The battery market for industrial and commercial facilities is growing across the country

Energize Weekly, October 4, 2017

The use of battery storage by business and industry to help manage electricity bills is growing rapidly and could potentially be used by millions of commercial customers across the country, according to a recent analysis.

Utilities are also installing storage, sometimes coupled with solar or wind installations and sometimes in place of substations, to enhance grid operations. The “behind-the-meter” storage is being used by customers to cut electricity bills and safeguard against blackouts.

Behind-the-meter installations were up 141 percent in the second quarter of 2017 to 16 megawatts (MW) compared to the first quarter, according to the U.S. Energy Storage Monitor, a market survey by GTM Research and the Energy Storage Association, a trade group.

Non-residential deployments were up 151 percent, and 1,580 kilowatts (kW) of residential storage was added, a 70 percent quarter-on-quarter increase. The bulk of the residential installations were in California and Hawaii, where state policies are promoting home storage.

There were, however, more than nine times as many kilowatts of commercial and industrial installations. They were more widely spread across the county, although California and New York led the list.

The behind-the-meter segment represented 19 percent of the 2016 overall storage market. It is projected to grow to 26 percent in 2017 and 52 percent by 2022, according to GTM Research, a cleantech marketing and consulting firm.

Overall, GTM Research expects the U.S. energy storage market to rise to 2.5 gigawatts annually by 2022—11 times the size of the 2016 market.

What is driving storage deployment in the business sector is demand charges that are often attached to the bills of commercial and industrial facilities. These demand charges are based on the peak demand of the operation during a set increment, often the highest 15 minutes of use.

The charge is usually set in dollars per kW, and utilities impose it to ensure that there is adequate capacity to meet the peaks of these large electricity customers.

In many cases, demand charges account for anywhere from 30 percent to 70 percent of a customer’s electricity bill. Having additional electricity on hand in storage can reduce that peak consumption and significantly reduce the demand charge.

“The non-residential market is much more mature,” said Brett Simon, an analyst with GTM Research. “Generally, markets with fairly high demand charges, charges north of $15 a kilowatt, are open to storage.”

An analysis of demand charges across the country by the Golden, Colo.-based federal National Renewable Energy Laboratory (NREL) found that there are high demand charges all over the country and estimated that 5 million commercial customers, representing more than a quarter of the 18 million commercial customers in the U.S., were in areas with demand charges of $15 a kW or more.

Beyond well-known areas for commercial storage, such as California and New York, the analysis also found “potential economic cases” for storage in the Midwest, Mid-Atlantic and Southeast.

The analysis offers a “snapshot” of locations with moderate to high demand charges and how many customers subscribe to them. It provides an indication where market opportunities may exist to reduce demand charges with battery storage and photovoltaic solar with storage, according to the study.

That doesn’t mean that every one of those business should buy storage batteries, cautioned Joyce McLaren, an NREL senior energy analyst and author of the study. “It is a good indicator of economics,” she said, “but it may not be good for your case. It might not be given your circumstances.”

“The economics of behind-the-meter storage in the commercial sector is going to depend on the economics of specific building types in specific locations,” McLaren said.

“We were rather surprised by the spread of high demand charges,” McLaren said. “You don’t hear about demand charges except in California, but there were demand charges in every state.”

Many states presented a checkerboard of high and low demand charges. For example, while the average demand charge in New York was around $10 a kW, on Long Island, where there is transmission congestion and difficulties in maintaining infrastructure, the charges rose to more than $50 a kW.

Similarly, Georgia had an average demand charge of $5.38 a kW. But the area around Atlanta, which is served by the investor-owned utility Georgia Power, had a demand charge five times as high, according to the survey.

“These disparities reflect both differences in the rate design process—which varies by utility—as well as differences in the costs they are reflecting,” the analysis said.

McLaren said, “We aren’t saying that demand charges are bad.” The Georgia example, she said “is showing difference between Georgia Power and smaller cooperatives or munis [municipal utilities] and the very different rates they have.”

Among the other states with the highest demand charges, and therefore potential markets, were Colorado, Nebraska and Arizona—none of them typically known for high electricity rates.

While there are still just a few thousand behind-the-meter storage systems in the country, Seth Mullendore, a project director with the non-profit Clean Energy Group (CEG), who was also a collaborator on NREL on the analysis, said the declining cost for batteries and changing electricity rate structures will spur deployments.

As for residential storage, Simon said the market is in the “early adopter phase” and that the economics “aren’t a slam dunk.”

The residential market has focused on California and Hawaii, which in the second quarter of 2017 accounted for 72 percent of all kilowatts installed, according to the storage monitor.

California, which also has the most installed solar capacity in the country, has a program—the Self-Generating Incentive Program—promoting residential deployment. Hawaii has capped the amount of rooftop solar that can be exported to the power grid, leading to more interest in home storage, Simon said.

CEG is working on about 50 projects to bring rooftop solar and storage to disadvantaged communities and non-profit organizations, Mullendore said.

The McKnight Lane affordable housing project, which was built on a defunct trailer park in Waltham, Vt., the 14 new homes included a 6-kW solar array and a 6-kilowatt-hour battery. CEG raised $130,000 to pay for the batteries.

The local utility, Green Mountain Power, also has access to draw on the batteries to shave the peak off the capacity payments it must make to the New England Independent System Operation (ISO), which manages the regional grid—in a similar fashion to a commercial customer using storage to cut its demand charge.

But McKnight Lane is an experiment and was largely focused on ensuring power and adding resiliency to the grid, with the economics a second consideration, Mullendore said.

“On the residential side, storage is still evolving.”

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