the meter during 2016.”
New growth markets and rate designs
Hawaii and New York are frequently mentioned by analysts as two of the up and coming markets for energy storage, especially in the next year.
Hawaii has high electricity rates, which makes the economics of using batteries to shift loads attractive. In addition, the state has ended its net metering policies, which leaves a gap for new owners of rooftop solar systems. They will no longer be able to sell surplus solar-generated power back to the utility at favorable rates. But combining storage with a solar system could fill that gap by enabling the owner to store low cost power during the height of the day and self supply to defer high cost evening peak rates.
In September, SolarCity announced plans for the first fully-dispatchable solar-plus-storage system, a 52MWh battery array paired with a solar array on the island of Kauai. The facility could provide a model for future projects as Hawaii prepares for a 100% renewables by 2045 mandate.
Another market likely to grow over the next couple of years is the use of storage to offset high demand charges, such as in New York. The economics in those markets will likely be most attractive to commercial and industrial customers, who would have a strong economic incentive to invest in behind-the-meter storage in order to offset those charges, Navigant’s Lamontagne says.
Utilities and regulators are also increasing talk of raising demand charges for residential customers, typically more common for commercial and industrial accounts. That, she said, will also create new opportunities for storage as consumers are able to store self-generated solar or wind power for use at a later time, an emerging bright spot for behind-the-meter providers.
Editor's note: This post has been updated to clarify deployment numbers for AES Energy Storage. The company will double the MW capacity of its battery fleet by the end of 2016, not quadruple.