April 13, 2020

The New England Battery Revolution: In a Public Health Crisis, State Efficiency Programs Are Making Resilient Power Affordable for All

By Lewis Milford, Todd Olinsky-Paul

In this time of the coronavirus, losing electricity has more far reaching consequences than ever before.

To those at home with children, a power outage could mean no distance learning; to those with home-based medical equipment, it could mean illness or worse; to those now working remotely, it could mean inability to run a business, or loss of a job; and to those in hospitals or community health centers caring for those sick from this virus, it could disrupt care and result in untold harm.

The need for reliable power has never been more critical than today. And in the next few months, we will move into the hurricane and wildfire seasons, when the already-significant risk of outages will grow even greater over wide swaths of the country.

This virus – and all the ways it is upending our society and revealing its historical and racial fault lines – makes energy resiliency more than a climate goal. It makes clean, resilient power—in the form of solar PV plus battery storage – a national necessity in both homes, businesses, and medical facilities. In the event of a power outage, solar+storage is a way to keep this new, distributed economic workplace running; and when the grid is functioning normally, solar+storage reduces the environmental burden caused by power plants on those most vulnerable, who now find themselves more susceptible to this disease.

It has long been understood that the urban poor and people of color are disproportionately burdened with air pollution from fossil fuel power plants. This pollution, which causes asthma, COPD and other respiratory illnesses, is now contributing to high incidences of hospitalization and death due to complications from the coronavirus.

A new study from Harvard University confirms the link between air pollution from power plants and COVID-19 health impacts in several cities.[1] In Manhattan alone, the report says, a small decrease in particulate matter (PM) exposure (a result of local plants burning fossil fuels) would have resulted in 243 fewer deaths from COVID-19 over the past few weeks.

Solar and battery storage has proven to be a reliable and cleaner alternative to fossil-fuel generators, but the problem always has been how to pay for or finance these new technologies, and how to make them accessible to under-resourced communities.

This article describes ConnectedSolutions, an emerging battery storage incentive program in New England that provides a way to overcome the financial barriers to battery storage, so that customers of all types, from all income groups, can access this new resilient technology in their homes and businesses.

This article is the first in a series that will explore how this entirely new approach to financing battery storage is unfolding in New England. It also offers a model for how other states throughout the country could use their existing energy efficiency funds – now some $8 billion nationwide – to create new financing solutions for resilient battery storage during these tough times.

A new funding model with new benefits

Since 2012, Clean Energy Group (CEG) has worked to support development of the new aggregated, customer-sited, energy storage programs being developed by various states and utilities in New England. We helped to develop the first template for these programs with a 14-unit rural affordable housing project in Vermont in 2014, and supported the use of storage in the Massachusetts Energy Efficiency Plan with advocacy and new economic analysis by the Applied Economics Clinic in 2017.

Storage was finally accepted into the Massachusetts efficiency plan in 2018, and in Rhode Island in 2019. Two more New England states are in the process of adopting similar programs.

These new aggregated storage programs achieve a number of important goals that are necessary to bring distributed, resilient storage quickly to scale:

  • De-risking investment by providing reliable, contractual revenue streams and defining standardized eligible systems, to make storage “bankable.”
  • Supporting more customer resilience by supporting bigger and longer-duration batteries.
  • Making storage viable for many more customers by making storage economics work broadly, without regard to customer type, utility region or tariff.
  • Providing demonstrable grid benefits by more accurately aligning customer battery discharges with regional demand peaks.
  • Creating a tool to achieve additional societal benefits by bringing customer batteries into state-regulated programs.
  • Addressing utility ownership issues by giving utilities a way to manage BTM storage resources without having to own them.
  • Ensuring a diverse storage market by involving customers and third-party developers/aggregators as partners in an aggregated system.

How it works

The new customer battery storage programs emerging across New England are not all identical, but they do have certain key elements in common.

First, they provide a reliable, predictable revenue stream by means of a multi-year, pay-for-performance contract between the customer (battery owner) and their electrical utility (or third-party integrator). This makes the purchase of BTM batteries a bankable proposition, one that financiers can support.

Until now, certain commercial facilities have been able to make batteries pay for themselves by using them to limit demand peaks, thereby reducing costly demand charges owed to utilities. In some cases, this demand charge management (DCM) model can make batteries pay themselves off in just a few years. But while it can be very effective for a small subset of ratepayers, DCM cannot be used by residential customers, because they don’t pay demand charges; nor is it economical for many commercial customers whose demand rates are too low, or whose load curves are too flat, to make storage pay.

Even when the numbers align, using batteries for DCM has other problems as well – chiefly, the cost savings from the batteries are not guaranteed. Customers may not time battery discharges properly and may miss valuable peak savings; utilities could change the customer’s tariff or lower demand charge rates; customer load curves (electricity usage patterns) may change, making DCM less profitable. These uncertainties make DCM appear too risky for some lenders. And lenders will be needed to support the development of large-scale project pipelines for battery storage; without them, bringing distributed storage to scale will be a slow and painstaking process that will leave out many potential customers.

By comparison, the new ConnectedSolutions model replaces uncertain customer behavior with predictable utility behavior. Under this new model, utilities (or third-party aggregators) will discharge thousands of customer batteries at the same time to lower regional demand peaks. Allowing utilities to operate customer batteries under multi-year, pay-for-performance contracts lowers risk for everyone – customers, utilities, and developers – and makes it easier for developers to get financing for new project pipelines.

Second, these new programs make battery storage affordable and available to all utility customers. No longer will battery storage be a viable option only for large commercial customers with peaky load curves, who happen to pay high demand charges. Under the new system, all customers – commercial or residential, high-income or low-income, in any utility territory – will be eligible to install a battery and contract with their utility, which will pay them for using it when needed.[2] And associated programs, like Massachusetts’ SMART incentive and zero-interest HEAT loan program, help lower the customer’s up-front investment and shorten payback periods.

The availability of these programs to residential customers is particularly important in this time of heightened medical need in homes. As noted above, when increasing numbers of residential customers are relying on electricity-powered home medical devices, resilient power for home health care has become a serious concern. Interest in the ConnectedSolutions programs has been strong among residential customers.[3]

Third, by placing the ConnectedSolutions program within their states’ Energy Efficiency Plans, Massachusetts and Rhode Island also solved two major problems for policymakers: how to A) incentivize customers to install battery storage systems, and B) ensure these customer-owned batteries would be operated in a way that supports the state’s clean energy goals.

When Massachusetts policymakers considered how to scale up battery adoption in the Commonwealth, they found they did not have available funds in the budget to support a new storage rebate program. What they did have was one of the nation’s best funded and most highly regarded energy efficiency programs, which included peak demand reduction among its goals.

A landmark study, State of Charge, had already found that peak electricity demand hours are incredibly expensive, with the 10 percent of highest demand hours each year accounting for 40 percent of the Commonwealth’s utility customers’ overall spending on electricity. And the study had identified battery storage as one of the best tools to reduce these high-cost and highly polluting demand peaks.

Adding customer-sited storage to the existing energy efficiency plan provided the state with a new tool to directly reduce expensive demand peaks, without having to develop a new incentive program with a new budget.

And because the program uses a pay-for-performance, demand response model that ensures BTM batteries will be discharged at the correct time to reduce regional demand peaks, policymakers and regulators can be assured that it will result in widespread social benefits: all ratepayers gain, because these new customer batteries demonstrably increase the efficiency of the grid.

By contrast, using batteries for demand charge management addresses individual customer peaks without regard to regional peaks, which may be different. DCM’s “every man for himself” approach gives policymakers and utilities no guarantee that the customer will behave in a way that lowers peak costs for everyone. An aggregated system like ConnectedSolutions solves this problem by making utilities responsible to ensure that customer batteries are discharged at the right time to benefit all ratepayers.

Fourth, this new aggregated storage model promises additional benefits beyond heightened efficiency. Some of these added benefits, such as increased renewable energy and resiliency, are a natural result of the efficiency/demand response model. For example, when customer-sited battery systems are designed and installed to reduce regional demand peaks, the batteries tend to be significantly larger – both in power and in duration of discharge – in part because they are designed to address three-hour regional peaks rather than 15-minute individual customer peaks. These larger and longer-duration batteries can offer, as a side benefit, greater resilient back-up power to customers during grid outages. Larger batteries also tend to be more cost-effective than smaller ones, so this is a great advantage over the DCM model.

Other added benefits may be supported by policymakers through incentive adders. Massachusetts does this through their SMART solar program, which offers stackable adders for systems that include battery storage, serve low-income communities, reclaim brownfields, etc. Developers use the SMART rebate in concert with the ConnectedSolutions performance payment to create a better overall return on investment for customers, while the state can show numerous societal benefits from coordinated use of the two programs.

More work to do

The ConnectedSolutions program developed in Massachusetts is not perfect, and CEG continues to advocate for improvements, such as a dedicated customer battery storage rebate, especially for low-income communities, and mandated utility storage procurement targets with behind-the-meter quotas.

In addition, the way the program is administered can have a huge impact on its success or failure, and strong state regulatory oversight is needed to ensure that utilities work to support customer enrollment in the program, not hinder it.

However, these are typical bumps in the road experienced with any new energy program or policy. Utility regulators and energy agencies are addressing these problems in Massachusetts and neighboring states, and we’re confident that many of the wrinkles will soon be ironed out.

CEG will continue to monitor and support state energy storage policy and programs in New England. We will also continue bringing technical support and information about these programs to affordable housing developers and those who provide critical services to underserved communities.

What’s next?

We’ve shown that these programs can work in New England. It’s important now to show that they can work in other regions as well.

Storage rebates and procurement targets have been adopted by only a handful of states. By contrast, most states have an energy efficiency program, and these programs tend to be well funded. Nationally, more than $8 billion is currently budgeted annually in state energy efficiency programs. A small fraction of that total, in the form of a dedicated storage performance payment or incentive, would bring battery storage out of the realm of niche applications, and into the mainstream.[4]

The Massachusetts State of Charge report found that one of the main barriers to storage adoption is the lack of market opportunities for storage – that is, storage owners have trouble monetizing the many societal benefits the technology can provide. If distributed energy storage is to get to scale, it is not enough to show that in individual cases, benefits outweigh costs. The benefits must be shown to be consistent from user to user; revenues must be reliable and predictable, to make storage bankable; and the social gains must be widespread, lifting all ratepayers, not just storage owners.

Most of all, solar+storage must be made available and accessible to all. As we look forward to an uncertain future with COVID-19 and energy security, it is important to develop new solutions that will put resilient solar and storage within reach for everyone, including those most vulnerable to power outages and the health impacts that could result from them.

That is what the ConnectedSolutions programs have begun to achieve, and that is why this new model needs to spread far beyond New England.

[1] The report and a related article in The New York Times can be found here and here

[2] CEG has conducted independent analysis showing that the new ConnectedSolutions program improves economic and resiliency outcomes dramatically for multifamily affordable housing facilities considering installing solar+storage systems in Massachusetts. A report and webinar on this analysis will be announced soon.

[3] CEG is partnering with Alternate Power Source on a 100-unit home storage and demand response pilot project in Norwood, MA, which was awarded an InnovateMass grant from the state. The project will include 15 enhanced resilience systems for low-income customers with critical home health devices. These enhanced systems, supported by a grant from CEG, will demonstrate the benefits of battery storage to support home health needs.

[4] Some $20 million has been allocated to these programs in MA, RI and NH to date; there is clearly a lot of room for growth in New England as well as in other regions.