Several studies have explored the economic case for BTM storage as a demand management solution for commercial customers.
An analysis of rate structures across 51 utilities performed by GTM Research concluded that storage begins to be a cost-effective demand management strategy at a demand charge rate of at least $15 per kilowatt (8). Based on GTM estimates, the demand charge threshold for storage could drop as low as $11 per kilowatt by 2021.
Analysis by McKinsey & Company found even more favorable opportunities for energy storage (9). The consulting firm determined that some customers could break even by investing in battery storage at a demand charge rate of about $9 per kilowatt.
By 2020, McKinsey believes storage could be an economically viable demand reduction strategy at demand charge rates of as little as $4 to $5 per kilowatt, which would include most commercial rates, and some residential rates, in the U.S. with a demand component.
These numbers show a huge market potential for BTM storage across the United States. Clean Energy Group confirmed this potential in a first of its kind study with the National Renewable Energy Laboratory (NREL). Based on a survey of over 10,000 utility tariffs in 48 states, the NREL/CEG study concluded that more than a quarter of U.S. commercial customers may be eligible for utility tariffs with demand charges of $15 per kilowatt or higher (10).
That means that over five million commercial customers across the country may be able to cost-effectively reduce their utility bills with battery storage technologies today. This represents not just businesses, but nonprofits, public facilities, and multifamily housing as well. So far, only a small a small portion of this potential market has been realized, with no more than a few thousand commercial systems deployed.
While the survey found opportunities for demand charge savings with batteries across the country, most of the BTM storage systems installed for demand charge reduction have been concentrated in California. This is not just due to the state’s high demand charges. In fact, the analysis determined that economic opportunities for storage exist in states across all regions of the country including the Midwest, Mid-Atlantic, Southwest, and Southeast.
For example, along with energy storage leaders like California, New York, and Massachusetts, tens of thousands of commercial customers in Georgia, Alabama, Colorado, Kentucky, Michigan, Texas, Minnesota, and Ohio may be subject to utility tariffs with sufficiently high demand charges to make storage a viable economic investment. Figure 5 provides an overview of locations in the U.S. where commercial customers are facing high utility demand charges.
In other words, there is a future for clean energy with storage in states and regions that are not now considered clean energy leaders. Storage might be the enabling technology that could drive bill reductions and make renewable projects more economical to pursue in these markets. Anticipated future declines in battery storage costs will continue to enlarge the market potential in these and other states.
Despite these opportunities, there are skeptics who challenge the reason why advocates should get behind efforts to use storage to reduce demand charges. These advocates are not necessarily against storage but, instead, see demand charges as an inefficient way for utilities to recover and bill customers for peak demand-related expenses. As a result, they view storage deployed for customer demand charge reduction as an inefficient way to reduce system demand.
A few responses to this are worth considering.
First, we take the utility world as it is right now and, like the companies already deploying storage, we advocate for cost-effective clean energy technologies that have market opportunities to capture today. That seems a smart advocacy strategy even if there are opportunities for different, more efficient rate design structures to advocate for and evolve over time.
Second, there is little proof that the current rate design structure in favor of demand charges is going away any time soon. In fact, a recent rate case in Massachusetts expanded the use of demand charges to more commercial customers and to residential customers with solar, an undeniable trend pressed by many other utilities across the country (11).
And third, changes proposed by many utility rate reduction advocates include more time-of-use energy charges, which also favor the use of storage for cost savings over time.
For all these reasons, advocating for storage to reduce billions of dollars of utility demand charges is a pragmatic and potentially hugely successful enterprise for clean energy advocates to pursue.