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Advanced energy storage has seen an immense uptake in both utility-scale and distributed installations across the globe. Falling technology costs and increased renewable penetration are two key growth drivers of this trend, with regionally policy objectives and operational constraints shaping the business case in certain locations. In the U.S. alone, GTM Research projects the annual energy storage market to reach 1.7 gigawatts by 2020 - with a value of $2.5 billion. Particular opportunities exist in the manufacturing and heavy industrials sector - with energy storage allowing for significant demand charge savings, a secure supply of back-up power, and the ability to earn revenue from providing ancillary services back to the grid.
The challenge that both utilities and large commercial/industrial customers face when assessing energy storage deployment is similar - the unknowns around both the technology and policy parameters that ultimately make up the revenue streams of an energy storage system (ESS). To manage this uncertainty, and take advantage of emerging benefits, it is important to look holistically at all of the factors at play.
The sizing and design of a battery system to meet specific applications is just as important as the financing mechanism used to secure its purchase. Additionally, the system’s operational procedures and corresponding safety requirements are crucial to ensuring the system functions properly and operates to its forecasted lifetime. For merchant or commercial installations, existing and future market rules and tariffs will determine how the system will generate revenue.
Therefore, a cross functional approach which considers the impacts on both internal and external stakeholders is critical to ensuring a successful energy storage system deployment. This means that different departments at both utilities, merchant generators, and companies need to be engaged and speaking to each other to cover all these bases. There are key interactions and touchpoints that need to occur across 3 distinct project phases:
Due Diligence and Pre-Implementation
Prior to embarking on building a business case for storage, it is important to understand the products that vendors offer and the opportunities in the electric market. Market research should be conducted to get a basis of technology - including battery chemistry, power electronics, and other associated balance of system components.
A set of use cases is identified for the energy storage project or portfolio, which feeds into the technical assessment of what battery chemistry and electrical design is best suited to meet those needs. Based on these same use cases, a framework is developed to forecast the financial return from investing into an ESS. Utilities will typically quantify the benefits of the ESS based on specific use cases, then weigh them against the cost of the system. Private applications look at typical project finance metrics like Net Present Value (NPV), payback period, and Internal Rate of Return (IRR) to evaluate the investment.
The procurement process for an ESS can be a treacherous journey. As increasingly more vendors enter this space, another subset leaves due to bankruptcy or other challenges. This leads to serious concerns around commercial viability and the integrity of company warranties.
This is also the phase that engineering and design considerations should be factored in, as well as the associated O&M costs throughout the life of the system. Integration questions should also be addressed to determine how the system will communicate with existing grid infrastructure and be controlled.
Also, this is when contractual agreements need to be defined and agreed upon between all of the stakeholders involved – utilities, businesses, market operators, vendors, and installers.
Upon commissioning the energy storage system, there are significant efforts necessary to ensure it operates to its designed specifications. It is important to collect and evaluate operational data to make sure the system is capturing the value streams that it is meant to. Tradeoffs need to be considered when charging and discharging. Control algorithms are necessary to optimize operations based on intended purposes and customer/utility load shapes.
Opportunities in Heavy Industry
There has been a significant uptake in Commercial and Industrial energy storage systems deployed in the past two years. Falling technology costs and an increase of financing options have made C&I storage applications much more economic. Unreliable energy supply can be a serious challenge in certain areas of the world, and is a detriment to specific manufacturing and industrial applications. Energy storage systems can provide back-up power for industries where an uninterruptible power is critical to sustained operations. Large energy consumers are often subject to a demand charge based on their peak loads. Energy storage systems paired with automation and control software/hardware can help manage and “shave” these peaks - enabling building energy managers to realize significant energy cost savings.
When considering energy storage for onsite C&I projects, the technology choice should be driven by the desired application of the system. Although batteries, specifically Li-Ion, are the most widely deployed technology, thermal storage can well suited for facilities like manufacturing plants or warehouses that have large HVAC loads. These systems can be installed in tandem with existing AC units, and create ice at night when energy prices are low to thaw during the day and circulate cold air through a system of special coils.
Additionally, when paired with solar, the storage systems can provide additional value in energy arbitrage and demand charge management. Storage plays a critical role in microgrids, which have predominately been used to provide resiliency for critical infrastructure, have are gaining popularity in corporate campuses and the manufacturing sector. These sort of C&I smart grid technology deployments have already been installed by Ford and other automakers in the US, and may hold a compelling value proposition for vehicle manufacturing plants across Latin America.
With the recent results of Mexico’s first clean energy auction yielding 4,019 GWh of solar contracts awarded to 11 different projects, the question of how all of these resources will be integrated into the grid needs to be answered. There could be significant opportunities for aggregation of medium to large size behind-the-meter energy storage systems to provide ramping support and other grid services to facilitate integration of the 6 GW of the solar the Mexican government intends to have deployed by 2020. To enable this sort of value stream for storage, significant market and regulatory reform would be necessary. However, such proceedings are currently in flight in certain US jurisdictions like California and New York, and could be used as models to create these rules and incentives.
The benefited companies
Many companies across multiple industries can benefit from these best practices. Specifically, companies in industries as transportation and logistics that manage fleets of electric vehicles, trains and energy management services improvement in ports and other transportation hubs. Also, real estate companies and property management will see cost savings and profit potential of network services for building energy managers. Ditto for those managing large portfolios of properties rather than customers and in particular, office buildings and skyscrapers.
Finally, retail shops (from department stores but also others) will have more options to manage energy use, changing consumption peak times and reducing changes in energy demand.
Alex Pischalnikov is an energy expert at PA Consulting Group