Last week, GTM Research released a new report on distributed energy storage in the commercial sector. It explores distributed energy storage as a driver of a new paradigm for electricity supply, delving into the market potential, deployment barriers, incentives and regulations, and wholesale market opportunities.
To whet your appetite, here are four factors driving the commercial energy storage market that are highlighted in the report.
1. Demand charge reduction for commercial and industrial customers
Under current commercial utility rate structures, commercial customers with highly variable, “peaky” loads can stand to benefit from the deployment of an energy storage system designed to lower peak demand and subsequently reduce demand charges. Furthermore, storage can also be used to reduce high usage on partial peaks.
Multiple project developers interviewed noted that this is where they believe the real economic value is -- particularly when coupled with midday peaking solar PV. However, utility rate restructuring and reform represents a long-term risk about which project developers must be cautious and financiers will be nervous. Maintaining the flexibility to capture new opportunities and value streams as regulatory and technological breakthroughs occur will be key in minimizing the risk of reliance on a single value stream.
2. Synergy between solar PV and energy storage
The prolific growth of solar PV, particularly at the distributed level, has opened a window of opportunity for the deployment of distributed energy storage. From a technical perspective, storage can be used to smooth the output and variability of solar energy and may ultimately lead to solar receiving larger capacity credits, or potentially helping to avoid capacity charges.
In addition, some project developers have begun to deploy systems which share common power conditioning equipment such as inverters. From an economic perspective, three private letter rulings from the Internal Revenue Service have allowed energy storage devices to capture the 30 percent federal investment tax credit when coupled with renewable energy generating assets under certain conditions, and one of those projects is a combination of PV and battery storage.
3. Frequency regulation in select markets
The Federal Energy Regulatory Commission’s issuance of Order No. 755 in 2011, which required wholesale markets to evaluate and implement a pay-for-performance formula for frequency regulation, has been arguably one of the largest initial catalysts for the energy storage market. Order No. 755 has been further augmented by Order No. 784, which requires ancillary service providers in vertically integrated markets to take into account both speed and accuracy when determining regulation requirements.
However, further clarity is needed around the participation of aggregated, behind-the-meter resources in ancillary service markets. To date, PJM is the only market which has revised market rules to help facilitate the inclusion of this class of resources. In addition, it is important to remember that FERC allows each ISO/RTO some degree of flexibility in interpreting and implementing orders. Therefore, a lucrative wholesale opportunity in one market may not translate to a lucrative opportunity in an adjacent market.
4. State-level incentives
Incentives such as California’s Self-Generation Incentive Program (SGIP) and NYSERDA’s Program Opportunity Notices (PONs) have helped accelerate the project pipeline in multiple states. In California, more than 600 advanced energy storage project applications are pending approval, totaling over 27 megawatts of potential new capacity. More than one-third of these projects are coupled with solar PV.
While it is highly unlikely that the full SGIP project pipeline will be realized, these state-level incentives represent an important step in building a sufficiently substantial project pipeline to mobilize private capital.
Download the free report brochure here.
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