We recently reported that the New Jersey BPU, which announced awards to 13 resilient renewables+storage projects in its $3 million solicitation, is considering moving to a prescriptive rebate for the next round of funding.
This month, NYSERDA announced $450,525,000 in new funding for commercial/industrial scale solar PV systems between 200 kW and 2 MW capacity. The NY-Sun Commercial/Industrial Incentive Program includes extra incentives for solar projects that include an energy storage component, so long as the system reduces energy-use intensity at the customer’s site by at least 15%. Projects located at “utility identified strategic locations” and including energy efficiency upgrades are eligible for additional incentives.
Why is this important? Because competitive solicitations, necessary as they are to demonstrate new technology and applications, are simply not incredibly useful to developers who are trying to break into new markets and grow a portfolio. Longer-term, more dependable forms of support, such as low-cost financing, rebates, and tax incentives, are more helpful in this context, but are usually reserved for more commercially mature technologies. Adding a storage incentive to a solar rebate program not only underscores the complimentary nature of solar PV and energy storage; it signals that distributed energy storage has arrived as a mature technology.
The $50,000 added incentive for storage in the NY-Sun program may not sound like much, but it just might be enough to incentivize a lot of batteries at commercial/industrial facilities in New York City. Here’s why: unlike residential customers, commercial and industrial customers pay not only for the volume of electricity they use over a billing cycle, they also pay a “demand charge.” This is an added charge based on the customer’s highest rate of demand in the billing cycle, and in New York City, demand charges can comprise up to half of a customer’s total monthly bill. By using batteries and solar for peak shaving, a C/I customer can substantially reduce the demand charge, leading to significant savings every month. For this reason, a new report from UBS identifies the commercial/industrial market as the sweet spot for the raft of new companies selling batteries in the sub-megawatt range. (See Seth Mullendore’s blog on the UBS report here.)
Of course, batteries sized for peak shaving may not be large enough to provide a significant resilient power benefit, and probably won’t be configured to continue operating in case of a grid failure. But solar+storage paired with micro-CHP (mCHP) can achieve both purposes, and more: peak shaving, resiliency in the face of grid outages, and the provision of useful heat for industrial processes or space heating.
https://www.cleanegroup.org/wp-content/uploads/Solar-Panels-at-Solar-Power.jpg330480Clean Energy Grouphttps://www.cleanegroup.org/wp-content/uploads/Clean-Energy-Group-logo-275x70px.pngClean Energy Group2015-05-18 11:49:032015-12-07 15:18:59Energy Storage Comes of Age in New York
According to the report, the reason why residential systems may not offer as many economic benefits at this time, while C&I systems have the potential to net a positive return, has to do with how each customer segment is billed for its respective electricity use. Residential utility customers are billed based solely on the volume of electricity consumed, measured in kilowatt-hours (kWh). Commercial customers are also billed on a volumetric basis, but in addition, they pay a demand charge, a fixed charge calculated on the highest magnitude of electricity used each billing period, measured in kilowatts (kW). Demand charges can be significant, accounting for 35-40 percent of a C&I customer’s electricity bill in some parts of the country.
This maximum level of electricity demand is known as peak demand. By selectively discharging when a customer’s level of demand reaches a certain kilowatt threshold, energy storage can act to effectively cap peak demand – a process called peak shaving. The process is all managed through intelligent control system software, which can learn a building’s energy use trends over time to optimize energy storage performance accordingly. Reduced peak demand translates into fewer demand charges and lower customer utility bills.
So, residential customers do not pay demand charges, while commercial and industrial customers do. And it is in those demand charge markets where commercial battery storage will likely make the first foray – because reducing those charges is a straight economic play with a good rate of return. In fact, UBS estimates that energy storage as a way to reduce these demand charges is already economical in several U.S. markets, including parts of California and New York City.
The UBS report models the 20-year internal rate of return (IRR) for an energy storage system costing $400 per kWh, a price point UBS predicts will be reached by 2018. Tesla’s Powerpack is already approaching this target at about $50,000 installed cost for a 100 kWh system, or $500 per kWh. The report finds that energy storage systems begin to show a positive IRR at a demand charge of around $10 per kW. At a demand charges of $16 per kW, the IRR comes in at about 7 percent. A $20 per kW demand charge produces a return of about 12 percent. Demand charges in certain California and New York markets are already in the $30-$40 per kW range, meaning the economics are likely to be favorable even at today’s energy storage prices.
UBS goes on to note that additional value propositions, such as payments for participation in ancillary services and demand response programs, can further improve the economic argument in favor of energy storage.
One component that UBS fails to quantify, or even mention for C&I customers, is that energy storage systems can be set up to island, or disconnect from the grid, in the case of a grid outage. When islanded, energy storage can provide backup power for customers, allowing them to continue operations when the grid is down. While energy storage systems designed for demand charge reduction or ancillary services may not be able to power all of a facility’s systems throughout a power outage, they can certainly take on a reduced or critical load, augmenting the capabilities of existing backup generators and extending the lifetime of onsite fuel supplies during extended outages. When combined with solar power, a storage system could theoretically supply resilient power to critical loads for an unlimited duration.
In comparison to C&I customers, the UBS report finds that residential customers will have less financial incentive to purchase energy storage systems. UBS specifically examines the case of batteries for backup power as compared to fossil-fueled generators. Though the numbers for residential storage look less favorable as an alternative to natural gas generators, UBS fails to look beyond economics alone. The fact is, lithium-ion batteries offer a lot to like as opposed to generators. Generators can be ugly, noisy, and polluting, they are limited by available fuel supplies; and they emit carbon monoxide, a dangerous gas that can be fatal if not properly vented.
Lithium-ion batteries have no emissions, are quiet, and while looks aren’t everything…have you seen the new Tesla battery yet?
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This week, the US Supreme Court agreed to review a ruling by a lower court holding that FERC, the Federal Energy Regulatory Commission, has no jurisdiction to regulate demand response markets run by ISOs and RTOs. Based in large part on FERC order 745, these markets currently support investments in distributed energy resources and energy efficiency measures, such as energy storage.
Because demand response competes with traditional fossil fueled generators, a number of legal challenges have been filed by groups representing generators, disputing the right of demand response resources to bid into energy markets. If the court does not uphold FERC 745, these challenges could move ahead in the New York and New England ISOs as well as in PJM, the territory where the current dispute is centered.
In what many legal observers saw as an odd and too restrictive interpretation of FERC’s enabling law, the U.S. Court of Appeals for the District of Columbia Circuit ruled that FERC did not have authority to regulate demand response markets (see http://www.eenews.net/greenwire/stories/1060000159). The Obama Administration and a whole host of interested parties asked the Court to review the decision. Apart from a flawed statutory analysis, the appealing parties argued for the importance of demand response to the energy marketplace. The Court, which takes very few cases, obviously saw the need to resolve this important legal and energy issue.
So what is demand response, and why is it important? To understand this, we need to understand at a very basic level how our electricity grids function. Because there is so little energy storage capacity, generators need to supply exactly the right amount of electricity to match demand at any given moment. When demand falls, generators are turned down, or taken off-line. When demand rises, generators are turned on.
The problem with this method is that it leads us to build expensive and inefficient “peaker plants” – big fossil fueled generators that exist only to meet an hour of peak demand that generally occurs in the early evening.
Demand response offers a cheaper, cleaner and more rational way of dealing with brief periods of peak demand. Instead of increasing generation, demand response providers reduce their demand when called upon by the grid operator to do so – either by shedding load, or by using energy resources on the customer side of the meter, such as distributed generation and storage, to self-supply electricity for a short period. They are paid for this service, since reducing demand has the same effect as increasing generation – it balances supply and demand on the grid.
FERC argues that allowing demand response resources to enter electricity markets results in lower prices for consumers. It makes sense: turning down demand is much cheaper than building, maintaining and running “peaker” plants. Moreover, there is considerable evidence to support this view. Market analysts estimate that demand response participation in markets has resulted in customer savings of $50 billion in the Northeast and mid-Atlantic regions between 2008 and 2013.
Demand response isn’t only provided by big commercial and industrial customers, but also by smaller customers who participate in the market through aggregators like EnerNOC and NRG; and these aggregators are among the entities that would be most impacted if the court allows restrictions on demand response markets. By some estimates, aggregators now supply up to 80% of the Northeast’s demand response capacity. Barring such activity could disrupt grid stability in numerous states, pull the economic rug out from under DR aggregators, and provide a new lease on life for a number of fossil fuel plants currently slated for retirement.
But the Supreme Court’s decision will have impacts far beyond the demand response market alone. Along with frequency regulation, demand response is one of a number of valuable services that can be provided by energy storage and other distributed energy resources. By supporting such distributed resources, these energy services markets offer a financial underpinning for resilient power projects.
We recently saw evidence of the positive impact of a vibrant frequency response market for resilient power in New Jersey. The New Jersey BPU offered a $3 million solicitation for energy storage paired with renewables; from this they were able to fund 13 projects, all of which will provide resilient power to critical facilities, and all of which plan to sell frequency regulation into the PJM market. It’s a good bet that without PJM’s strong frequency regulation market, New Jersey would not have had such good results from a relatively small investment of public funds. (Read our blog post about the New Jersey resilient power program here.)
The legal question before the Supreme Court is only about FERC’s jurisdiction, and that is likely what the court will choose to focus on. But the real underlying question to be decided is whether big, legacy fossil fueled generators should continue to enjoy a monopoly on the provision of grid support services that can be provided faster and more accurately by smaller, more nimble and cleaner distributed energy resources controlled by consumers.
If our old fashioned electricity grids are to take a step into the modern age, they must embrace a decentralized, distributed, flexible and interactive model, one that rewards performance rather than size. In doing so, they will open the door to resilient power, energy storage, microgrids, and a host of other cleaner energy technologies that enable consumer choice, independence and self-reliance.
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Elon Musk’s Tesla Energy announcement to sell an affordable, reliable battery system for solar energy storage in homes and businesses is more important than all the hyped press even suggests. But as extraordinary as the news is about how this technology will impact our energy future, it leaves out some important issues still to be sorted out.
At the top of the list is how these technology advances will benefit people other than high-income homeowners and businesses who are likely to be the first adopters of the product—how to make these technologies available to the low- and middle-income people who also need resilient power.
The news of Tesla opening up a new energy battery division, called Tesla Energy, has captured the headlines and the imagination. In a presentation reminiscent of Steve Jobs before an adoring crowd, Musk gave an entertaining and direct talk about the need for solar and battery storage to replace fossil fuels and address climate change and to capture and store electric power that can make homes and businesses more resilient and independent from the power grid. It was an impressive show.
The product specifications are even more impressive. For a cutting-edge and innovative product, the cost is low for a home system, $3,500, with an inverter and installation adding to that cost. That system will allow a home or business to island, to go grid independent in case of a power outage. It will also enable customers to reduce electric bills, especially very high demand charges that can represent more than half of typical commercial electric bill.
The announcement is part of a wave of good news about how solar plus battery systems can reinvent the power system, reduce pollution, and realign the relationship between electric utilities and their customers.
But what is missing from this news is how new battery storage technology can improve public safety—in virtually all buildings that protect the public like fire and police stations, schools and hospitals; and how this technology can benefit the people who need access to low-cost and resilient power the most—the underprivileged and largely forgotten poor, many who already suffer high electric bills in places like affordable housing and assisted living facilities. We need to ensure that the larger public and the most vulnerable can get these technology benefits along with high-end homeowners and businesses.
Social equity is often a challenge during these new technology transitions—the need to ensure that the arc of these new and cleaner solar+storage technology markets benefits the general public rather than only private commercial customers and the affluent.
We need to direct these technologies to benefit all sectors of society—not as an afterthought, but from the outset, as a matter of foundational market and policy design. That has not been the case with clean energy markets—the poor have usually been left behind the technology curve.
As these energy storage technologies become available, we need to make sure they are deployed to provide resilient power to communities, to make sure that emergency services and public infrastructure can benefit from reliable and affordable solar plus storage technologies. Hospitals, schools, water treatment plants, fire stations, elderly housing complexes, airports, communications and transportation systems could all benefit from these technologies. They all need reliable and affordable electric power; they all need to function when the grid goes down.
The good news is that Tesla seems driven to serve both private enterprise and public benefits. Musk is a brilliant energy innovator with a drive to solve large societal problems like climate change. He is keeping his technology patents open. That is to be commended.
What is also needed now is a commitment to ensure that new energy storage markets also include the public sector—to extend these economic and environmental benefits to the people most in need now, and not have these benefits trickle down years later, after the technologies have become mainstream.
The conversation about how to make that happen is an important one that companies like Tesla need to have.
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