New York utility Con Edison is testing a commercial business model where it calls the shots and the customer simply hosts the battery.

This model simplifies the commercial energy storage sales process by pitching a lease for space in areas where the utility needs help, rather than the typical bill management use case, where batteries lower the power bill by predicting and neutralizing a customer's demand spikes.

Distributed energy company GI Energy (now part of Shell's cleantech empire) is developing four 1-megawatt/1-megawatt-hour systems to test whether this model works. The first two, in City Island (in the Bronx) and Staten Island, have entered commissioning and will be operational in about a month. A third is beginning construction, and site selection for the fourth is ongoing. The companies first announced the effort in early 2017.

Con Ed is paying for these sites out of its demonstration projects budget associated with New York's Reforming the Energy Vision grid overhaul. If the model proves beneficial for the customer, developer and utility, it could help New York spark the first major commercial storage boom outside of California.

"We do think it is scalable, not just for us, but for other utilities as well," said Alison Kling, project specialist in Con Ed's REV demonstration project group. "I’m hoping it’s something that can support the growth of the market here."

A break from convention

The commercial storage sector grew 53 percent in 2018, ending with a record 30.5 megawatts deployed in the fourth quarter, according to Wood Mackenzie data.

That said, California hogs all the action for that sector — 93 percent market share, to be precise. That's because the state's Self-Generation Incentive Program shells out money to make distributed storage more appealing to customers, and policy and regulatory reforms created pathways for storage developers to monetize grid services revenue on top of that.

The conventional commercial storage business case woos the host customer with bill savings, especially from demand-charge reductions, while layering on revenue from aggregated grid services or utility contracts.

That structure asks a lot of commercial or industrial customers, Kling noted. They need demand profiles that are amenable to reduction by battery discharge, plus executives that understand the time-based charges that drive the overall energy bill, and who are willing to take a chance on lithium-ion technology and a startup's dispatch algorithm.

From a utility perspective, it's hard to know if batteries installed by and for commercial customers will also have much value for the broader grid.

"If you're trying to align with utility needs, you're hoping their demand curve lines up with system need and is as large as system need," Kling said. If the utility needs to clip 1 megawatt from a circuit, and the C&I battery there provides 50 kilowatts, the utility still needs to look elsewhere for a solution.

The demo approach tries to simplify and improve upon both the customer side and the utility side.

Since the battery won't provide bill management, the host customers don't have to delve into complicated analytics predicting future bill savings. The hosts only need to decide if they have enough space and want to receive a lease payment or not.

"Instead of talking to customers about demand charges, GI can talk to them about a lease payment," Kling said. "They know what's coming, and that's the language they work in."

The utility can identify distribution grid needs, like peak-load reduction or voltage support, and target batteries to those areas. Since the system sits in front of the meter, it can be sized larger to meet the grid's needs.

Consolidated Edison is among the largest investor-owned utilities in the U.S., providing regulated services to New York City and surrounding areas.

Creating a new market without threatening the old

Con Ed will have the right of first dispatch for the four test systems. When the grid doesn't need the assets, GI will have the option of dispatching for wholesale market revenue, Kling said.

If this works out, it could enter the menu of non-wires alternative options that Con Ed's Customer Energy Solutions team considers when planning out future distribution upgrades.

What the storage industry makes of it is another matter. Distributed energy companies tend to be leery of utilities taking an active role in developing or owning customer-sited batteries, for fear of their participation distorting the competitive landscape. 

Not that New York had much of a competitive landscape, with just 1.2 megawatts of commercial storage deployed in 2018, according to Wood Mackenzie data. If Con Ed starts throwing more money at this type of project, it could allow more developers like GI to make money putting batteries in the ground.

At the very least, the pilot doesn't threaten the existing bill management business case so much as it opens up an adjacent market, said WoodMac storage analyst Brett Simon.

"Companies who currently focus on bill management aren't going to be destroyed because of this model," he said. "Rather, this model is focused on grid needs and can in fact open up locations that otherwise would be less suitable for behind-the-meter storage from an economics perspective."

Businesses with peaky loads and punishing demand charges will still be drawn to the bill management battery, and those who want backup power will want to control their own devices. But customers with flat loads that sit on stressed parts of the grid could earn some easy money with the new approach.

"We’re looking at a way that we can try to widen the customer base for storage," Kling said.

First, though, the demo sites have to begin operations, and then the operational data has to bear out the theory.