Energy Storage: Changing the Landscape of Electrical Power

How is the energy storage market growing and how can it help businesses reduce costs while improving electrical power reliability?

As the emphasis on renewable energy continues to expand, energy storage seems to also grow at an exponential rate. Capturing and storing electrical power when demand and costs are low, batteries in energy storage systems can save the electricity for use when power generation costs are higher.

In addition, self-produced power can also be stored. For example, a manufacturing company that uses solar panels for a portion of its energy needs may produce more power than it requires during the first shift of the day. The excess power can then be stored for later use or for a rainy day with less solar power production.

Energy storage devices not only can provide a reliable power source during extreme weather conditions, they also can reduce peak power charges and provide frequency regulation—maintaining the balance between the network’s load and the power generated. This increasingly affordable technology is transforming the electric power industry. It is also providing cost-savings solutions for businesses, utilities and grid operators.

Research by Green Tech Media (GTM) and the Energy Storage Trade Association projects a 186 percent increase in energy storage in 2018, up from a 27 percent increase in 2017. The upward trajectory in energy storage appears to show no signs of stopping. According to GTM and the U.S. Energy Storage Monitor, the market will grow 15 times between 2018 and 2023, almost crossing the 1 gigawatt* threshold in 2019. This growth has been fueled by more favorable national and state policies and new market mechanisms, as well as lower costs.

Energy storage can bode well for businesses where energy costs are a significant line-item expense. Electricity bills for commercial and industrial buildings consist of two charges: energy usage and demand charges. According to Renewable Energy World, commercial customers frequently pay thousands of dollars a month for the peak power demand during any 15-minute period. Depending on the equipment being used in the building, these demand charges can exceed the energy usage charges. An energy storage solution that senses when demand peaks occur—and then draws power from batteries instead of the grid—has the potential to completely eliminate these costly peak-demand charges.

Earlier this year, the Federal Energy Regulatory Commission (FERC) issued a landmark decision that will ease market barriers for energy storage. According to GTM, the ruling will open U.S. wholesale energy markets to energy storage on an equal footing with generators and other grid resources. It also affects distribution systems that are “behind the meter”—energy systems that are uniquely designed and built for a single building or facility. GTM reported that behind-the-meter deployments accounted for 55 percent of the total megawatts deployed in the fourth quarter of 2017, up from the previous quarter’s 27 percent.

Storage Options Become More Competitive

Energy storage covers a range of technologies including batteries (both conventional and advanced), electrochemical capacitors, flywheels, power electronics, control systems, and software tools for storage optimization and sizing. Even as energy storage technology has expanded, cost has long been considered an obstacle. However, declining costs are now making storage options more competitive with conventional energy generation. Forbes reported that the cost of continuous operations of battery production is between 15 cents and 30 cents per kilowatt-hour, depending on the application and the type of storage device, as compared to natural gas costs of 7 cents per kilowatt-hour.

Inroads are also being made with economies of scale being achieved by large-scale participants in the storage market. For example, Tesla, Inc. is investing $5 billion into a battery storage manufacturing facility, a move that should give energy storage companies an impetus to increase production and bolster efficiencies. Earlier this year, the company joined forces with Southern California Edison to use Tesla’s Powerpack on the grid in order to avoid momentary electricity outages and increase reliability.

According to GTM Research’s new Global Solar Data Hub, 2018 will be the first-ever triple-digit year for the global solar market, with an anticipated 106 gigawatts of photovoltaics (PV) coming online. When Public Service Company of Colorado launched an all-source solicitation in 2017, 83 percent were for renewables or renewables paired with storage—an astonishing 91 percent of all proposed projects—an indication of utilities’ interest in solar-plus-storage and just how competitive these systems have become.

Expanding Storage Capacity Gaining a Foothold in the Midwest

According to a report by the National Renewable Energy Laboratory on potential markets for behind-the-meter battery energy storage, the increasing use of demand charges in utility tariffs and anticipated future declines in storage costs may also serve to unlock additional markets and strengthen existing ones.

Support for the power of energy storage is growing across the country. Not surprisingly, Southern California Edison topped the list compiled by the Smart Electric Power Alliance (SEPA) of the top ten utilities by annual energy storage capacity. Illinois’ Commonwealth Edison topped SEPA’s list of the top ten utilities by cumulative energy storage capacity.

In fact, Illinois is home to a number of energy storage initiatives that affect cultural, commercial and residential customers. For example, the energy plant at Chicago’s famed Shedd Aquarium features the largest solar-plus-storage installation at a cultural institution in Illinois—a 250-kW lithium ion battery storage system and 265-kW rooftop system, with 913 PV solar panels, on the marine mammal pavilion. Using sophisticated building management, metering, analytics and energy efficiency solutions, the Shedd’s goal is to cut energy use by an ambitious 50 percent by 2020.

In central Illinois, adjacent to the University of Illinois in Champaign, the Ameren microgrid can produce up to 1,475 kW, enough to power residential and commercial customers. A microgrid is a small network of electricity users with a local source of supply that is usually attached to a centralized national grid, but is able to function independently. Microgrids commonly utilize renewable energy combined with energy storage. The Ameren microgrid consists of natural gas generators, solar and wind generation, battery energy storage, and a microgrid control system.

On a broader scale, GTM reported that Illinois utility regulators have asked Commonwealth Edison to explore how it can expand the use of microgrids beyond their traditional boundaries in order to include multiple customers and greater use of clean energy resources. Recently, the Illinois Commerce Commission approved Com Ed’s Bronzeville microgrid project. This microgrid will integrate with a nearby independently built microgrid at the Illinois Institute of Technology as part of an effort to assimilate distributed energy resources across its territory. In addition, a process will also be launched to design a “microgrid services tariff” that will allow third parties to band together to create their own kinds of microgrids.

Elsewhere in the Midwest, Minnesota’s largest electrical cooperative is planning the state’s biggest energy storage project, alongside three solar installations. Connexus Energy plans to install storage capacity capable of storing 20 MW while the collective output of the solar project would be 10 MW.

In Iowa, a state with some of the highest demand charges in the nation, a solar installer is using storage to help customers avoid costly demand charges. Ideal Energy is offering a storage solution that the company claims could cut power bills in half for some large electricity customers.

The Future of Energy Storage is Bright

Although the upward trajectory for energy storage continues across the country, with GTM estimating that the market will cross the $1 billion threshold next year, there are still bumps in the road. Research from Wood McKenzie’s newly launched Battery Raw Materials Service shows that the rise of electric vehicles and energy storage is contributing to turbulence in lithium, cobalt and nickel pricing. All three metals rose in price through the early part of 2018. The data indicates ups and downs in those metal prices over the next five years, which will play an increasingly significant role in the cost structure for advanced batteries. Analysts expect lithium demand to grow by approximately 42 percent between 2017 and 2020. The increase is expected to prompt an expansion of materials supply. They also note that there’s a lag time between expanding raw metals production and producing battery-grade materials.

On a positive note, tax credits will continue to be an incentive for the acceleration of solar energy storage. Commercial behind-the-meter batteries included in the original installation of a solar energy system are eligible for a credit under the investment tax credit as long as the battery is charged by a solar energy system more than 75 percent of the time. To claim the full value of the federal tax credit, calculated as 30 percent of eligible project costs, the battery needs to be charged by solar energy 100 percent of the time. If the battery is charged less than 100 percent but more than 75 percent of the time by solar energy, the tax credit is reduced on a pro-rata basis.

As the demand for more reliable and cleaner energy rises, energy storage’s cost savings and efficiency will continue to be a driving factor for grid-scale storage as well as behind-the-meter storage.

The views expressed by the authors are not necessarily those of Fifth Third Bank, National Association and are solely the opinions of the authors. This article is for informational purposes only. It does not constitute the rendering of legal, accounting, or other professional services by Fifth Third Bank, National Association or any of their subsidiaries or affiliates, and are provided without any warranty whatsoever. Deposit and credit products provided by Fifth Third Bank, National Association. Member FDIC.