by Julian Spector
February 10, 2017

The year in clean energy got steamy well before Valentine's Day.

AES Distributed Energy sealed a deal with the Kauai Island Utility Cooperative for a coupling of solar PV and energy storage to serve the role of peaker plant. The cooperative utility will pay 11 cents per kilowatt-hour for the firmed solar generation, "significantly less" than the oil-burning incumbent, according to KIUC.

The AES plant didn't just beat fossil fuels. It also surpassed a Tesla/SolarCity solar-plus-storage facility announced for the same island in 2015, which sold for 13.9 cents per kilowatt-hour. With these two projects, Kauai has become a test case for the matchmaking of clean, cheap solar energy with the batteries to store it and dispatch it on command.

"Up until now, most of these solar-plus-storage projects were essentially pilot-scale projects where the utilities are trying to understand how to optimize the grid in the face of an intermittent technology like solar," said Ravi Manghani, energy storage director at GTM Research. "In Kauai, the role storage will play is completely different. It's actually going to time-shift the solar output."

The lush tropical destination can't support an industry on its own, though, and 11-cent PPAs can't compete most anywhere on the mainland just yet. Storage and solar purveyors must now identify where to go next with this potentially felicitous pairing. 

Meanwhile, the ranks of companies vying for attention in this space continue to grow as both battery and solar costs continue to fall. Most major solar installers offer or plan to offer battery pairing. Many storage vendors have built out packaging around the inclusion of solar. It's a crowded space for a business model that has only proven itself in limited pilot projects with very special circumstances.

"Clearly it's front and center in a lot of people's minds. [...] Solar companies and folks that are interested in solar, even if that's an individual customer, are looking at, 'How do I extend the usefulness of that solar energy?'" said Scott Bordenkircher, director of transmission and distribution technology innovation at Arizona Public Service. "I think that's what drives the opinion of, 'We'll site everything next to each other.'"

Will 2017 be the year of solar-plus-storage? We won't be so hasty. Like the microgrid space, this market is becoming more and more visible, but has yet to break out of the early demonstrations into a scalable product. 

Why putting them together makes sense

At its core, solar-plus-storage as a unified product resolves the main issue with solar generation: You can't always count on it generating. Adding batteries with a new installation firms up that power, so the project can guarantee a certain amount of energy will be available even if the clouds roll in or the sun goes down.

In places like Hawaii, this is a necessity. Kauai's peak solar generation has reached such heights that the island can't add more capacity without building in the ability to store and dispatch it. Elsewhere in the state, residential customers trying to go solar under Hawaiian Electric Company's self-supply tariff must ensure they consume all that they generate onsite (and still pay a minimum of $25 a month).

In any part of the country, co-locating solar with storage opens up the federal Investment Tax Credit, which currently applies to batteries only when they are paired with renewable generation and 75 percent of their charge originates from those renewables (legislative efforts to create a standalone storage ITC have not yet reached fruition). More on the effects of this later.

Pairing the two assets also opens up savings from streamlining the process: If you're running transmission lines to a site for a new solar plant, you can further utilize them with the storage. Likewise for the construction mobilization. If these positives were all that mattered, though, there would be a far greater preponderance of storage-assisted solar development going on right now.

On the residential side, the decline of net metering opens up some possibilities. In markets like Arizona and Nevada, rooftop solar alone won't achieve the return on investment it once did. The upfront expense of a battery enables more efficient use of the rooftop system.

A harbinger of times to come appeared in the Imperial Irrigation District, a California municipal utility that has done away with net energy metering (NEM). Grid Alternatives, a nonprofit that provides no-cost solar installations to low-income households, had been planning to install 50 rooftop systems there. The group determined that the change in compensation for rooftop generation reduced household bill savings to a fraction of what they used to be.

Now, Grid Alternatives is testing its first rooftop solar paired with a grid-tied battery system, provided by Enphase. If it provides sufficient savings in practice, the partners will roll out solar-plus-storage to the remaining households.

This is a special circumstance in that Grid Alternatives relies on donations and workforce training programs to provide systems for families free of charge. It's notable, though, that even with free components, adding solar in the post-NEM environment was no longer a favorable return on the time and effort invested.

In most cases, though, the difference between what a resident pays for electricity and what they earn from exporting under post-NEM tariffs is too small justify the battery investment, Manghani said.

"The 6- or 7-cent delta in Nevada doesn’t pay for a battery -- storage system costs would need to be about half of what they are today to work out at 6 or 7 cents," he said. "Today, it works out if that delta is about 15 cents."

Still, about 90 percent of residential storage deployed is paired with solar, Manghani noted. 

"The customers who are buying energy storage for residential purposes are looking for backup power, and the only way you can justify backup power with batteries is if you have onsite generation," Manghani said. "Without solar panels on your rooftop, your backup power is only going to be available for a few hours." 

As compensation for excess rooftop generation declines, the business case for storage to self-consume will grow. For now, though, the main play in grid-connected residential storage -- accounting for approximately 695 sales in the U.S. for the first three quarters last year -- is backup power. That's a funny market, because it's not a cost-effective way to ensure backup power, but it satisfies a consumer desire regardless.

That sell is strongest in places hit hard by hurricanes, snowstorms and the like. Climate change is driving more intense extreme weather events, so this market could see continued growth in the years ahead. For widespread residential use of storage to utilize solar generation, storage prices will need to come down further. Storage system costs are dropping 15 percent year over year, so they are moving in the right direction.

Arizona Public Service is installing AES batteries in conjunction with a 1,600-home rooftop solar pilot to see what they can do for the distribution grid. (Source: APS)

When separate is better

In many cases on the utility-scale side, the business case for standalone solar or standalone storage wins out over the combination of the two.

There are two key reasons. Storage adds a lot of expense, but much of its value is still hard to monetize. And the ideal location for a battery system is not always the right spot for solar generation, and vice versa.

"The truth of the matter is, some parts of the world are going to go this way, where we see a deep combination of a renewable and storage," said John Zahurancik, president of AES Energy Storage. "Other parts of the world are going to go more the way we see in California right now, which is the system and the grid operators essentially building storage into the infrastructure of the grid and having that allow renewables to come in to their fullest capability."

This approach was on display in the recent wave of batteries deployed in California to add capacity in the wake of the Aliso Canyon natural gas leak. These batteries, from AES, Tesla and Greensmith, went up in record time -- just six months from the release of the tender to the start of operations.

Part of the simplicity derived from the compactness of the batteries. The containerized solutions slipped quickly into small plots of land the utilities already owned at various substations. They didn't need the large open space and permitting that a solar-plus-storage project would require.

In a sense, California is pursuing solar-plus-storage on a grander scale: The state's nation-leading deployment of PV materially drives the need for energy storage. All that PV creates midday surges of production and voltage fluctuations; the grid needs something like batteries to handle the variability. The solar plants got a head start, and now the utilities are layering in batteries in the most useful locations, which are often closer to loads and distribution infrastructure.

"Even though they will ultimately use the solar and the storage together as they manage the overall system, they don't necessarily need them co-located to do it," Zahurancik said.

The usefulness of the storage, particularly in displacing other costs, should drive the decision to pair it with storage.

"In places where people try to just throw it on top, it's tended to be uneconomic -- it doesn't make any sense," Zahurancik said. "It has a real economic job of substituting things we're already buying at utility scale," like local reliability and voltage support.

The 30-megawatt battery AES just turned on for SDG&E in Escondido, California, satisfied the grid's need for a power resource in a dense urban area.

"We're putting a storage facility into one acre," Zahurancik said. "To put a similar amount of renewable generation would take 300 acres."

APS has split the difference by installing a pair of 2 megawatt batteries (from the folks at AES, in fact -- they keep popping up in this story) in the vicinity of the Solar Partner Project, where APS previously installed solar panels on the grid side of the meter on 1,600 homes.

The utility's first round of research centered on studying the uses of centrally controlled advanced inverters in managing a fleet of distributed generation. Now it will test how grid-side batteries affect the situation. One will go into the substation at the head end of the solar-heavy feeder, and the other will sit midway down the feeder, closer to homes with solar, where voltage issues may be more of a problem.

"Our approach is, there's probably more you can get out of that energy storage system than just giving me a longer duration for the use of my solar energy," Bordenkircher said. "If part of the problem we really need to deal with is not just capacity but voltage impact, etc., then having it near those problems is probably more effective than having it farther away."

The batteries installed with solar in Minster, Ohio help the municipal utility avoid demand charges and provide voltage support. (Source: S&C Electric Company)

Does the tax credit help or hinder?

The federal ITC certainly influences the placement of storage systems with solar, but chasing tax breaks is not always the best technical use for the technology.

"It would make more sense if storage had its own standalone ITC," said Troy Miller, director for grid solutions at S&C Electric Company. "It doesn't necessarily provide the most value if it’s sitting directly next to the solar and is required to charge from the solar as well."

Doing so limits the potential uses of the battery -- it might not be able to charge from the grid at certain times to perform energy arbitrage, for instance. And letting the solar asset dictate the location of the battery can leave potential wires-alternative uses on the table.

In one example, AES built a battery in West Virginia in 2011 along with a wind farm, which opened up the tax credit. The battery was intended to provide grid services to PJM. Later on, Zahurancik said, PJM expressed that such a battery would have been more useful in a load pocket like Philadelphia, but there wasn't a tax credit to be had over there.

A standalone storage ITC could diminish the calculus for co-locating solar and storage, but increase the overall efficiency of storage deployments.

What's utility structure have to do with it?

Notably, locally owned utilities have led the way on several of the prominent early deployments of solar-plus-storage. KIUC is owned cooperatively by the residents of Kauai. Another leading case was in Minster, Ohio, where S&C and Half Moon Ventures built a 4.2-megawatt solar facility along with 7-megawatt, 3-megawatt-hour lithium-ion batteries. The village of Minster runs its own utility. 

If you talk to any large investor-owned utility about what motivates investments in clean energy and distributed resources, you'll hear something about the mission to serve the needs of the customer in a reliable, low-cost way. So far, batteries haven't had much of a role to play in that low-cost vision. But there are also incentive structures in place that reward utilities for large capital investment, and the utilities' investors want to see projects that maximize the return.

Locally owned utilities have different incentives. They report directly to the residents using the power, so the interests of those constituents carry more weight. Kauai, as part of Hawaii, has set a political goal of eliminating fossil fuel use by 2045. KIUC has taken steps to accelerate that process years before the legal compliance date.

Minster also wanted to clean up its electrical supply. The solar-plus-storage there lays a groundwork for a more resilient grid. Both sustainability and resilience can now become recruiting tools to attract new businesses to town.

The installation also avoided some sizeable costs for the town. The muni has to pay hefty demand charges when it buys power from the grid during coincident peaks; now it can switch to the solar and storage to reduce grid consumption during those times, utilizing a village-wide form of demand response. The battery also provides voltage support; Minster avoided purchasing power factor correction capacitors it would have needed otherwise.

Note that these uses for the battery don't require it to be coupled with solar -- the short duration does not allow for much shifting of solar generation into the evening. Wrapping the battery into a solar project, and giving Half Moon Ventures the revenue for the battery's participation in PJM's frequency regulation market, allowed Minster to pay one PPA for the whole package.

Miller, from S&C, said the markets to watch for solar-plus-storage are California, Hawaii, the Southwest and the Northeast, where New England ISO has a frequency regulation market. The key is combining value streams.

"In a lot of markets, when you've got a higher cost of energy and ancillary services, it makes a lot of sense," Miller said. "You can go after resiliency and things like that."

But, he added, "There are some misnomers on how that's done. It's usually measured just on dollars per kilowatt-hour, so you’re not talking about all the other benefits."

There's no easy way to combine all the different savings and revenue streams from a battery into a single common denominator. One workaround is a PPA that includes a slight premium to account for the resilience and other services added by the batteries, like in Minster. It's hard to see storage reaching its full potential if customers have to justify it in the payment framework of solar generation -- that model doesn't contain enough nuance to capture the work that storage can do.

A bustling field

In the past year solar providers have gravitated toward offering storage as an option. SolarCity did this in a big way by merging with Tesla, but Sunrun also released a solar-plus-storage offering, as did Borrego Solar at the utility-scale and C&I level. Solar tracker company NEXTracker added batteries to the mix with its NX Fusion Plus. Other solar installers are quietly scoping out storage products but haven't yet released details.

On the storage side, plenty of vendors are adding solar to the mix. Swell Energy debuted a solar-plus-storage home energy system called EnergyShield as part of an effort to install storage in 3,000 homes for Southern California Edison. JLM Energy took the concept to its logical conclusion with a micro-battery that clips onto the rack when deploying a solar module, theoretically simplifying installation and adding resilience by disaggregating storage across a site.

There are more out there, but this should give a sense of the variety and experimentation rushing into the solar-plus-storage space. For all the interest, very few projects have actually worked out in the real world. 

That sounds like potential bubble material, but that shouldn't be a concern just yet. This is more of an exploratory phase.

"The solar-plus-storage market doesn't exist to the extent that companies can really start making money yet," Manghani said. "What we're seeing is their way of entering the market and gaining expertise, getting some installations under their belts and getting ready for when it arrives."

Starting now gives vendors a chance to test different product configurations and partnerships before the market heats up. That likely means the solar-plus-storage teams will sacrifice some amount of profit in the near term -- not that solar installation is a particularly profitable line of work these days.

The payoff will be spending limited resources now to refine the product and business model by the time customers want to buy at volume. 

"There’s still a lot to be learned and a lot more churn before the market really takes off," Manghani said.