Utilities That Take This Approach to Battery Storage Will Maximize Future Market Share

By Liz Waldren

As more U.S. states offer incentives for renewable energy investment and costs for solar photovoltaic (PV) panels continue to decrease, it seems utility-scale battery energy storage is positioned to take charge of the next renewables revolution.

In the United States, the largest utility-scale solar PV and storage investments have been in California, Arizona and Hawaii. In Arizona and Colorado, solar power purchase agreements (PPAs) for solar plus storage have become more economically feasible than renewables-only solutions.

We’ll continue to see investments in sun-rich states, as well as in high population centers such as New Jersey and New York, where utilities have been assigned renewable energy and energy storage targets.

In Search of Economic Use Cases and Market Opportunities for Battery Storage

Still, most of the storage projects today require high-value opportunities to balance project economics.

Many states are implementing programs, mandates and incentives to further develop the battery-storage industry. However, it will take a considerable amount of development time to identify the applications and use cases for storage to remain competitive with increasingly cost-friendly alternatives.

Utilities face challenges under traditional planning and operational paradigms. They’re accustomed to systems that categorize generation, transmission, distribution and load separately. More than just power (megawatt) ratings for storage must be considered, as energy ratings (megawatt hours) for a four-hour duration system can represent well over 50 percent of the equipment cost.

Depending on the location, size and operational characteristics, energy storage can be designed to act in a variety of ways. It takes time, budget and multi-party consensus to standardize business procedures for the unique operating characteristics of energy storage technology. Agreements on the rules and knowledge gaps in areas like system performance and degradation pose challenges for evaluating energy storage.

One example is in the traditional transmission and distribution planning processes. System upgrades are identified to maintain safety and reliability for serving the projected load. Historically, energy storage has not been considered a tool for meeting these system needs.

Incorporating energy storage alternatives into the planning process requires establishing new assumptions for appropriate technology costs, operating behaviors and constraints. These technical questions can be further compounded by questions of ownership and cost recovery mechanisms.

That Doesn’t Mean Investment in Energy Storage Technology Should Slow

It is clear, though, from the quantity and scale of recent battery storage project announcements that this technology is taking foothold across markets and is well-positioned for rapid future growth.

Taking a leadership role in defining the requirements for battery energy storage is a strategic opportunity for utilities to maintain competitive advantages in changing marketplaces. Utilities might maximize their potential future market share with these best practices:

1. Identify system flexibility needs and evaluate economic alternatives to natural gas and diesel fuel peakers.

Traditional utility planning has focused on system ability to meet peak capacity. Peaking power plants built to satisfy capacity requirements may run only during high-demand hours (due to restrained operating characteristics) resulting in a higher capacity price.

Energy storage is becoming cost competitive with peaking power plants partially due to the ability to offer flexible grid services during off-peak periods. The need for such flexible grid services increases as varying load is balanced with greater amounts of intermittent generation.

Without a clear planning framework, it can be challenging to effectively evaluate tradeoffs between resources. Storage also has physical limitations and cannot deliver power indefinitely. How can we determine which is the best solution?

Utilities can lead the industry in providing answers through continued development of integrated resource planning frameworks that reflect accurate technology cost and resource operating characteristics at sufficient spatial-temporal granularity to examine operation for a range of grid services.

These analyses should be used to inform investment strategies, of least regret, that balance uncertainty with economic and environmental obligations.

2. Formalize a methodology to evaluate system upgrade alternatives.

Many emerging opportunities for energy storage have been so called “non-wires alternatives.” Deferred capital investments in large-scale electrical infrastructure may represent a significant value opportunity to energy storage, but how do you find one?

For utility system planning engineers, the identification of system upgrades has traditionally been more of an art than a science. Decisions such as location, capacity and technology may be decoupled from studies of alternatives and instead informed by a well-honed intuition for the least cost, highest impact solutions.

The challenge with this approach is that it can be difficult to validate and may risk under estimation of the value and capability of unfamiliar solutions or technologies.

Utilities that formalize a methodology for evaluating system upgrade alternatives will benefit in multiple ways. First, it will provide clear documentation for outside parties on the basis of investment decisions. Second, by engaging in a process, economic alternatives may be identified or a refined understanding of barriers to a particular solution will be uncovered.

3. Use pilot opportunities to establish best practice procurement strategies.

As an emerging industry, battery energy storage solutions can vary significantly across products and use cases. Identification of several use cases – a use-case portfolio for a project – provides the opportunity to benefit from multiple value (revenue) streams. While such flexibility is a hallmark of the technology, without clear definition of applications during procurement, the diversity in offerings can lead to challenges in comparing solutions on an “apples to apples” basis.

For one example, strategies for maintaining capacity over the battery life often vary. One vendor may propose to overbuild the system at the project onset while another may offer a fixed annual fee to maintain capacity over the project life. Each strategy will not only vary based on the storage product an defined use cases, but they will also impact the project economics, performance risk, and operational flexibility over time as use cases and market opportunities evolve. As the technology matures, standard definitions for expressing project operating parameters will be necessary to streamline commercial terms and conditions.

Uncertainty introduces risk and cost to ensure performance. During the pilot phase and early stage procurement, utilities and regulators can help reduce uncertainty by developing a framework to quantify and prioritize battery use cases. Equally important, establishing effective acceptance testing practices and clear performance standards may ensure guarantee requirements are met without driving unnecessary cost.  

4. Set the standard for safety and design excellence.

Safety is a top priority across the electric industry, and for over a century utilities have designed and managed public safety working with high-voltage electricity. While safety concerns for energy storage are like those for all electric equipment, there are several new codes and standards under development to address the unique properties. A unique challenge with battery energy storage is the speed at which the technology is evolving, which has put the technology ahead of industry codes. This emphasizes the importance of leveraging experience designing safe utility infrastructure combined with careful reflection on unique design requirements and safety considerations for battery energy storage facilities.

Utilities have the opportunity today to leverage long-standing relationships with fire department and first-response agencies with knowledge as leaders in electrical safety to inform the development of best practices, locally and nationally, that will help to ensure continued safety of the industry.

Now is the time to explore the low-hanging opportunities from state-level programs and incentives. Early experiments with battery energy storage systems will better position utilities to gain experience engineering and installing these systems, while working through the business and regulatory hurdles with foresight.

Liz Waldren is an Electrical Engineer in Black & Veatch’s Renewable Energy business and leads multiple projects and initiatives related to the deployment and grid integration of renewable energy and energy storage resources. In recent years, she has supported electric utility and developer clients in the design and implementation of renewable and energy storage systems and performed grid integration and interconnection studies for utility-scale renewables and energy storage.