Where the energy storage expansion will happen first and why
The commercial-industrial segment of the market is ready to buy in
People who watch the energy storage market say they now know where and how it will break out commercially.
New numbers show solar plus storage technology, on the strength of 20%-plus annual price drops over the last 4 years, is on the verge of turning into a billion dollar market by 2018, Utility Dive just reported.
"This $6 billion energy market is a huge opportunity," said Clean Coalition Economics & Policy Analysis Director Kenneth Sahm White. “The value proposition is there. The questions are how smoothly the market will open up, how fast it will happen, and who will get the economic benefits.”
Because storage can be used to provide both energy and capacity value and a range of grid supports and services, Sahm White added, the commercial and industrial (C&I) space is “the optimal place” to market hybrid solar plus storage systems.
Why C&I works for storage
C&I sites offer larger rooftop spaces that can host larger systems that generate more energy at a lower overall cost. They are often closer to the grid and within robust feeder systems designed to manage large loads. Their large daytime demand load profiles more closely match solar output than residential sites.
Businesses also have more financial motivation to adopt storage because of higher energy charges and higher demand charges, as well as time-of-use rates and demand response opportunities not typically available to residential customers. And higher usage volumes make them eligible for energy markets that will remunerate them for grid support services.
Capitalizing on these attributes, Sahm White said, utilities and grid operators can capture energy and capacity that would allow them to optimize their systems.
Residential-scale solar plus storage systems do not yet offer high enough returns to drive a market because the cost of batteries remains high, Utility Dive recently reported. But the returns from commercial-scale solar-plus-storage systems are already potentially viable economically.
“Economics is the million dollar question,” explained Sunspec Alliance Development Director Tim Keating.
“C&I is a use case for storage that you can make pencil economically now," he said. "Where there are high demand charges for peak period electricity use, they can be 15% to 50% of a bill. Storage instantly can chop off those demand charges. And coupled with solar, storage is even a better deal because you can attack the kilowatt-hours.”
Coming industry storage standards
For other uses of storage, the key to the economics is volume, and volume comes when an industry establishes standards, Keating said. The community energy storage now being tested in pilot programs by some utilities is an example.
“The 25 kilowatt-hour lithium ion batteries are costing about $100,000 deployed," he said. "But a Nissan LEAF with a 24 kilowatt-hour lithium ion battery costs about $35,000. And you get the car.”
Standards being established by the SunSpec Alliance will allow stakeholders, including asset owners, utilities, energy exchanges, and financial markets, to share transparent data documenting performance of distributed generation plus storage systems.
“With that data,’ Keating said, “we can attack finance costs. If you can’t price the risk, you can’t finance it at any reasonable cost and if you can’t understand the actuary data or exchange data between partners, you can’t price the risk.”
There is no “compelling” reason for residential uses of storage “because they have net metering and virtual storage in the grid,” Keating explained. But at some point, SunSpec-validated distributed generation-plus-storage architecture could allow residential fleet operators to aggregate the energy and capacity of small systems, allowing them to bid the services of their fleets in grid operators’ markets.
High demand charges and peaky loads
The economic viability of storage depends on the state, the customer class, and the customer load profile, said California Energy Storage Alliance Senior Director Mark Higgins.
“It tends to work where distributed generation is economically viable and where customers that have high demand charges also have peaky loads,” he told Utility Dive.
That tends to be C&I customers, Sahm White said. They also often have time-of-use rates, which is important because C&I energy use profiles are similar to PV generation profiles, whereas residential load leans toward evening hours.
These factors are crucial because they make stored energy at C&I sites a potential way to flatten the Duck Chart’s mid-morning and late afternoon load shifts that would otherwise require supplemental generation.
A grid operator can capture C&I facilities’ stored excess midday generation and use it to meet the late afternoon peak, Sahm White explained. “The changes in net demand become much more manageable. The duck’s neck is stretched out, the ramp that has been a concern for balancing authorities and system operators is much alleviated.”
Solar and storage are coming together at just the right time, Keating said, because in places where the penetration of distributed generation is high like Spain, Germany, Hawaii, and some feeders in California, utilities are beginning to “tap the brakes” on growth. “Solar needs to clean up the grid mess it has made,” Keating quoted a California utility executive.
The sweet spot
By accessing the sweet spot where the three levers of today’s grid operations overlap, Keating said, storage at C&I facilities can be central to providing dispatchable, quick-start electric supply for peak load ramping, stored voltage support, frequency response, and demand response that provides peak load reduction.
"Storage is only economic today in a handful of circumstances but we are at the tip of the iceberg,” Higgins said. “Hundreds of pilot projects are underway. Because they have one-off costs, they are not indicative of what is possible.”
The recent Southern California Edison (SCE) procurement of five times the energy storage it solicited, he said, “suggests even behind the meter energy storage systems can provide economically-competitive grid services.” It is worth noting that SCE’s procurement included C&I sector or grid-scale storage but no residential storage.
The next opportunities will be storage at C&I locations that help them manage their own demand charges and shifting energy use, allow them to sell capacity into wholesale markets, allow them to help shape the grid’s load, and allow them to take advantage of utility incentives, Higgins believes.
By 2018, he added, storage will be able to help meet EPA Clean Power Plan requirements.
“Utilities everywhere are starting to say energy storage makes sense and paired with distributed resources can be cost effective,” Higgins said. "They are also beginning to recognize it helps optimize the rest of the generation fleet.”