NREL says that 5m businesses would benefit from battery storage

A new NREL report has found that some 5m US commercial energy customers could currently save significant amounts on their energy bills if they installed battery storage – and with the falling cost of storage, that’s a number set to rise. If commercial customers take on board these findings, battery storage vendors should see dramatic growth in sales.

The report identified $15 per KW of demand charges as a bottom line figure that once reached the cost of installing battery storage is offsets by the net benefit of avoiding the charge. Demand charges are additional payments utilities place on their commercial customers for using energy at peak times. Demand charges are typically non-linear across a utility’s network, structured so that those actions that have the most detrimental impact to the operations of grid are charged the most.

The report claims around 5mcommercial customers, out of a potential 18m, fall into this bracket of paying peak demand charges above this level and would see a net reduction in their energy costs by installing battery storage to support their commercial operations.

However, the detrimental effect of peak-time energy usage, and consequently the rate of the demand charge, might be no fault of the commercial customer, and could be caused by the location of the business in relation to a utility’s network. For this reason, a customer on Long Island may be paying demand charges of $50 per KW, but the average demand charge in the state is less than $10 per KW.

Many commercial customers may have assumed that installing battery storage only makes sense in regions with high energy costs. The report describes how some of the highest demand charges were found to be in states typically known for low energy prices, such as, Arizona, Colorado, Georgia and Nebraska.

Storage vendors should refocus their marketing approaches in those states with high demand charges, as they might not previously have thought efforts in those areas worthwhile. In identifying those potential net beneficiaries of battery storage in relation to demand charges, the report could also act as a potential roadmap for future deployments.

The National Renewable Energy Lab (NREL) concedes that each scenario is different for a commercial customer. Just because a customer is being charged above the $15 per KW threshold, low energy usage in peak times could mean that a customer is not charged enough to justify an investment in battery storage. Customers must consider how demand charges are currently affecting their business and any other factors that might constrain an installation of battery storage.

Utilities in the US have been moving more of their commercial customers onto contracts that include demand charges. The introduction of demand charges has been at the discretion of regulators, which utilities have been lobbying for, Arizona Public Service (an electricity company) recently appealed to the state energy regulator to get the rules changed so it could apply demand charges to all its customers.

The trends suggest demand charges are increasing and are being applied to more customers as regulators give way to pressure from utilities – the effect of which could see a greater number of customers falling above the threshold as potential net beneficiaries from battery storage.

The other obvious market pressure to consider that could affect this threshold is the falling price of battery storage. IHS Markit expects Lithium-Ion battery prices to fall below $200/kWh by 2019 – a huge drop from the $273/kWh price that Bloomberg New Energy Finance reports is the current standard.

Price declines will be driven by improvements in battery production and increased demand from utility-scale storage and electric vehicles – meaning greater economies of scale in manufacturing. The price decline could reduce the total cost of installation, and mean more customers fall into that NREL bracket of being net beneficiaries of battery storage.

Commercial enterprises are already waking up to the financial and marketing value of battery storage. Walmart has partnered with startup Advanced Microgrid Solutions to install behind-the-meter batteries to balance on-site energy at 27 Californian stores. The systems will enable Walmart to avoid demand charges at the locations, and will also allow the company to take a step closer to the goal of powering half its operations with renewable energy by 2025 – a valuable environmentally-friendly credential.

A reflection of expectations for the future potential of battery storage for the corporate sector has been the strong levels of private investment into energy storage companies, aimed at the corporate sector. Notably, Advanced Microgrid Solutions, the company partnering with Walmart, closed $200m with Macquarie (VC), while Taubachi America received $300m from Electric & Gas Industries Association – both deals taking place in Q3 2016.