Energy storage: Finding the value proposition in a growing market

By Bob Gibson

It was 2007 when I attended my first industry conference focused on energy storage, one that was cosponsored by the Energy Storage Association (ESA). That meeting in San Francisco attracted a few hundred attendees, and the presentations and conversations were almost all about technology development — new battery chemistries, research lab testing results and PhD dissertations, with a smattering of pilot deployment reports.

The ESA conference held May 27-29 in Dallas — the association’s 25th annual meeting — drew a record crowd of more than 1,000 participants for a program focused less on technology than on the value of energy storage and how it can be monetized to turn industry startups into successful businesses.

The change in agenda priorities reflects an industry balanced on a knife-edge of growth and transition. While many storage technologies have become less expensive in recent years, the costs of most applications are still higher than their returns on investment will justify.

Summarizing the challenges facing the industry, clean-tech entrepreneur Jigar Shah told conference attendees that his new investment firm, Generate Capital, is regularly approached by energy storage startups looking for funding.

“They tell me, ‘I’m in the storage business.'” he said. “But I don’t know what that means. Energy storage is not just about batteries,”

The sector now encompasses mechanical and thermal technologies and a range of applications from frequency regulation to peak shaving, he noted. But the critical question for both Shah and startups — and one that, he said, he has yet to hear a good answer for is — “How do I get paid?”

Check out SEPA’s library for reports on storage and other solar issues here. 

The obvious case in point is Tesla’s announcement a month ago of its Powerwall residential battery system, designed to be paired with a homeowner’s rooftop solar installation. A splashy night-time roll-out event, entirely powered by solar energy stored in a stack of Powerwall batteries, created a lot of media buzz and seemed to many to signal the opening of a robust new market for storage — as well as a potential threat to utility revenues.

But as a number of commentators quickly noted, even at Tesla’s relatively lower prices — $3,000 for a 7 kilowatt (kW) battery and $3,500 for a 10-kW battery — homeowners are unlikely to save money by shifting their power consumption from the grid to a solar-plus-battery system. With the cost of solar plus storage penciling out, in some cases, at more than twice as much as power from the grid, the gap between the two is simply still too wide.

The potentially huge market for utility-scale storage is another story, said Sky Stanfield, an attorney with the Interstate Renewable Energy Council, speaking at the ESA conference.

Already, storage is providing frequency regulation for PJM, one of the nation’s major regional transmission organizations, which manages grid services in all or parts of 13 mid-Atlantic and Midwestern states and the District of Columbia. Other grid operators also developing economic opportunities for storage include the Midcontinent Independent System Operator (MISO), which covers 15 states and the Canadian province of Manitoba, and the California Independent System Operator (CAISO).

Certainly, utilities’ approach to energy storage as an emerging technology is more optimistic than their initial response to solar, Stanfield said. In her view, the questions utilities are now asking about storage are pretty much the same as to the ones they are wrestling with about solar — “What are our roles with this technology, and how are we going to profit from it?”

Regulators “are also optimistic about storage, but with bit more of a deer-in-the-headlights reaction,” she said. “Regulators need to face up to the need for changing utility business models (to accommodate storage) while making sure that customers benefit.”

Game-changing new markets

With regulatory approval and the right price points, electric utilities see multiple applications and benefits in storage.

“Storage really is a game changer for the utility; we’re excited about the potential,” said Margarett Jolly, Director of Research and Development at Consolidated Edison (Con Ed) in New York. “Utility systems are designed for peak usage hours, from the size of transformers we install on up. So the ability to store energy really changes how the system is planned and operated.”

Storage is a key part of Con Ed’s Brooklyn Queens Demand Management Program, through which the utility will use a mix of traditional and alternative solutions to relieve overtaxed subtransmission feeders. Approved by the New York Public Service Commission last December, the program will spend a maximum of $200 million on both utility- and customer-sited distributed energy, demand response and energy efficiency investments, as well as storage.

According to Con Ed, the price tag for traditional infrastructure upgrades would have been around $1 billion.

“The ConEd project is an example of ‘animating markets’,” said Malcolm Woolf, Senior Vice President at Advanced Energy Economy. “Con Ed asked the market for solutions and is allowed (by the commission) to earn incentives if it meets its goals.

“The question now,” said Woolf, ” is whether this is a one-off effort or if it is a signal that distributed energy resources, with the right communications and control technologies, can connect new resources and meet energy needs more cheaply than the conventional way.”

New York is one of a few states where legislators and regulators are incentivizing or directing the increased use of storage as part of an intentional push toward a decentralized and cleaner grid — the state’s Reforming the Energy Vision (REV) initiative. California has also mandated its three investor-owned utilities to procure 1.3 gigawatts of grid-sited storage by 2020.

Texas is at the other end of the spectrum, with emerging markets for storage and similar grid-edge technologies even though no state-level mandates exist.

The evolution here goes back to 1999, when the state deregulated its electricity market, and investor-owned utilities, divested of generation, became wires companies.

“The next milestone came in 2008 with the creation of the Competitive Renewable Energy Zones,” transmission projects to bring wind power — and now solar — from west Texas to the urban hubs further east, said Michael Quinn, Vice President of Oncor, a transmission and distribution utility serving 10 million customers in the state.

“That same year we began our smart meter program,” he said. “We think that energy storage is the next big step.”

SEPA’s June 25th webinar will focus on the Texas solar market. Find out more here.

Late last year, Oncor launched a bold proposal to put 5 gigawatts of distributed battery storage on the grid, a plan that would have required legislative approval for the company to own energy storage, which is currently classified as a generation source. The legislature balked, essentially putting a halt to the plan at least for now.

According to a report in the Dallas Morning News, Quinn put a positive spin on the stalled effort, reporting to the ESA conference that at least a conversation on the ownership issue had been started and efforts to get a legislative fix will continue.

Meanwhile, municipal utilities and electric co-ops in Texas remain vertically integrated, and many have begun to procure and own renewable energy projects. For example, the municipal utility in the central Texas city of Georgetown recently announced its plans to go to 100-percent renewable power, both solar and wind, by 2035. Now utility officials are mapping out the role of storage in meeting that goal.

“The utility bears a risk in deploying battery storage,” said Jim Briggs, the city’s general manager of utilities. “But the risk of doing it is not as significant as the risk of not doing it.”

In the Texas Hill Country, southwest of Georgetown, the Pedernales Electric Cooperative also sees a role for utility-owned storage to benefit its members by managing costs.

“If I can use storage to reduce 1 megawatt-hour of transmission at peak, that’s a savings of $45,000,” said Peter Muhoro, the co-op’s Director of Energy Research and Strategies.

When the installed cost of battery storage reaches $400-$500 per kilowatt hour, Muhoro said, “then storage becomes a no-brainer for us.”

But the challenges ahead for storage are not limited to reaching such competitive price points, Oncor’s Quinn cautioned.

“It’s beyond the batteries,” he said. “The communications and control systems are key. That’s where the secret sauce has to come in.”

Quinn’s remarks notwithstanding, the topic of communications and control systems for energy storage occurred mostly in hallway conversations in Dallas. But, with the storage market in rapid growth mode, by next year, it could well have moved into major conference sessions as a top priority.

Bob Gibson is the Solar Electric Power Association’s Vice President of Knowledge. He can be reached at [email protected].