Quantcast
Business

2015: 'The Year of the Battery'

In many ways, 2015 has been “the year of the battery.” Consider the excitement around Tesla’s Powerwall or battery energy storage’s 600 percent Q2 growth over Q1 or one of the world’s largest utilities recently proclaiming that batteries will obviate the need for any new gas peaker plants in the U.S. post-2020. But the most important and exciting news around batteries still lies ahead.

To date, the attention has been on cost—how cheap batteries have gotten and how fast they've done so. Now, a new RMI report shifts the focus critically to the other part of the battery equation: value. The report found that batteries can reduce grid costs and customer bills, increase the resilience of the grid and support a largely renewable electricity system. All that value is available, if we make some critical adjustments.

Batteries are usually deployed today for single, primary uses: think demand charge reduction in California or frequency regulation on PJM’s wholesale electricity market. These single use cases are usually compared against the relative cost of a battery. This sells batteries short: comparing one use case against the cost of a battery is like comparing the cost of a Swiss Army knife to the value you can get from just using the blade. A battery is capable of delivering many services with the same device, just like a Swiss Army knife. But right now folks are buying the knife and only using the blade when they could also be using the pliers, screwdriver and so on.

So far, batteries deployed to reduce demand charges or defer traditional utility investments aren’t typically used to deliver multiple services. This means batteries might only be used for 1 - 50 percent of their useful life. And yet, a battery could be used to deliver other services for the other 50 - 99 percent of its useful life and get paid to do so. Would you build a hotel and only sell 1 - 50 percent of the rooms? Neither would we. So why do it with batteries?

In our new report, "The Economics of Battery Energy Storage," we asked some important fundamental questions:

  1. What services can batteries provide to the grid?
  2. Where on the grid can batteries deliver each service?
  3. How much value can batteries generate when they are highly utilized and services are stacked?
  4. What regulatory barriers currently prevent single energy storage systems or aggregated fleets of systems from providing multiple, stacked services to the grid?

Thirteen Services for Customers, Utilities and the Grid

Our research indicates that batteries, when placed behind the meters of residential, commercial or industrial customers, can deliver 13 services to the electricity system at large. The figure summarizes these services and the stakeholder group that accumulates the lion’s share of each benefit (more detail on these services can be found in our full report).

Batteries deployed further downstream in the electricity system (behind the meter) can technically deliver the maximum number of services to the grid. But as you move upstream in the electricity system—towards large centralized power plants—energy storage loses the ability to deliver some of these services. For example, a battery connected at the distribution level can’t perform customer bill management, while a battery connected at the transmission level won’t be able to defer any distribution-level investments.

Batteries Deployed Behind the Meter Can Be Cost Effective Today

This finding, though important, doesn’t tell us how much net value batteries can deliver to the electricity system. To estimate this, we developed an energy storage dispatch model to understand the economics of energy storage in four potential real-world scenarios.

Read page 1

Our results were surprising. Batteries deployed behind the meter are “in the money” right now, under prevailing cost structures, without subsidy. This finding comes with two major caveats:

  1. Batteries must be well utilized and deliver multiple services to customers and the grid in order to be cost effective. The prevailing energy storage business model in the U.S., using a battery to reduce a commercial customer’s demand charge, delivers a single service to a single stakeholder and typically underutilizes the battery—sometimes dramatically so. Batteries deployed for demand charge reduction are only used for 5 - 50 percent of their useful life. That means those same batteries could be re-dispatched to deliver other services to other stakeholders, like utilities and independent system operators/regional transmission organizations and get paid for them, dramatically changing the economics of energy storage.
  2. Our modeling results assume no regulatory barriers to aggregated, behind-the-meter market participation or revenue generation. As we’ll cover in a moment, a number of regulatory prohibitions currently prevent batteries deployed behind the meter from delivering and getting paid for these services. Our modeling results artificially remove these regulatory barriers in order to understand the economics of energy storage without regulatory restrictions.

Let’s use a case from the report to highlight our findings and the two caveats above. The figure shows how a battery deployed behind the meter for a hotel in San Francisco is used and what value it generates. As you can see, when the battery is deployed for a single use (demand-charge reduction) it doesn’t pay off (the orange portion of the revenue stack is smaller than the black cost stack in the bar chart) but when additional services layer on top of demand charge reduction, the economics flip in favor of energy storage. The pie chart also illustrates how little of this battery’s lifetime capacity is needed for demand charge reduction: about 53 percent. That means it can be dispatched for the remaining 47 percent of its lifetime time to deliver other services (in this case, resource adequacy for the utility and a suite of wholesale electricity services).

The Economics Are Promising, But Regulations Must Evolve

Every one of the revenue-generating services in this example is being delivered by some behind-the-meter energy storage systems in operation today. But very few projects are simultaneously providing this full stack of services (or other combinations thereof) with a single device or fleet of devices.

This is because energy storage—and other distributed energy resources (DERs) like smart controls, energy efficiency and rooftop solar PV—has matured faster than the rates, regulations and utility business models needed to support them as core components of the future grid. To overcome these barriers and realize the full value of rapidly evolving battery technologies, we recommend the following changes:

For Regulators

  • Enact regulatory reform to unlock DERs and reduce the cost of the grid. Regulatory proceedings in New York (NY REV), California (IDSM, DRP and NEM 2.0), Hawaii, Texas and emerging efforts in other states have begun the long road towards open distribution system planning, utility business model reform and ubiquitous advanced rate design. But no state or region in the U.S. should be left out of the cost and resiliency benefits that come from DERs, so more work is needed both inside and outside of these leading states.
  • Require that DERs be considered as alternative, potentially lower-cost solutions to problems typically addressed by traditional “wires” investments and/or centralized peaking generation investments.

For Utilities

  • Prior to considering new centralized assets, consider how storage could be leveraged across utility departments. Utilities have a number of tools at their disposal that could obviate the need for new power plants or distribution upgrades. Distribution planners, grid operators and rate designers should work together to leverage the full capability of storage and other DERs to get multiple uses out of assets, whether singly or in fleets.

For Battery and DER Developers

  • Pursue business models that fully utilize batteries
  • Pursue cost reduction efforts for all power-focused elements of energy storage systems (all $/KW components) in order to unlock more markets, faster.

Battery-based energy storage is a powerful resource capable of reducing grid costs and customer bills, increasing the resilience of the grid and supporting a largely renewable electricity system. And even though the economics of storage look good today, they’re only going to get better as gigafactories other than Tesla’s come online across the globe and costs come down further. It’s time for utility business models to evolve and for regulations to change in order for the benefits offered by behind-the-meter, battery-based storage to be captured across the U.S.

YOU MIGHT ALSO LIKE

Koch Brothers + 11 Other Special Interest Groups Wage War on Solar

Scientists Turn Green Algae Into Biofuel at $50 a Barrel

Bloomberg Analysis: It Has Never Made Less Sense to Build Fossil Fuel Power Plants

Harvard Researchers Hail Cost-Effective Battery That Could Store Surplus Wind and Solar Power

Show Comments ()
Sponsored
A snapping turtle held by a Virginia Tech researcher. Virginia Tech

Land Use and Pollution Lead to More Male Snapping Turtle Babies, Researchers Find

The sex of reptiles like snapping turtles is determined by the temperature of the nest, with warmer temperatures leading to female births and colder temperatures leading to male babies. Because of this, climate change is projected to increase the number of female turtle births. However, scientists have discovered that other human impacts on the environment are leading to conditions that actually produce more males.

Keep reading... Show less

Organic Agriculture Is Going Mainstream, But Not the Way You Think It Is

By Jeremy L. Caradonna

One of the biggest knocks against the organics movement is that it has begun to ape conventional agriculture, adopting the latter's monocultures, reliance on purchased inputs and industrial processes.

Keep reading... Show less
View of the UN Bonn Campus on May 16, 2017. UNclimatechange / Flickr

‘Business Unusual’ Must Be the Mantra in Bonn as UN Climate Talks Resume Next Week

As the 2018 climate talks kick off under the auspices of the UN next week, "business unusual" must be the mantra delegations need heard resoundingly in Bonn, said the World Wildlife Fund (WWF).

Speaking ahead of the start of the meeting, Manuel Pulgar-Vidal, WWF's global climate and energy programme leader, said the window of opportunity to keep global temperature rise below 1.5°C is fast closing.

Keep reading... Show less
UNAMID provided emergency aid for displaced people in Mellit, North Darfur on April 6, 2014. Hamid Abdulsalam, UNAMID / Flickr

Climate Is a 'Threat Multiplier' But Not Primary Cause of East African Conflict and Displacement, Study Finds

While there are predictions that climate change will displace masses of people in the near future—an Environmental Justice Foundation study reported on by The Guardian put the number in the tens of millions within the next decade—some have indicated that the climate refugee crisis has already begun.

The Syrian civil war has been linked to a massive drought in the region, and former UN Secretary General Ban Ki-moon called the conflict in Darfur one of "the first climate wars" in 2007.

Keep reading... Show less
Sponsored
Popular
Central Park. Ingfbruno / CC BY-SA 3.0

New York's Central Park Is Going Car-Free

One of the world's most iconic parks is going vehicle-free this summer; New York City is banning all cars and trucks from Central Park.

"This park was not built for automobiles," Mayor Bill de Blasio announced Friday in Central Park. "It was built for people."

Keep reading... Show less
Sponsored
Health
Infant receiving polio vaccine. CDC Global / CC BY 2.0

Did the Polio Vaccine Cause Cancer?

By Vanessa Schipani, FactCheck.org

Q: Did people develop cancer because of the polio vaccine?

A: There are no known cases, and it's very unlikely. In the 1950s and 1960s, people did receive polio vaccines contaminated with a virus that causes cancer in rodents. But research suggests this virus doesn't cause cancer in humans.

Keep reading... Show less
Popular
The research icebreaker Polarstern in the central Arctic Ocean. Alfred-Wegener-Institute / Ruediger Stein

'Nowhere Is Immune': Researchers Find Record Levels of Microplastics in Arctic Sea Ice

Scientists found record levels of microplastics in Arctic sea ice, a study published Tuesday in Nature Communications revealed.

Researchers from the Alfred Wegener Institute, Helmholtz Centre for Polar and Marine Research (AWI) sampled ice from five Arctic Ocean regions and found up to 12,000 microplastic particles per liter (approximately 1.06 liquid quarts) of ice, an AWI press release reported.

Keep reading... Show less
Sponsored

mail-copy

The best of EcoWatch, right in your inbox. Sign up for our email newsletter!