by Olivia Chen
January 25, 2017

Olivia Chen GTM Research: Large consumers of energy have traditionally participated in demand response programs. With the proliferation of DERs, such as on-site energy storage, C&I energy customers are increasingly being presented with the ability to reimagine and customize their energy usage. Behind-the-meter storage could make up more than half the energy storage market by 2021. As the prospect of energy storage becomes more enticing, we’ll explore what it means to make energy storage work in the C&I energy management model.

Let’s start with some of the major drivers that are pushing behind-the-meter growth and where it is thriving.

Brett Simon Analyst, Energy Storage: There are a few key drivers in markets where we're seeing behind-the-meter storage gain greater traction. For one, regions with high demand charges are particularly attractive opportunities for C&I storage, as the systems are deployed for demand-charge management. Another strong driver is markets with incentive programs: California's Self-Generation Incentive Program, or SGIP, has buoyed the market substantially over the past few years.

Andrew Mulherkar Senior Analyst, Grid Edge: SGIP has been critical in driving the non-residential energy storage market forward. The SGIP budget was recently doubled, and up to two-thirds of program funds could go toward non-residential storage projects. SGIP rebates have significantly enhanced project economics to the point where even verticals with a focus on quick wins, like hospitality, have explored storage opportunities in California.

Brett Simon Analyst, Energy Storage: There is also increasing interest from utilities in procuring storage to provide grid services and help bolster the electric grid. In the California market, AB 2514 mandates 1.3 gigawatts of storage procurement by utilities by 2020. Southern California Edison's Preferred Resources Pilot calls for the procurement of storage and other resources to help address customer demand in the wake of the closure of the San Onofre Nuclear Generating Station. 

In New York City, Con Edison’s Brooklyn-Queens Demand Management project (recently rebranded as the Neighborhood Program) involves procuring storage and other resources to offset the need for a new substation. We've also seen a number of utility pilot projects in the past year or so involving networking multiple behind-the-meter resources into a virtual power plant for grid services, such as the Con Edison Clean VPP project under NY REV and Glasgow EPB's Infotricity program.

Andrew Mulherkar Senior Analyst, Grid Edge: New York has laid an early foundation for energy storage as one of several customer-sited resources (including energy efficiency) that can defer investments in transmission and distribution infrastructure. The Brooklyn-Queens Demand Management program is most widely known, but there are three other utilities in the state that are similarly pursuing "non-wires alternatives" to traditional grid investments.

We’d also be remiss to leave out the many funding opportunities in the Northeast related to resiliency. New York, New Jersey, Connecticut, Massachusetts and Maryland all have grant programs directed at improving the ability of communities to operate critical infrastructure during severe weather events. While hospitals, water treatment plants and emergency shelters are among the prime candidates for investments in resiliency, we've also heard interest from large retailers in equipping their stores to serve their communities during times of emergency.

Olivia Chen GTM Research: You've both mentioned utility procurement. What are the major barriers to utility procurement, technically or logistically? How does energy storage make it easier to address some of these challenges?

Andrew Mulherkar Senior Analyst, Grid Edge: To put today's utility procurements in perspective, it's useful to look at how utilities have approached the procurement of distributed energy resources in the past. Large commercial and industrial companies have long served as resources to the electric grid. By shutting off or turning down the operation of various energy-consuming processes, these companies provide demand response capacity to utilities.

Companies that have backup generators can operate their generators instead of, or in addition to, reducing their facilities' load. Whether in the form of flexible load or backup generation, demand response resources have typically been used as emergency capacity during times when power demand is at its highest. The resources are generally called upon several times per year, but can go seasons or even years without being called up.

New forms of distributed energy procurement are emerging today. While utilities have traditionally procured large, centralized resources (i.e., power plants) to meet requirements for resource adequacy in a given area, California utilities -- with direction from their utility commission -- have included distributed energy resources like C&I energy storage and demand response in recent resource adequacy procurements. And while utilities have traditionally made direct investments in grid infrastructure to meet rising demand, the non-wires alternatives RFPs mentioned above are aimed at deferring infrastructure investments through the procurement of distributed energy resources targeted at specific locations on the grid.

Brett Simon Analyst, Energy Storage: C&I energy storage is already included in utility procurements to provide grid services and defer investments in transmission and distribution infrastructure. The BQDM program and Non-Wires Alternative RFPs in New York state both offer opportunities for energy storage to be deployed to defer upgrades to existing T&D infrastructure; in the case of BQDM in particular, storage developers including Demand Energy, Green Charge, and Stem won awards top deploy storage in ConEdison territory.

Additionally, utilities in California are turning to storage under programs like the Local Capacity Requirements RFO and the Preferred Resources Pilot in order to address potential capacity shortfalls in the wake of closing nuclear power plants. As additional power plant retirements occur across the U.S., and energy storage business models and economics evolve, it is increasingly likely that energy storage systems will win awards under utility procurement RFOs and RFPs.

Andrew Mulherkar Senior Analyst, Grid Edge: As with any new endeavor, utilities are approaching DER procurements with caution. While the technologies involved are field-proven, this will be the first time that many of these utilities have relied on behind-the-meter DERs as a substitute for centralized generation. And there may be challenges with needing a dozen different contracts with DER vendors in place, instead of a single contract with a power plant developer. That said, DERs have the advantage of being faster to site, permit and deploy. This is why you see California again turning to DERs to deal with natural-gas shortages that could affect the state's ability to serve peak loads as early as this summer.

Brett Simon Analyst, Energy Storage: A number of technical challenges exist, with safety perhaps standing at the forefront, in particular with energy storage. A majority of grid-interactive behind-the-meter storage systems deployed today use lithium-ion batteries, and as such, special protocols must be developed to deal with fire that could involve the systems. Given questions around safety, lithium-ion battery systems must be approved on a case-by-case basis in New York City, which increases deployment timelines and can lead to logistical challenges for system integrators and project developers. The Fire Department and the Department of Buildings in New York City recently engaged in a series of trials to develop proper firefighting protocols for these systems, and the results of these tests will help inform safety best practices where lithium-ion storage is involved.

Another challenge arises from the fact that system operators must ensure that these systems are operating as intended, with the ability to be dispatched when the need arises. As a result, software for modeling, monitoring and system dispatch are key to systems deployed to address utility goals, such as load reduction.

We're reminded of the increasing decentralization of energy. So when large energy consumers decide they want to manage their energy differently, there are so many more factors and variables to consider than there was even five years ago.

Andrew Mulherkar Senior Analyst, Grid Edge: I think that corporate consumers of energy have developed a greater appreciation of their role in supporting the grid (through programs like the utility procurements above) and also of their role in driving the deployment of clean energy. There certainly are more choices than before to consider: onsite versus offsite renewables, direct ownership versus third-party ownership of systems, cost-saving versus revenue-generating opportunities, site-specific versus portfolio-wide projects. And when contracting for various energy technologies and services, companies have far more providers to decide among than before. For many corporate decision-makers, the primary decision may well become whether to go to market for each project individually (energy-efficiency retrofits, solar PV, energy storage, etc.) or to partner with a service provider that can recommend and implement the highest-value projects over time.

Olivia Chen GTM Research: You've both authored reports that have highlighted how new and established market players in energy storage and energy management are broadening or honing their specializations. Who's combining those services? And are there strategic advantages to being a one-stop shop or having one specialty?

Brett Simon Analyst, Energy Storage: Incorporating storage into the "energy-as-a-service" model has provided storage system vendors with greater access to a suite of customers. In fact, a C&I solutions provider may even be able to bundle storage into existing packages, thus reducing challenges around customer acquisition. End customers also benefit, as they have the solution provider as a single touchpoint for all of their lighting, energy efficiency, storage, etc.

However, it's worth noting that storage is unlikely to be the go-to technology for most end customers today: Energy-efficiency upgrades are cheaper in the vast majority of cases and can lead to substantial savings in the near term. As storage costs decline and greater opportunities arise for behind-the-meter storage to participate in grid services emerge over the next several years, C&I customers are increasingly expected to demand storage from their energy solutions provider.

Andrew Mulherkar Senior Analyst, Grid Edge: Several well-known brands in energy have staked a claim to being a one-stop shop in energy management. Edison Energy, NRG and GE Current have positioned themselves as "energy-as-a-service" providers. But as GE Current's recent restructuring shows, large energy users have yet to buy in to this new model. That doesn't mean that Edison Energy, NRG and GE Current aren't seeing success with individual offerings from intelligent lighting systems to onsite solar to offsite wind. And the pairing of services continues to evolve -- look at EnerNOC's partnerships with solar and storage vendors, or the multitude of solar-plus-storage partnerships in the market. Over time, we'll see these pairings grow into the energy-as-a-service offerings that the biggest names in energy have set their sights on.

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