Back in 2015, California real estate developer Irvine Company announced plans to turn high-rise properties into “hybrid-electric buildings” by equipping them with Tesla batteries and then turning them over to energy storage project developer Advanced Microgrid Solutions to earn money serving the power grid.
This week, Irvine Co. and Advanced Microgrid Solutions unveiled the results of the project — a fleet of batteries at 21 buildings across Southern California. Each is capable of reducing building peak demand by 25 percent, and shaving about 10 percent from energy expenses and operating costs by up to 10 percent. Together, they’re capable of providing up to 10 megawatts of instantaneous load reduction for up to four hours at a time, to help utility Southern California Edison balance the grid.
The companies also unveiled data from the earliest applications of their technology, starting with the first operational battery-equipped building that came online in November. That's the same month that Advanced Microgrid Solutions was due to start delivering its first megawatts of capacity to SCE, under a 2014 contract that will eventually scale up to 50 megawatts of capacity by 2021.
Since then, as buildings come online, the fleet has been dispatched multiple times by SCE as a Proxy Demand Resource (PDR) for grid operator CAISO. While the units haven’t yet had a chance to serve through California’s heat and air-conditioning-driven summer peaks, they had plenty of opportunities to meet the utility’s call through the winter and spring.
In one case, the fleet “was dispatched 32 business days straight with zero emissions, zero customer fatigue and zero impact on building operations,” the company wrote in a Tuesday press release.
This list of “zeroes” is meant to differentiate AMS’ battery-based approach to demand response from the traditional models, which rely on turning down air conditioning, heating, lighting and other variable loads, or even shutting down elevator banks, factory lines and other major draws on grid power if the need is great enough. These demand-side approaches by necessity involve some “customer fatigue” and “impact on building operations.”
"Zero emissions" rules out backup generators or on-site power using fossil fuels, a common tool of demand response in many markets, although not under California’s strict air quality regulations. Batteries are also much faster-acting than most of the demand response platforms in use today.
The main drawback of batteries compared to traditional demand-side resources is their relatively high cost. Most of the big behind-the-meter energy storage vendors have worked around this challenge by structuring their deals to minimize upfront cost and ensure revenues and cost reductions for each site host. AMS has been financing much of its rollout through Macquarie Capital, which pledged $200 million to the startup’s projects in 2016.
But AMS’ primary customer is the utility, which is buying the day-to-day megawatts of flexibility stored on Irvine Co.’s property. The company has about 120 megawatts of energy storage projects under contract, about 90 megawatts of those with SCE.
AMS isn’t the first to aggregate behind-the-meter batteries to serve in California’s demand response markets. Startup Stem broke ground in 2014 when it bid about 160 kilowatts of aggregated storage capacity into a pilot being run by utility Pacific Gas & Electric. Other behind-the-meter battery aggregations have won bids for the state’s multi-year Demand Response Auction Mechanism (DRAM) pilot program.
Both AMS and Stem are also part of SCE’s massive 2014 local capacity resource (LCR) procurement, which broke ground by calling for hundreds of megawatts of distributed energy resources (DERs) to help it meet future grid reliability needs. AMS won a contract for 50 megawatts of capacity capable of four hours of service at a time and has been lining up customers to fill its obligations.
In April 2017 AMS announced plans with Wal-Mart to install 40 megawatt-hours' worth of projects at 27 Southern California locations as part of its SCE LCR contract. AMS is also working with the Irvine Ranch Water District to bring 34 megawatt-hours of batteries to 11 sites across its Orange County service territory, which shares boundaries with the Irvine Ranch property that is the core of Irvine Co.’s real estate empire.
California’s appetite for behind-the-meter batteries has largely been fueled by its Self-Generation Incentive Program (SGIP), which has handed out hundreds of millions of dollars to projects from companies including Stem, Green Charge Networks, Sunverge, Tesla/SolarCity and other participants. But that program is slated to sunset by decade’s end, as state regulators and policymakers look to other mechanisms to value energy storage.
Large-scale utility contracts like AMS’ LCR contract from SCE are one big opportunity, although they don’t come around that often. Pilot projects are also an important part of the utility equation — although they're subject to change or cancellation, as the recent example of SCE's Preferred Resources Pilot demonstrates. Participation in grid markets is an important part of the value stack for future projects, whether it’s via PDR and the forms of demand response that emerge from the DRAM, or through CAISO’s distributed energy resource provider mechanism.
Another value could come from time-of-use rates and tariffs, with big price differentials that reward batteries storing solar power when it’s plentiful and discharge during system or local peaks. As California refines its plans to integrate DERs into the distribution grid planning of investor-owned utilities, serving locational needs could become an important driver as well.