September 22, 2017 Read More →

On the Blogs: The Rising Market in Electricity Storage

Electric utility executives already fretting about slow/no growth in their service territories have another item to add to their growing list of worries: the prospect that many of their commercial customers could begin installing behind-the-meter storage to lower their demand charges.

A recent white paper from DOE’s National Renewable Energy Laboratory and the Clean Energy Group, a nonprofit advocacy organization, shows that it could be economic for almost 28 percent of commercial customers across the country to install batteries at their business sites to cut their electricity consumption during specific periods of the day, thereby reducing their exposure to utility-imposed demand charges. This would amount to a one-two punch for utilities: electricity sales would drop if the batteries were linked with solar and the amount of revenue collected from these charges would fall, not a pretty picture for the utility industry.

The analysis, “Identifying Potential Markets for Behind-the-Meter Battery Energy Storage: A Survey of U.S. Demand Charges,” does not look at actual rates being paid by commercial customers (the hours involved in collecting that data would almost certainly be cost prohibitive) but rather surveyed 10,000 utility tariffs on file across the country, developed representative load profiles for 10 different building types, and then examined which tariff(s) could be used by the differing buildings. A full discussion of the methodology is including in the study, which can be found here. Once that overall sorting was done, NREL examined the fraction of the overall universe of commercial buildings that could be using tariffs above a threshold of $15 per kilowatt, a commonly used marker for the cost effectiveness of battery storage.

The results were eye-opening. According to NREL, roughly five million commercial customers are eligible for electric tariffs with a demand charge rate of at least $15 per kilowatt—more than a quarter of the 18 million commercial customers in the U.S. Interestingly, the study also found that there are opportunities for this battery-enabled defection in almost every state. California and New York, which have been early and consistent supporters of energy storage initiatives, top the list with the most commercial customers that could be paying demand charges of more than $15 per kilowatt. But as the graphic below demonstrates, the opportunities are spread across the country. Georgia, for example, which is not generally thought of as a high-cost region, is third on the list, with some 237,000 commercial customers potentially paying demand charges above the $15 per kilowatt threshold.

Raising the threshold to $20 per kilowatt would lower the number of potential customers for battery storage to three million, but this still represents a sizable market opportunity that should be worrisome to utility executives nationwide. Given the recent significant price declines in battery costs, looking at a threshold of $10 per kilowatt may be more representative of where the market is heading; in this case, NREL said, six million commercial customers potentially could benefit by looking for a battery storage option to cut their utility demand charge. The study’s authors also noted that if storage costs fall to those levels, it “may alter the bulk power system sufficiently to prompt a reduction in demand charge rates.”

How this will play out is clearly uncertain, but it cannot be good news for the utility industry, which has been troubled for years by flat demand growth. As the Energy Information Administration reported this summer, overall residential electricity sales have dropped 3 percent since 2010 while per capita sales have dropped 7 percent in the same period. (see charts below). The situation is much the same in the commercial and industrial sectors: Looking back to 2007 (before the great recession), sales in both segments are essentially flat as the second chart below illustrates.

More: Storage Puts Utilities on a Big Bind on Demand Charges

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