If you’ve been following any of the energy industry press lately, you’ve no doubt seen that energy storage is in the spotlight. It offers countless benefits customers dream about and is potentially the saving grace for our energy woes. But with all the promise surrounding storage, coupled with innovative, press-savvy technology companies unveiling new devices, it can be difficult to sift through the noise and figure out when and how solar and storage actually work together in today’s market.
Thanks to advancements in technology, there are more energy solutions available to consumers. As a result, the confusion about which option to choose -- solar, storage or solar-plus-storage -- is growing.
Utility energy costs
To understand the benefits of energy storage and solar at a customer facility, it’s essential to first understand the elements of most organizations’ utility energy costs: energy charges and demand charges. This is the bread and butter for energy managers, but many leaders in finance and/or operations aren’t as aware of the energy cost mix -- despite it being one of their largest budgetary line items. It should be noted that this billing structure isn’t in place in every market.
Energy charges, the price paid for the amount of energy used over the course of the billing cycle, are how most people think of paying for electricity. A price is paid for every kilowatt-hour used. Demand charges are additional charges incurred by most commercial customers and are determined by the highest amount of energy, in kilowatts, used at any instant or over some designated timeframe -- typically a 15-minute interval -- in that billing cycle.
Demand charges are a bit more complex. They come from a need for the grid infrastructure to be large enough to accommodate the highest amount of energy, or demand, needed at any moment in order to avoid a blackout. Every region is different, but demand charges typically make up somewhere between 20 percent and 40 percent of an electricity bill for commercial customers.
Intelligent storage can help organizations specifically tackle their demand charges. By combining predictive software and battery-based storage, these systems know when to deploy energy during usage peaks and offset those costly demand charges. Most storage systems run completely independently from solar, so they can be added to a building whether or not solar is present.
Storage can reduce demand charges by dispensing power during brief periods of high demand, which in essence shaves down the peaks, or spikes, in energy usage. Deploying storage is economical under current market conditions for load profiles that have brief spikes in demand, because a relatively small battery can eliminate the short-lived peaks.
For peak demand periods of longer duration, a larger, and considerably more expensive, battery would be needed, and with the higher material costs, the economics may not be cost-effective. As system costs continue to decline, however, a broader range of load profiles will be able to save with energy storage.
For the commercial, industrial or institutional energy user, solar’s value proposition is pretty simple. For most facilities in states with high energy costs and a net metering regime in place, onsite solar can reduce energy charges and provide a hedge against rising electricity costs. The savings come primarily from producing/buying energy from the solar system, which reduces the amount of energy purchased from the utility, and -- when the installation produces more than is used -- the credit from selling the excess energy to the grid at retail rates.
The demand savings are a relatively small part of the benefit of solar because the timing of solar production and peak demand need to line up in order to cut down demand charges. Solar production is greatest from 9 a.m. to 3 p.m., but the peak period (when demand for energy across the grid is highest) is typically from 12 p.m. to 6 p.m. If demand-charge rates are determined by the highest peak incurred, customers with solar will still fall into higher demand classes from their energy usage later in the day, when solar has less of an impact.
That being said, solar can reduce a significant portion of demand charges if the customer is located within a utility area where solar grants access to new, solar-friendly rate schedules. These rate schedules typically reduce demand charges and increase energy charges, so the portion of the utility bill that solar can impact is larger.
Why solar and storage (and why not)?
As explained above, solar and storage address different components of a facility’s energy spend. Solar reduces the kilowatt-hour cost of energy and provides control over the increase in energy costs. Storage addresses the peak kilowatt demand charges that have grown disproportionately to energy use and can be budget-busters.
So, is there a "better-together" story? The answer is sometimes -- but with an asterisk.
For solar and storage to provide more value together, the solar generation profile needs to reduce peak demand during the time when demand charges are typically set by the facility. For example, if solar lowers demand across the peak period except for 30 minutes in the late afternoon, when solar production tapers off and the facility is still running at full production, storage can provide the needed burst of energy during those 30 minutes to avoid setting the peak demand charge at that time. That scenario, however, is not very common because most commercial customers run production or HVAC for a couple of hours after solar production diminishes, and storage cannot economically fill in such a large gap. The cost of a battery large enough to do so would outweigh the value of demand-charge savings.
The second scenario is where solar generation is reducing peak demand across the whole window (according to Borrego Solar’s published research, solar reduces demand charges by 4 percent to 7 percent on average for commercial customers in California). In this case, storage can ensure that demand savings are realized by addressing intermittent decreases in solar production caused by a passing cloud.
Finally, the asterisk -- and this is an example of regulatory/financial "better together," not a technical one. While storage is incentivized through programs in several states, when installed with solar, energy storage systems can, in some circumstances, benefit from the 30 percent federal Investment Tax Credit that solar deployments provide. In the cases when energy storage qualifies, the ITC can greatly enhance the economic benefit of a storage system investment. This must, of course, be evaluated for each scenario, as there are hundreds of procurement permutations for solar and storage that have varying tax structures. It should also be noted that the ITC for commercial systems is slated to drop from 30 percent to 10 percent at the end of 2016.
For volatile demand profiles, particularly short-lived peaks that incur high demand charges, storage can be particularly compelling. Solar generation is a mature technology that offers low-risk economics for energy users. In cases where solar is mitigating demand across most or all of the peak demand window, a load management or storage solution can significantly enhance the economics of solar. Like most energy projects, the way to get started is to take a close look at interval data and overlay the capabilities of each technology.
Storage isn’t ready to go “off-grid” (for individual businesses)
While storage and solar may one day offer a cost-effective option for organizations to go “off the grid,” that is not the case today. The cost required to have enough solar and storage to make going off the grid a reality is not currently economical (with a few very rare exceptions, or in countries with little to no infrastructure).
In many ways, continuing to be a part of the larger grid is better for organizations and their communities. As the grid becomes more flexible and interconnected, there will be new ways for organizations to participate in energy markets and be compensated for these efforts, while also playing an important role in supporting broader carbon-reduction goals. In the same way customers are compensated for participation in demand-response programs, we expect to see new ways for companies to be compensated by leveraging their energy technology, like solar or storage, and usage behavior.
Similar to solar’s growth trajectory, which started in Germany and California and has now become economical throughout many parts of the world, customer-sited storage is economical in a few places today, with more expected in the near future. There are several elements, all of which are happening today, that will increase storage adoption: declining battery prices, increasing utility rates and compensation from grid operators who use idle systems to provide services to the grid.
Today, customer-sited storage is available in areas where there is a form of a subsidy, either through a state rebate or where a utility is engaging with storage services. As demand for storage increases and costs decrease, storage will make sense for more businesses in more locations. Solar has had an increase in efficiencies and a significant drop in pricing -- nearly 50 percent in the last two years. One can see that same trajectory for storage playing out today.
To determine whether a business should implement storage, solar or a hybrid solution, the answer lies first in looking at the firm's energy-use profile and interval data. We’re at a point now where modeling both solutions is the responsible step in any organization’s energy management process -- and that’s something to celebrate. Micro-market conditions, such as availability of subsidies, utility prices and site feasibility are the next considerations in deciding which solution works best.
***David Meyers is EVP of marketing and sales at Borrego Solar; Randy Palombi is Stem’s VP of sales.