The Value of Energy Storage is on the Rise
In 2014, 65MW of energy storage was installed in the US. This year, it’s over 250MW. In 2019, it’ll be more than 1000MW. That’s some pretty serious growth in five years. What’s driving it? There’s been plenty of talk about the need for lots of large-scale energy storage for a long time; why is it happening now? It’s pretty simple, really: the cost of energy storage is going down, and the value is going up.
The first point is straightforward: installed storage system costs are falling rapidly, driven by lower cost (and higher quality) of the batteries themselves, as well as by the kind of balance of system and soft cost reductions that you see whenever an industry starts to scale. The same system for a commercial customer that cost a $1,000,000 two years ago costs just over $500,000 today – and it’s a better battery, too.
But why is the value of energy storage going up? As we add more and more intermittent renewables – wind and solar – to our electricity system, we create a more urgent need for the flexibility in electricity supply that energy storage provides. Consider the duck curve:
This chart, first published in 2013 by the California Independent System Operator (CA ISO), shows what happens to the daily demand curve on the California grid over time, as we build more solar. You may or may not agree that it looks like a duck, but that’s where it got the name duck curve. Familiar to many, the key point here is that solar drives down net demand during the day (the amount of power being pulled from the utility grid while the sun is up), creating an excess of electricity supply; then, when the sun goes down, solar stops generating, and electricity demand rises, and we see a quick shift to a much higher level of net load on the system (amount of energy consumed). This is why the value of energy storage is going up: as the duck’s belly gets deeper and its neck gets longer, the value of charging a battery when the sun is up and discharging it when the sun goes down increases. We’re making great progress decarbonizing our electricity system; storage is how we deal with the intermittency challenge of solar expressed by the duck curve so we can keep going.
Launching an Energy Storage Division
That’s why Borrego Solar decided to launch an energy storage division this year: we see a systematic need, we see a way to address it that furthers our mission, we know we have the capabilities to serve our customers well, and it’s a growing market.
For over 35 years, Borrego Solar has stood for excellence in every aspect of solar design, construction, operation, and maintenance. Now, we bring that same experience and expertise to the same scope of services for battery storage systems. As Greentech Media noted when we launched our storage division earlier this year, “Borrego has weathered a lot of storms that took down other solar companies along the way. Its entrance indicates the storage industry is looking more like a sure bet than a gamble.”
Energy Storage Lessons Learned
Like everyone in energy storage, we’re learning a lot along the way. So we decided to share four of the lessons we’ve learned so far with you here:
1) Lithium-ion batteries are already really good.
Photovoltaic solar is a really mature technology, and solar panels work extremely well. They’re predictable, they rarely fail, and they last forever with only minimal degradation. At this point, a solar project has very, very little technology risk.
A year ago, we had a different impression of energy storage. We thought lithium-ion batteries had only a very limited track-record at the commercial and industrial scale, that their warranties might not be very bankable, and that they wouldn’t last particularly long or perform very well.
Our impression, it turns out, was wrong. This is the most positive, exciting thing that we’ve learned this year, confirming our sense that now is the time for a project development and construction company like Borrego Solar to expand into energy storage: large-scale, stationary lithium-ion batteries are ready for the mass market.
World-class electronics and consumer products companies like LG and Samsung make great DC battery racks, which last 15 years or longer with tolerable capacity fade over time, great round-trip efficiency, and operational flexibility. Industrial product engineering companies, like Lockheed Martin, NEC, and Tesla, have integrated those battery building blocks into modular, containerized AC energy storage products that are well-designed, capable, and wrapped with strong warranties.
We think there’s a healthy skepticism in the marketplace about energy storage products, built on years of “just around the corner” chatter. But we buy batteries – we don’t make them – so we’re a fairly independent party positioned to do deep technical and engineering review, and we like what we see.
Costs and performance will improve over time, but that’s the part of the learning curve we’re in now: commercialization and scale, more than R&D.
2) For many commercial and industrial customers in CA, MA, and NY, storage is a good deal today.
Today, many large-scale electricity customers in California, New York, and Massachusetts can save money with an energy storage system.
California is the most developed state market for customer-sited energy storage, for two reasons.
One, batteries can reduce customer demand charges, and California C&I customers pay some of the highest demand charges in the US; the higher the demand charges, the greater the savings opportunity.
Two, California had the first programmatic behind-the-meter storage incentive program – the Self-Generation Incentive Program, or SGIP – and the program is re-launching early next year, after a tune-up. One feature of the new program design is that the value of the incentive will decline as customers sign up, so the first customers in the program will get the highest incentive levels.
Taking those points together, a storage project offers electricity cost savings for many large-scale energy users in CA, and interested customers should take a look before SGIP re-opens in the spring.
Most commercial-scale rates in Massachusetts have lower demand charges than in California, but projects can still pencil, because the Massachusetts government is taking action to grow the local energy storage market. The Department of Energy Resources (DOER) and the Clean Energy Center (CEC) recently released a report on energy storage in the Commonwealth, which called for several new policies to support energy storage projects. Chief among them is a new energy storage incentive RFP that will make at least $10M available for qualified projects, with applications due in early 2017. Storage can offer a strong value proposition for customers in Massachusetts who bid into that RFP before it closes.
For any customer – in CA, MA, or in NY’s ConEd service territory, where demand charges are among the highest in the country – the starting place for figuring out whether energy storage makes sense for you is in understanding your electricity demand profile. If you don’t have it, ask your utility for your 15-minute or 5-minute interval data, and we can quickly figure out if storage is going to work for you.
3) Start by looking at solar; finish by looking at energy storage.
To put it plainly: if you’re thinking about a storage project, you should be thinking about a solar project.
In the states where we do the most work – CA, MA, and NY – storage often saves money for customers, but solar usually saves more money for customers. For most customers we look at, they can lower their energy costs the most by doing solar and storage together, the second-most by doing solar alone, and the third most by doing storage alone.
The conclusion is pretty simple: if you’re looking at solar, consider storage, and if you’re looking at storage, consider solar.
If you are a large-scale energy user in CA, MA, or NY, and if solar is physically feasible for you, that’s very likely to be your big NPV-positive distributed energy project. So start by looking at solar. If it works, consider adding storage and making your project better. If for some reason you can’t do solar, storage might be a great choice for controlling your energy costs.
4) Is Financing Energy Storage a Good Deal?
Finally, there’s the question of how to finance a project. Should you buy a system yourself, so you can enjoy the benefits of ownership but also carry the burdens? Or should you leverage opportunities for third-party financing, sharing the economics but putting someone else’s capital to work?
To a large extent, the answer is the same as it is with solar. Customers who have the ability to make the up-front investment themselves, and make the choice to do so, put themselves in position to save the most money by going solar, because they don’t have to share the economic benefits with another entity. The same logic applies here; if you want someone else to put up the money, you’re going to have to pay for that.
But many PV customers do opt for third-party financing, under a lease or PPA structure, for very good reasons. Customers who don’t have tax liability can’t monetize the federal investment tax credit or depreciation, so a private third-party owner is the only way to access those benefits. Some customers prefer the “set-it-and-forget-it” nature of a PPA structure, where it’s someone else’s responsibility to build, own, and maintain the asset. And some customers just don’t have or don’t want to come up with the cash.
For a number of reasons, there is no single best answer to this question: ownership is the right answer for some solar customers, and a lease or PPA is a better choice for others.
The same is true for storage and solar-plus-storage. The market for third-party financing of energy storage projects is newer than for solar, so there’s less standardization, and third-party capital is a bit more expensive than it is in solar or will be soon for storage. But the options are there, and the logic is the same as with solar: if you want the best deal and have the cash, buy your system, but you can still put together a really good storage project and save money today using third-party financing.
Now is the Time for Energy Storage
For large-scale energy users in CA, MA, and NY, now is the time to look at energy storage. Costs have come down, and incentive programs offer meaningful support, but incentive levels will decline over time, as they have in solar. Especially in CA and MA, customers should be ready to reserve incentive program capacity by late Q1 2017 to lock in today’s incentive levels before they start to decline.
Reach out to Borrego solar today to get the conversation started. Our first step will be looking at how you used electricity over the last year in 15-minute or 5-minute increments. Get a head start by preparing that data set or requesting it from your utility, or contact us today, and we can help facilitate getting this information from your utility and then we can model your projected energy savings.