Distributed energy: battery’s holy grail?

As SolarCity resumes installation applications for its solar energy storage systems in California, we assess the wider potential for batteries and distributed energy storage.
As SolarCity resumes installation applications for its solar energy storage systems in California, we assess the wider potential for batteries and distributed energy storage. Photo © BrokenSphere / Wikimedia Commons
As SolarCity resumes installation applications for its solar energy storage systems in California, we assess the wider potential for batteries and distributed energy storage.

As SolarCity resumes installation applications for its solar energy storage systems in California, we analyse the wider market potential for batteries and distributed energy storage. Photo: © BrokenSphere/Wikimedia Commons

Grid-scale battery makers might want to re-set their sights on distributed energy storage if current market trends are anything to go by.

Across a number of major renewable power markets, demand for commercial and residential energy storage is beginning to mushroom as a result of burgeoning solar photovoltaic (PV) installations and a desire for greater independence from the grid.

In Northern Illinois, USA, for example, Intelligent Generation is reported to have 10MW of commercial and residential solar-and-storage projects in the pipeline.

The company has developed a smart system that can help these distributed storage assets cut out demand charges with the regional transmission organisation PJM Interconnection, as well as providing demand response and frequency regulation capacity.

The combination of solar, batteries and intelligent management leads to a quicker return on investment than installing PV alone, says Intelligent Generation.

The residential battery storage market

Inverter maker Power One, of ABB, is among the growing number of companies waking up to the potential of the distributed battery storage market. The company is touting energy storage as “the next step of the PV market.”

And, says a source at Ideal Power: “One significant trend is the growing demand for commercial-scale, behind-the-meter energy storage solutions to combat the increase in utility demand charges on businesses.”

“Over the last several years, demand charge rates have risen on average approximately 7% annually in areas served by Pacific Gas & Electric and Southern California Edison. Demand charges can represent up to 50% of a commercial building owner’s electric bill.”

In February, meanwhile, the Rocky Mountain Institute (RMI) issued a report, ‘The Economics of Grid Defection’, that suggested “solar-plus-battery grid parity is here already or coming soon for a rapidly growing minority of utility customers” in the US.

Grid parity exists today

“Grid parity exists today in Hawaii for commercial customers, and will rapidly expand to reach residential customers as early as 2022,” said the RMI’s Leia Guccione and Peter Bronski in a blog posting.

“Grid parity will reach millions of additional residential and commercial customers in places like New York and California within a decade. The results are profound, especially in geographies like the US Southwest.”

In this region, say the authors, “the conservative base case shows solar-plus-battery systems undercutting utility retail electricity prices for the most expensive one-fifth of load served in the year 2024.”

Using more aggressive assumptions, meanwhile, PV-and-battery off-grid systems will be cheaper than electricity you could buy from a utility within just a decade.

For electricity customers, the implication is that over the next few years there will be less and less of an incentive to plug into the grid and more of a move towards solar-and-battery-based autonomy.

The death knell for utility business

And that is widely being viewed as a death knell for the traditional utility business.

“SolarCity, the country’s biggest solar PV installer, and Tesla Motors, the country’s biggest electric vehicle maker, could be the utility industry’s worst nightmare,” reported Jeff St John of GreentechMedia last month.

Alternatively, he added, the combination could help solve a lot of grid problems, such as the need for peaker plants. As with Intelligent Generation, a key feature of the systems being installed by SolarCity is that they have in-built intelligence as well as batteries.

Which way the cookie crumbles will probably depend on the prevailing business model for distributed storage.

While private ownership seems the favoured option at the moment, and the one that would pose the greatest threat to utility businesses, in theory there is no reason why utilities themselves could not own the battery infrastructure.

The gentailer business model

However, according to Jono Pye and others of Global Sustainable Energy Solutions in Australia, in an article for WattClarity: “How this would function with the wholesale electricity market (and the market rules) would be challenging.”

A third business model he proposes involves a ‘gentailer’, or a retailer that buys energy from the wholesale market on a customer’s behalf and delivers it to their door, paying network providers for their services along the way.

“Retailers will be able to provide customers with the energy they need through a mixture of battery storage, PV and the wholesale market,” he says. “This mixture can be optimised to suit either their generation assets or existing power purchase agreements.”

Pye adds: “The benefit to customers in this situation is that all risk and responsibility are carried by the retailer. Very little changes in the way the consumer must think of their energy consumption.”

As in the USA, there is growing awareness in Australia of the potential for solar PV plus batteries to let consumers disengage from the grid.

“Whether or not the spread of low-cost energy storage will result in households disconnecting from the distribution grid entirely remains to be seen,” says David Green in RenewEconomy.

Embedded generation as the primary source

“For the moment it would seem more likely that households will stay on the grid, but that the role of grid-supplied power will be inverted, from the primary source of power to a safety net supplier of last resort, with embedded generation being the primary source.

“Even this more moderate vision would require a fundamental rethink in the financial model for distribution network services businesses.”

Utilities are well aware of this, and their reaction so far has ranged from enlightened to desperately retrograde.

In Spain, for example, the utility lobby is widely believed to have wielded its influence in helping bring about a generally despised ‘tax on the sun’ that makes it economically unfeasible to install distributed generation systems.

At the other end of the spectrum, RWE’s chief executive Peter Terium is a fan of the utility-owned model of distributed generation.

He has told Energy Post: “My dream is that RWE will put solar panels on your roof, a battery in your shed, a heat pump in your cellar, and we will also manage this complex energy system for you.”

Whatever the way forward, it looks as though the odds are ultimately stacked against utilities surviving in their current form.

Which begs the question: if all the action is going to be in distributed energy, how much sense does it make for battery makers to chase the grid storage market?

Written by Jason Deign

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