by Julian Spector
November 16, 2020

Energy storage has inspired many metaphors to convey the versatility of its uses. Some call it the bacon of the grid, making other resources taste better. But the image of the Swiss Army knife better captures the sheer number of different roles this single piece of technology can play.

Storage Plus is examining the major storage use cases to understand the history and future of each tool on the Swiss Army knife of storage. The previous installment covered the ups and downs of customer bill savings, the primary driver of commercial storage adoption. The series also tackles non-wires alternativescapacity and frequency regulation, the tool in the toolkit that launched the modern grid storage industry. 


It's getting harder to take electric power for granted.

Energy transition leader California flirted at the edge of grid instability this summer amid a historic heat wave that pushed grid supply-demand balances to the limits. The state's utilities also have a new annual tradition of cutting off power to the customers who depend on them, in hopes of not killing people by sparking wildfires.

Across the continent, a record hurricane season knocked out power to millions, from the Gulf of Mexico up to the New York City region.

Recognizing the benefits of keeping the lights on, however, has never guaranteed investment in backup power systems actually capable of doing so. But now some signs point to that starting to change.

The residential battery sector has clocked six consecutive quarters of growth in installations, a longer growth streak than the larger-scale storage segments can claim. The vendor ecosystem has expanded dramatically as solar installers and equipment companies jump to offer home battery packs more suited to backup power service and spread them to more markets. 

On the nonresidential and commercial sides, backup power is already a billion-dollar annual market. But batteries have little role to play in it because they have trouble competing with gas or diesel generators for multiple days of backup. The extent to which batteries are breaking in depends on their special relationship with solar.

Solar saves money for customers. Adding batteries to keep the lights on adds cost. Until recently, storage providers had a hard time getting around that. But as battery costs fall and developers become more comfortable with innovative project designs, it’s becoming possible for battery backup deals to still deliver savings to the customer. That crucial distinction could unlock a drastically larger market.

ROI be damned, homeowners want it

Analysts can have trouble assessing the residential energy storage market because its growth so far has defied quantitative reasoning.

A grocery store can assign a dollar value to the goods it has to throw out if freezers and refrigerators lose power for too many hours in a row. Homeowners don’t put that sort of thing in a spreadsheet. If they want backup power, it’s typically for peace of mind — with the major exception being people who rely on medical devices to survive.

In a few isolated geographies, rate design may incentivize solar adopters to add a battery to store and shift PV-generated power to certain times of the day. But those rate regimes are limited to places such as California and Hawaii. All of this leads to some analysts describing home batteries as an “emotional purchase.”

"There aren’t many places where there is a financial value proposition for residential energy storage as such," said Isaac Maze-Rothstein, a microgrid analyst at WoodMac.

But customers don't seem to mind. Residential storage has been on a tear, setting consecutive quarterly records since the second quarter of 2019, according to Wood Mackenzie's data. The ecosystem of providers has swollen to include all the major solar dealers and installers, and the number of home battery packs to choose from keeps expanding too.

The testimonials are starting to roll in. Vermont utility Green Mountain Power kept 1,100 homes online through a fierce storm in October 2019 thanks to a network of Tesla Powerwalls pitched to customers for just that purpose. The customers paid a flat monthly rate for the benefit of backup power, while GMP used the batteries to save money by lowering peak demand throughout the year. That program has continued to grow, delivering 16,000 hours of backup power in the first three-quarters of 2020. It was made permanent as an energy storage tariff this summer.

Leading rooftop solar installer Sunrun made battery backup a central pillar in its pitch to investors, although it remains a small part of the company's overall business. In November, CEO Lynn Jurich said Sunrun had installed 13,000 home battery systems and supplied 7,583 hours of backup power between May and September. The company also rolled out solar-plus-storage to all markets where it sells solar, projecting confidence that storage's market potential is no longer limited to the states with the most supportive incentives.

Commercial backup: Energy stored in the form of gas

Battery-based resilience is a small but growing presence in U.S. homes. But commercial and industrial businesses have been investing serious money in microgrids, which allow them to independently power operations when the grid goes down.

U.S. microgrids drove around $2 billion of annual capital investment in both 2018 and 2019, according to Wood Mackenzie data. That’s only counting grid-interactive systems that have a capacity greater than 100 kilowatts and can support load for at least 24 hours. That’s big business compared to the U.S. storage market, which isn’t expected to pass the $1 billion threshold until this year.

The thing is, commercial backup power does not revolve around batteries.

“When most people are choosing resilience as their primary motivation, they’re opting for natural gas or diesel because of their longer durations,” said Maze-Rothstein, who tracks microgrid deployments and financing models.

Reliability and resiliency were the primary drivers for investment in 84 percent of third-party-financed microgrids, Maze-Rothstein found. Customer- and utility-owned microgrids have a more varied set of primary motivations, but resilience still drives 47 percent of microgrid investment overall.

If a factory or business is bothering to invest in backup power, it probably wants to survive a multiday outage, and doing that with batteries quickly becomes cost-prohibitive. Simply put, any microgrid has to prove itself more economical than diesel backup generators when it comes to protecting the customer’s operations.

"Right now, if you want an economic solution for resiliency, it’s not batteries," said Ryan Goodman, CEO of Scale Microgrid Solutions, which streamlines commercial backup power with standardized, modular systems including gas generators, solar, batteries, and other tools. "If you need multiple days or a week, that will not be accomplished with batteries or battery and solar. If you need a shorter duration, you can get by with that."

Natural gas generators typically anchor the resilience function, Goodman noted, but batteries paired with solar can help project economics with daily cycling. Batteries can operate regularly to reduce electric bills without running afoul of the air-quality restrictions that often apply to generators. The pairing also can qualify batteries for the federal Investment Tax Credit.

The solar-storage combination is making headway in a particular niche market: military bases, which have a national security imperative to stay powered during grid outages from cyberattacks or disasters. The Army and Navy now require 14 days of independent power supply for critical operations as part of their energy resilience strategy, Maze-Rothstein noted.

“Holding that much diesel onsite starts to become complicated, honestly,” Maze-Rothstein said. “Being able to augment that with energy storage and solar is what many bases are exploring.”

Emerging model: Solar plus storage plus savings

Though microgrids typically overlook storage as a pillar of resilient power, new deal structures aim to make it more attractive.

Commercial and industrial customers sign long-term power-purchase agreements for solar when they can save money relative to their status quo by doing so. Batteries, by definition, raise the cost of the installation, lowering the amount of savings. The sweet spot for battery-based resilience is finding the smallest battery that can meet a site's resilience needs without spoiling the bill savings benefits.

A consortium of groups figured that out for the Santa Barbara Unified School District this year. Global energy company Engie will install, own and operate solar and batteries across the school district’s portfolio for 28 years. The solar generation saves the schools money, and the batteries are designed to power critical operations indefinitely in case of a wildfire or earthquake or mudslide scenario.

The project design, created by Clean Coalition and Sage Energy Consulting, ultimately saves money for the customer. Crucial to the design was a tiered system for prioritizing which loads would be able to draw power in an outage. The solar-battery installations can't power each facility at full load indefinitely, but they can be prioritized to maintain communications and school food facilities. Any surplus power will flow to the next set of priorities.

"If the load that you’re carrying is very small compared to the overall load, then solar and batteries could accomplish that," Scale Microgrid's Goodman noted.

But that's a different scenario than, say, a car factory that wants to keep its production line from seizing up. The Santa Barbara model fits well for buildings that require lighter loads in an outage scenario. The ability to contract for 28 years was also pivotal to making the deal financially attractive; commercial entities that lack that kind of staying power may not be able or willing to sign such long-term deals.

The underlying economics also depend on California's unusually expensive electric rates, which also vary throughout the day, providing an economic motivation to store solar for the evening hours. 

The Santa Barbara deal, then, provides a leading indicator that battery backup power has become economically feasible for at least a small subset of facilities. Whether that becomes a bellwether depends on the successful execution of the design — and on whether any other sites choose to replicate the model.

Clean Coalition also worked on a design for the city government of Camarillo, California. The city approved a plan in October to put solar, batteries and diesel generators on key facilities; the storage will handle short-term outages, with the diesel serving as backup for longer-lasting ones. It's not as clean, but that model expands the range of sites that can benefit from solar and storage in a backup capacity.