Energy storage technology, at the scale that makes it a true grid resource, may find its earliest economic applications in behind-the-meter, customer-facing applications, not on the grid itself.

That’s one of the insights delivered by GTM Research analysts during last week’s webinar, “The Grid Edge: Grid Modernization in an Era of Distributed Generation.” As part of Greentech Media’s focus on the grid edge, Thursday’s webinar focused on how emerging technologies are both challenging traditional utility operations and business models and enabling new paradigms for customer-grid interaction.

Customer-sited energy storage certainly tests the boundaries of these traditional models. Since the dawn of the electric age, utilities have controlled the generation and delivery of electricity to end users, maintaining a constant balance between supply and demand for a commodity that’s both created and consumed in the same instant.

But the rise of distributed energy resources, whether from rooftop solar PV, industrial and commercial cogeneration plants, or self-contained microgrid systems, is bringing more and more customer-generated electricity onto that grid.

That, in turn, could make energy storage at the same distributed level one of the first viable markets for battery technologies, which still struggle to compete with traditional resources on economic terms, Zach Pollock, GTM Research senior smart grid analyst, noted during Thursday’s webinar.

“There are multiple, concurrent value streams” for energy storage, “and those value streams change as you change location on the grid. It’s a question of picking and choosing which applications are most lucrative,” he said. And at this time, “those applications tend to be closer to the customer load.”

It’s important to remember that, when it comes to economic value, “for storage, it’s really about the application,” Pollock said. This is a critical factor for emerging markets for grid-scale storage, including California, which last month passed a groundbreaking mandate requiring the state’s three big investor-owned utilities to add 1.3 gigawatts of energy storage to the grid by 2020 -- along with yet-to-be-determined rules on calculating the cost-effectiveness of third-party and utility storage bids. 

GTM Research’s recent report, Grid-Scale Energy Storage in North America 2013: Applications, Technologies and Suppliers, makes clear that most grid-scale storage applications “lack the right mix of regulatory support, costs, revenues and other attributes to be economically viable,” but that certain combinations of services can make projects viable today -- and customer-sited storage can meet the largest share of those services.

California’s grid storage mandate does make room for utilities to count customer-sited storage as meeting their biannual requirements, though the rules for how that’s to be done are yet to be worked out. At the same time, building owners and operators are installing energy storage to meet their own energy needs, whether it be to prevent spikes in building energy use to avoid expensive demand charges, or to store cheap, off-peak grid electricity to use during expensive peak times.

Using storage for “energy arbitrage” only works when there’s a big enough difference between on-peak and off-peak prices to make the costs worthwhile. “In our opinion, in the U.S. market, there isn’t a strong enough business case for that,” Pollock said -- certainly not for residential applications, at least.

In commercial settings, energy arbitrage can be a useful tool. But demand charge reduction is emerging as the real money-saving application, given the large share of commercial power costs tied up in the demand side of the equation for many U.S. markets. Companies like Stem are making demand charge reduction their primary focus, and even putting together financing packages to reduce up-front cost for buyers.

But one of the most potentially lucrative applications for energy storage could come from linking it with on-site solar power, Pollock said. Solar PV is driving some of the biggest disruptions on the grid edge, and while policies like feed-in tariffs in Europe and net metering in the United States have supported that growth, “Our solar team forecasts that net metering credits will gradually erode over time,” he said.

As those incentives start to fade, “That’s when you’re going to see the true value of storage at the customer level,” he said. Indeed, we’re already starting to see markets like Germany, where renewable supports are causing wholesale disruptions in energy markets, beginning to have grid power prices rise to the point where using solar power on-site can be more lucrative than feeding it back in under increasingly lower feed-in tariff rates.

Applications there could center on shifting solar peak generation to later in the day, to cover the “shoulder load” that emerges in late afternoons, when solar starts to fade at the same time that people are getting home from work and turning on their lights, appliances and household electronics. Or they could focus on giving solar system owners the ability to choose how and when they use their self-generated power, depending on what it’s worth to the grid versus the price of grid power.

Right now, markets like Japan and Germany are leading the charge on residential-scale solar-storage combinations, Pollock said. But the potential for economically attractive deployments in the United States is growing, driven by third-party financed solar developers like SolarCity, which is experimenting with home energy storage using batteries provided by Tesla Motors, he added.

And while U.S. solar incentive regimes may not make storage as attractive as it is in other countries, according to recent guidance from the IRS, the 30 percent federal tax credit for U.S. solar installations “is actually applicable to energy storage, as long as you meet the condition that you’re not taking more than 25 percent of the energy stored from the distribution grid,” he said.

There’s no energy storage tax credit in the United States right now, despite repeated attempts to pass legislation on that front, so adding storage to solar is the next-best thing -- although the limitations on how much grid power those batteries use can make for complications on that front.