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Last week nearly 2,000 policymakers, technology developers, and utility representatives from over 1,000 organizations and 42 countries gathered at the Energy Storage North America conference (ESNA 2015) in San Diego, California. Rocky Mountain Institute organized a track on distributed energy storage, where we explored key questions around aggregating DERs in wholesale markets, the role of electric vehicles in the electric grid of the future, and evolving tariffs and their impact on behind-the-meter assets. If you were not among the lucky 2,000 who witnessed the high energy and impressive panels and presentations, below we highlight the top five topics that defined ESNA 2015.
1) Market reforms are creating revenue streams that make distributed energy resources lucrative.
Batteries deliver the most value when they are placed near load, ideally behind the meter, and are allowed to contribute to multiple services at the distribution and ISO/RTO level. To do this, market structures need to change. Developers have been appealing to regulators to change market structures to properly compensate distributed energy resources (DERs) for the value they can deliver—so far with little result. Now, regulators in California, New York, and Texas are in various stages of crafting new markets explicitly aimed at capturing more value from distributed resources, including energy storage:
- ERCOT recently announced the DREAM (Distributed Energy Resource and Ancillary Services) Task Force. The DREAM task force was created to recommend a new market framework that allows DERs to more fully participate in the ERCOT wholesale market.
- CAISO’s Distributed Energy Resource Provider (DERP) proposal filed in June outlines a framework that will allow DER providers to aggregate DERs and participate in the wholesale market.
- New York’s Reforming the Energy Vision initiative is poised to create distributed service platform providers that will unlock new market opportunities for DERs as part of a complete overhaul of New York's traditional energy market.
2) The storage ecosystem's focus is shifting from cost reduction to value stacking.
Over the last few years, most industry conversations have focused on the cost of energy storage. Due to recent announcements on battery costs and a new focus on storage’s ability to deliver multiple services, the focus of the conversation is now shifting to value stacking. ESNA panelists repeatedly emphasized the need for value stacking—meaning that single systems need to be well utilized and deliver multiple services to multiple stakeholders. Phrases such as the “the Swiss army knife of the grid” and ”the smartphone of the grid” were used as an analogy to describe energy storage as a tool for the grid. If this year’s ESNA is any indication, many developers and regulators are beginning to understand that storage may not actually need incentives to be cost effective today if the technology is allowed to deliver and monetize multiple services.
3) Investors are hesitant to invest in a landscape with changing markets, revenue streams, and unproven business models.
Third-party finance was a game changer for the solar industry in the U.S. But a well-utilized energy storage system that delivers a stack of value to different stakeholder groups is much more complicated than financing a solar system, since the revenue stream is more complex. What makes storage so valuable to the grid—its ability to deliver multiple services to multiple stakeholders—also makes it difficult to finance because each of those services carries with it a different risk profile. For example, many existing business models are entirely dependent on current rate structures (high commercial demand charges, for example) or on shallow markets like frequency regulation where compensation is subject to change as storage penetration continues to increase. Rates likely won’t stay the same for twenty years, and neither will wholesale electricity markets as they evolve. Contractual complexities associated with cross-stakeholder, multi-use storage combined with the evolving marketplace make storage a potentially challenging investment. In addition to the multi-stakeholder complication on the revenue side, system integrators have to deal with multiple component suppliers who are selling new technology without a proven track record, making a fully warrantied system a rare breed. ESNA panelists and attendees generally didn’t believe these challenges were insurmountable, but they will need to be overcome in order for the U.S. storage market to expand.
4) Behind-the-meter storage will be a key part of our future energy system, but the conversation around solar-plus-storage and net energy metering was surprisingly light.
On many occasions, presenters and panelists polled audiences to gauge their opinion on the future of the energy storage market with questions like, “Where do you see the majority of action in the storage market in five years? Transmission connected, distribution connected, or behind-the-meter?” In most cases, the consensus was clear: behind-the-meter energy storage will have the most significant role to play in the grid of the future. Interestingly, considering this bullish attitude towards customer-sited storage, we heard very little discussion around the implications that net energy metering (or a lack thereof) will have on future business models.
We too believe that behind-the-meter storage will be the major growth area but recognize how nascent the space is today. Customer-friendly products, like Tesla’s Powerwall and Sonnenbatterie’s solution, have not yet started shipping. We expect that regulatory changes, like the recently announced net energy metering replacement tariffs in Hawaii, and additional new products will lead to a much stronger focus on behind-the-meter storage in 2016.
5) The battery storage market is about to experience incredible growth.
One thing from ESNA was unmistakably clear: the energy storage market is only in its infancy and is poised for huge growth in the coming decade. In 2013, 56 MW of storage was deployed. To date in 2015, that number is 230 MW, and over 290 MW is forecast for 2016. We see a healthy future for both distribution connected and behind-the-meter energy storage to contribute to the transformation of the next generation electricity system.
The energy storage market is entering a growth phase and this means we can expect many changes over the next year. Hopefully, the landscape and conversation at ESNA 2016 will look quite different from what we saw this year with multiple new markets in place and more in the works. We look forward to exciting times ahead in the energy storage industry.
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