10% of new commercial solar customers will pair their installations with storage by 2018, according to research published Thursday morning by GTM Research. Spurred by falling battery prices, the solar-plus-storage market will surpass $1 billion that year, but analysts warn that there are potential challenges ahead.
The cost of lithium-ion storage is falling by 20% to 30% annually, but the analysis finds the price point for both lithium-ion and other technologies is still high. And GTM said at least one potential revenue source, the ability of the storage-paired systems to provide demand response and ancillary services, is still in the very early stages of being utilized.
"Currently, only PJM and a handful of other pilot programs allow the participation of aggregated solar-plus-storage in wholesale markets or for grid services,” said Senior Energy Storage Analyst and report author Ravi Manghani.
Shayle Kann, senior vice president of GTM Research, said the market for those ancillary services is only just beginning to open up.
"There is work to be done in figuring out how to aggregate behind the meter storage applications to get ancillary services benefits, and then how to finance those systems. That's the place where ultimately there is the a lot of potential for value," Kann said. "It's an opportunity that hasn't been fully leveraged."
Greentech found solar-plus-storage economics for residential customers are less attractive compared to commercial customers, with returns of 6% to 14% for 2014 installations. For a typical commercial end customer, solar-plus-storage systems can provide electricity bill savings of 20% to 30%, resulting in returns of 16% to 23% for 2014 installations.
'Not there yet on residential'
While at first glance residential systems would seem economic, Kann said financing costs would exceed the benefits in some areas. Commercial systems are faster to be economic because they are also offsetting demand charges, which residential customers typically do not pay.
"Truthfully, we're not there yet on residential," Kann said. In addition to the demand charge, which is an entire value stream residential customers cannot access, "there isn't a huge economic opportunity in time shifting because the differentials in time-of-use pricing for residential customers aren't always that big. So you just have an inherently tougher economic case to make for residential than you do for commercial."
But the falling cost of batteries is expected to help make these systems economic for smaller customers eventually. Battery cost has declined about 23% annually since 2010 and remains a key factor in selling the systems. "More than anything else it's a necessary, but not sufficient, factor," Kann said.
Ultimately, the case for residential solar-storage systems will be made by ancillary services, Kann said. There will need to be a player in the market who can find a way to aggregate enough residential storage and bid it into a utility's ancillary market.
"It's a bigger challenge, but if you can ultimately monetize those additional value streams that's where the residential economics will start to make sense," Kann said.
But for commercial customers, solar-plus-storage penetration is set to grow from 1% in 2014 to 11% by 2018.
'Storage is here'
Despite high costs and the difficulties in extracting revenue from the systems, GTM said the economics "look promising even today," and the report predicts the United States will install 318 cumulative MW of behind-the-meter solar-plus-storage capacity through 2018. When paired with solar, energy storage becomes even more attractive because in certain situations it may take advantage of a 30% federal investment tax credit.
Recent developments show that the energy storage market is gaining steam. California last year mandated the state's investor-owned utilities acquire 1.3 GW of energy storage, and last month Southern California Edison announced the results of a competitive solicitation, revealing it signed agreements for 250 MW of storage. The utility had indicated it expected about 50 MW of storage projects to be selected.
And then there is Tesla’s Giga factory. The company has announced the largest lithium-ion battery plant in the world, a $5 billion facility to be located in Nevada. In Texas, Oncor Electric signaled it intended to ask state regulators to authorize it to spend $5.2 billion on a storage solution to better integrate wind and solar power into the state's electric grid.
Oncor's announcement, said Kann, "is an early indicator that Encor is looking at something big. It's not terribly clear how much is going to happen ... but it's a positive sign."
Of recent events, Kann said SCE's storage procurement is "the clearest indicator" that storage has a permanent place in supply grid needs.
"It turned out that when they looked at all the various bids for various technologies and applications, for their capacity needs, storage won out," Kann said. "That's the clearest indicator to me that storage is here."