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Sep 3, 2015

3 Steps to Maximize the Value of Batteries


RMI will be hosting a workshop on this topic in advance of the Energy Storage North America Conference and Expo in San Diego on Monday, October 13. For more details on the workshop and conference, click here.

Arnold Schwarzenegger's former chief of staff and now CEO of energy storage company Advanced Microgrid Solutions, Susan Kennedy, recently proclaimed that batteries are primed to disrupt the energy industry in the same way that cell phones disrupted the communications industry. More specifically, she stated that the grid “was designed around the concept that energy cannot be stored. And so the whole grid is going to change dramatically because of one thing: battery storage.” Like Kennedy and her company’s primary battery supplier, Tesla, we at RMI believe that batteries can play a key part of a secure, resilient, low-cost, and low-carbon grid of the future.

Battery Valuation—the Critical Economic Question

With batteries increasingly in the spotlight, we’ve heard a common question from both utilities and customers: Economically, why should I consider storage for my building, company, or system? This question will be the focus of a forthcoming workshop we are hosting in October ahead of the Energy Storage North America conference in San Diego (for more information click here).

In advance of that conference, we’ll be releasing a new report, The Economics of Battery Energy Storage, that examines what services batteries can provide, explores where on the grid they should be deployed to maximize net economic value, and demonstrates how stacking multiple services can bolster the value proposition of batteries. Our findings illustrate that batteries should be placed as far downstream as possible in the electricity system and be allowed to provide multiple, stacked services for customers and distribution and transmission grid operators. In our workshop, we’ll be discussing those findings and working with participants to translate them into straightforward approaches and methodologies.

3 Steps to Stack Battery Value

Energy storage can provide over a dozen different services to the electricity grid. Accordingly, a battery could be compensated through over a dozen different mechanisms. This—combined with the fact that batteries can offer different combinations of these services to different combinations of users and that the relative value of these services changes depending on hundreds of variables (like electricity rates, electricity market regulations, and age of the distribution system)—means that evaluating storage for customers of all shapes and sizes is complicated.

However, attacking the problem in three steps can help:

  • First, identify what batteries could “primarily” do for the customer. The primary service is the largest revenue stream. The battery needs to be available to provide this service, but it might or might not actually use a majority of the battery’s available capacity, leaving spare capacity to deliver other services.
  • Second, identify what single or stack of “secondary” services the batteries could provide without getting in the way of the primary service. These services will help the battery fill out extra capacity while improving the economics. Secondary services can likely only be performed by an on-site battery, and so are likely to have better economics and fewer regulatory barriers than off-site opportunities. If a primary service relates to bill management (e.g., demand charge reduction), secondary services could include backup power, power quality improvements, and/or solar PV integration.
  • Third, for any remaining capacity (that also accounts for the battery charging throughout its useful life), consider what services the batteries could deliver to the grid (off-site services) and get paid for, such as frequency regulation, distribution deferral, or other wholesale services.

The primary, secondary, and off-site services suggest how a battery’s lifetime capacity will be allocated (utilization rate), and how much revenue each service could deliver to the customer (benefit estimate). Below is an example of how this framework could be used to evaluate behind-the-meter storage for a residential customer.

Example—Selecting a Service Stack to Develop a View of Total Economics

Let’s take a look at a residential customer who has the following characteristics: they own a rooftop solar PV system, can enroll in time-of-use rates, cannot be credited for excess solar generation, want to have a source of backup power, and reside in a non-restructured area without wholesale electricity markets, but with a utility demand response program. In the figure below, we’ve highlighted potential services the battery can offer in red text.

For this customer, storage may be a good investment. First, the system would optimize the building's load to maximize self-consumption of PV (since the local utility doesn’t offer net metering). Then, since that service only takes 20–30 percent of the battery’s lifetime capacity to deliver, it could be secondarily dispatched to shift remaining grid purchases to off-peak periods, provide backup power, and participate in the local utility’s demand response program if available.

With costs plummeting and regulations evolving, now is the time for customers and utilities to begin exploring how to integrate storage into their purchasing decisions and annual planning processes. Following these three steps to stack value, rather than considering single uses in isolation, will help batteries to be an economic decision for customers and a net benefit to the electricity system. We hope you’ll join us at our upcoming workshop at the Energy Storage North America conference on October 13th where we plan on further developing this framework with collaborators from across the electricity ecosystem.

Image courtesy of Shutterstock.

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