The Battery Revolution

Energy storage is catching the spotlight now more than ever. More energy storage has been installed globally in the past three years than the previous thirty. Navigant Research predicts global commercial and industrial battery capacity to grow from 499.4 MW today to 9,100 MWs in 2025. Alone and in combination with renewable distributed energy, battery storage is emerging around the world. With Tesla’s gigantic Nevada battery manufacturing facility under construction (the Gigafactory), I had to ask:  Can this be a serious consideration for Ohio manufacturers?

The Rocky Mountain Institute recently evaluated the cost-benefit of energy storage and concluded that behind-the-meter energy storage provided the largest number of services to the electricity grid when compared to a more centralized utility scale approach. Customers can “stack” the benefits of the storage by unlocking value in the market and their tariff. The theoretical benefits of storage to three major stakeholders are:

Customer: backup power, demand charge reduction, peak load contribution reduction, increased photovoltaic (PV) consumption, energy price arbitrage

PJM: spinning reserves, frequency regulation, voltage support and black start

Utility: distribution investment deferral, transmission investment deferral, congestion relief, resource adequacy

This sounds super great so what is the hold up? Well, the regulatory construct does not create an easy path for Ohio manufacturers to receive this value from the grid and utilities. There is no easy way for customers to provide and get paid for grid services from PJM and the utilities are frankly incented, through a guaranteed rate of return, to build transmission and distribution assets rather than to defer them. So today’s construct eliminates the idea of benefit “stacking” as the customer benefits are the only ones that are available. But are those enough?

When looking at the customer benefits, the biggest bang for the buck would be a reduction in peak load contribution. The battery would be dispatched to eliminate grid supply during the five highest consumption hours. If executed properly, this can reduce supply cost by around 20%. The next level of peak reduction would be to reduce the billed demand each month. This can be especially valuable for those utilities – such as Duke Energy – where the minimum demand can be no less than 85% of the previous eleven months. Finally, the price arbitrage is useful where a decent spread exists between peak hours and non-peak hours. Currently, there is about $0.01/kWh difference between on-peak and off-peak pricing which is enough to make it interesting.

The costs of battery storage are trending downward, similar to the PV market for solar. The calculations used to determine the cost of stored energy are fairly complex and unique to each use case but Lazard, a leading financial advisory and asset management firm, did a high level analysis placing capital costs at around $500 – $700/kWh for six hours of storage capacity. Using assumptions of $0.06 per kWh for the cost of electricity used to charge the battery puts the total cost at around $0.25/kWh if one full cycle (full charge and discharge) is used per day. Energy at this price is on the high end of generation technologies but the fact that it can be used when the customer demands it, especially during outages, can make it attractive.

For now, battery storage seems to be an expensive alternative; however, the costs are expected to decrease by as much as 30% to 40% in the next few years. If these costs decrease as expected, and the benefits are unlocked through new regulatory constructs, this technology holds great promise and will very likely become a key component in the future electric grid. Certainly, Elon Musk is going all in.