SunEdison, the world’s biggest developer of large-scale solar and wind projects, has acquired the assets of Solar Grid Storage, one of the most promising start-ups among energy storage providers.
That follows last year’s announcements of a gigawatt-scale battery factory to serve Tesla and SolarCity and Southern California Edison’s 261 MW storage capacity procurement. U.S. deployments in energy storage were up 40% in 2014 and are gathering a momentum that recalls the emergence of solar a few years ago.
“We got out in front and created a business model and got projects in the ground,” explained Solar Grid Storage (SGS) CEO Tom Leyden. “We now have data that shows a way to make the numbers work. And we intend to expand it.”
Leyden declined a prediction for what backing from SunEdison’s balance sheet will mean but noted IHS forecasts for 775 MW of grid connected photovoltaic (PV) solar plus storage globally by the end of this year and for a 40 GW cumulative installation of grid-connected energy storage in the U.S. by 2022.
The U.S. added almost 62 MW of energy storage in 2014 and is expected to add 220 MW in 2015, more than three times the 2014 installations, according to GTM Research.
“Like most solar companies, SunEdison had been looking at storage for the last year or so,” Leyden said. SGS was looking for money to ramp up operations and had several options when SunEdison approached last summer. The final deal structure was an asset transfer. “SunEdison bought everything. All the operating assets and the pipeline.”
Storage will make more of SunEdison’s 8.1 GW global pipeline of wind and solar projects grid-available. “Storage is a perfect complement to our business model,” explained SunEdison's Advanced Solutions General Manager Tim Derrick. “With this acquisition we have added the capability to pair energy storage with solar and wind projects, thereby creating more valuable projects."
The breakthrough business model
Leyden and his team approached the storage business like they had the solar business earlier in their careers. They went looking for a viable market. They saw opportunity in the PJM frequency regulation market and stayed focused on it. “We got four projects in the ground,” Leyden said. “Three have solar attached.”
The breakthrough was that SGS gave the storage to the PV developers. “They could offer their customers emergency back-up power free because we derived revenues from bidding the excess capacity of the inverter into the PJM frequency regulation market,” Leyden explained.
In frequency regulation, power from the battery is used temporarily to balance the system and then returned to the battery. “The work is done by the inverter,” Leyden said. That requires a dual-use inverter to perform both the PV functions and the battery charge-discharge function. Two manufacturers, Princeton Power and DynaPower, supply the advanced inverters. “Conventional inverter companies have not previously provided this kind of inverter but they are all working on one now.”
SGS delivers a 10 foot by 20 foot container with inverter, control systems, safety devices, and “everything necessary to be a plug and play system,” Leyden said. “It replaces the standard inverter.”
SGS batteries use lithium ion phosphate chemistry. “We don’t anticipate using anything else,” Leyden said. “But there are other chemistries and technologies. We are technology agnostic. We are about deployment. If flywheels were the way to go, we would do flywheels. It is really about enhancing our solar and wind projects and bringing more value to customers and investors.”
After Superstorm Sandy, the PJM region’s heightened focus on energy response “put us on steroids,” Leyden said. “Buyers were interested and policymakers and regulators were pressured to make systems more resilient.”
Selling frequency regulation is, however, a merchant operation. Leyden wants to open new opportunities for storage by including it into a viable product for SunEdison’s Terraform Power YeildCo.
“YieldCos are conservative instruments,” Leyden said. “We are working on a way to put our PV plus storage or wind plus storage projects into a form that offers the comfort they need. Someone, a hedge fund or an insurance company, needs to guarantee a floor price. It is key to scalability. That is where solar companies are going.”
In markets where mandates require utilities to acquire storage, a lease payment agreement with a utility might adequately secure revenue that could be monetized through the Yieldco, he added.
Leyden expects to first work the PJM frequency regulation market and the California storage mandate for SunEdison. He is also interested in other grid operators like ERCOT, MISO, NE ISO, and NY ISO. As the utility sector evolves toward more distributed generation, he said, utilities can and should play a constructive role in the storage market.
“Very much like solar ten years ago, there are a lot of emerging battery markets and it will be creative chaos for a while because everyone wants a piece of the action,” Leyden said. “Market by market it will be different because storage can be used a lot of different ways.”
The key will be finding markets where the numbers work. “They are still relatively limited but we are just at the beginning of this and what happened in the solar industry is going to happen in storage. The prices are going to come down.”
The weighted average storage system price in 2014 was $2,064 per kW, according to GTM Research. But the cost depends on how the system is used and how much battery there is, Leyden said. For frequency regulation, “you don’t need a lot of battery. It is not an energy market, it is a power market.”
The SGS battery is about $1 per watt and, with the inverter and the balance of system, “we are seeing systems at between $1.20 and $2.50 per watt,” Leyden said. A “significant revenue opportunity” is necessary to justify adding that cost to a $2 per watt PV system, which is why storage is not yet widespread.
“When the costs come down, new markets will open up,” Leyen said. SunEdison’s balance sheet and project pipeline will make for volumes that will reduce the SGS costs for goods and capital. “A 30% price reduction is possible in the next couple of years and as much as a 50% to 60% reduction in the couple of years after that,” Leyden predicted. “Price is on a downward trajectory. Tesla’s gigafactory will drive prices down even more. Just the announcement of it drove prices down.”
How utilities can play
Storage needs to be a part of the utility move into distributed generation because that is “the missing link” to much greater penetration of renewables on the grid, Leyden said. “We have spent a fair amount of time with utilities and we think they can play a constructive role.”
SGS has talked to Dominion, PSE&G, and all the utilities in PJM. There were also talks with New England utilities such as National Grid, United Illuminating, JCP&L, and Atlantic City Electric. “There are a lot of things they could do with batteries, like smoothing peak demand, providing volt-var support, helping with black start, and backing up substations,” Leyden said.
Regulated utilities see the opportunity to add such capabilities and are less concerned with cost because they can rate base storage, Leyden explained. Unregulated utilities like Constellation and NextEra want to seize the business opportunity.
“Utility executives definitely recognize change is coming and storage is part of their future,” Leyden said. “They may, though, have work to do internally because the utility culture is built on having central power plants, not distributed ones, and distributed generation with storage has new challenges.”
SGS got “fairly significant pushback” on PV plus storage from a New Jersey utility, he recalled. “There is no rational reason for it. It is just emotional.”
Utility engineers are often intrigued by storage as an elegant way to allow more renewables on overloaded circuits, Leyden said. “Atlantic City Electric was shutting down some of their circuits to solar because of concerns it would destabilize them but by adding storage that was solved.”
Aggregated residential solar and virtual storage
Leyden is also thinking about the residential solar market and SunEdison’s newly instituted residential solar division. Residential battery storage systems are expensive because their stored energy doesn’t have value except as little-used backup power. “We are working on aggregating residential and commercial systems into a big virtual storage asset and we hope to have that capability by the end of the year,” Leyden said.
For frequency regulation, the storage can be anywhere in a grid operator’s territory. “We can aggregate residential systems in New Jersey with a commercial system in Maryland for PJM. The more aggregated, the more frequency regulation we can market.”