Emergence of the Behind-the-Meter Energy Storage Market

 By Jerry Melcher

The market for behind-the-meter energy storage has recently been reported growing by 15 times year-over-year. This is a significant development in direction and magnitude with over 13 megawatts installed in the third quarter of 2015. There are a number of factors contributing to this uptick, but along with the opportunities a host of challenges exist. This update will review various factors for each.

Technology

A quick look at the landscape reveals rapidly maturing technologies for batteries, balance of plant and control systems.

Similar to the development of the electric vehicle and solar industries, many lessons learned are being leveraged by the energy storage industry. The growth of plug-in electric vehicles is providing many components for the stationary market, including advanced batteries typically lithium ion available at automotive component pricing. Smart four quadrant control inverters capable of sourcing and sinking both real and reactive power are also gaining traction. Most important, advanced control energy management systems have been designed and deployed with these energy storage systems. These allow multiple applications, including emergency power backup, demand reduction and peak shifting, renewables capture and re-dispatch, or in the future, aggregation across multiple assets for demand response and electricity markets services (e.g. frequency, imbalance energy, spinning reserves, capacity, etc.)

Policy

Policy drivers at the federal, state and local levels include:

• Rulemaking adoption
• Funded pilots
• Dynamic tariffs
• Renewables integration
• Net metering sunset

With the California Public Utilities Commission (CPUC) adoption of rules enacting CA AB2514, 200 megawatts of energy storage are earmarked for installation of behind-the-customer meter. Multiple projects are already announced and underway by Southern California Edison and Pacific Gas & Electric. Along with the extension to 2020 of the CPUC managed Small Generator Incentive Program (SGIP), approximately $80 million per year is provided to developers to buy down installations costs.

Across the country utility commissions and utilities are rapidly spinning up energy storage demonstration projects to develop knowledge in this area.

Many commercial customers face dynamic pricing tariffs that provide some form of monthly peak demand charge. In California, investor-owned utilities charge commercial customers a monthly capacity demand charge that ranges from $22 to $30 per kW. Residential default dynamic pricing with monthly demand charges is scheduled by 2019.

As the number of solar systems increase on a utility’s grid, the very real impact of PV generation decreases revenues from customers. However, late afternoon peak demand still exists, which has to be supplied by the grid. Matching resource supply with demand at the right time of day can be addressed with behind-the-meter energy storage. This growing awareness has led to recent decisions by Salt River Project (SRP), Hawaii PUC, CPUC and Nevada Commission to modify or eliminate net metering tariffs.

In Hawaii, which is trying to achieve 100-percent renewables by 2050, two tariffs will now be offered to solar customers – self-supply or grid-supply. For the self-supply tariff, the solar customer is required to install an energy storage unit and will need to limit the amount of generation put into the grid from the solar system. This customer will receive no compensation for any excess not used by the premises.

The grid supply tariff will allow the customer to supply power to the grid and will be paid time-of-day wholesale rates. Customers will pay monthly connection fees of $25 for residential customers and $50 for commercial installations. SRP will impose an average $32 per month demand charge for new solar customers. CPUC and other commissions are grandfathering current solar customers for up to 20 years.

At the end of December the Nevada Commission approved rulemaking to gradually phase out net metering over the next 5 years for Nevada Power’s 17,000 current solar customers and reducing payments for excess solar energy that customers feed back into the grid to 25% of the retail kWh rate.

No matter what the federal and state policies for renewables are today, the multi-country 2015 Paris Agreement to Address Climate Change and the California 50 percent renewables target by 2040 mandate, increasing renewables while limiting fossil fuels will require energy storage. Recent CPUC studies have shown that energy storage is carbon neutral compared to utilizing fossil fuels for integrating variable renewable resources provided that the round trip efficiency is greater than 66.5 percent.

Business Drivers

Early adopters of behind-the-meter energy storage systems have supported decisions to move forward with installations at their premises based on a collection of uses and needs. These include: reliability; self-sufficiency; demand reduction/peak load shifting; and renewables integration.

Monetizing current energy storage installations for commercial and residential customers is difficult. In most cases the financial models do not support project financing on their own. Recently extended by Congress through 2019 energy storage qualifies for 30 percent investment tax credit when paired with solar installations. In California, the availability of SGIP funds and high demand charges make energy storage systems economical today. Pilots have been performed with the California ISO showing the ability to aggregate and dispatch energy storage units and supply market services to the grid. In the future these incremental revenues could add to project viability. Outside California states phasing out net metering will lead to customers adding energy storage to ensure financial viability of customer solar projects.

In the wake of Hurricane Sandy and other failures of power supply, customers are installing energy storage as insurance against future power outage events. There is a growing class of customers enamored by self-sufficiency in which costs, albeit important, do not drive the decision-making process.

With supportive policies, innovative financing and declining costs of equipment and installation the growth of behind-the-meter energy storage will accelerate rapidly over the next few years.

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