Navigant Research Blog

Residential Solar and Storage Begin to Transform the Grid

— July 6, 2016

Rooftop SolarAs electric grids around the world transition to a more distributed, intelligent, and clean system, markets leading the charge are facing issues that highlight the challenges to come for all.  These early adopter markets, including Hawaii, Australia, California, and Germany, have many similarities, such as relatively expensive electricity and very high levels of distributed solar PV penetration. While numerous studies have looked into the effects that the evolving energy system will have in these locations, a recent study from the Australian Energy Market Operator (AEMO) makes some bold predictions about the impact of residential solar PV and energy storage systems (ESSs) in particular. This year’s is the first AEMO study to take into account both residential energy use and production in estimates of future demand.

A number of factors are converging to drive unprecedented changes to the electricity industry in Australia. The country has some of the highest penetrations of distributed solar PV in the world, with PV systems installed in an estimated 13% of all Australian homes. Additionally, the country is expected to be a leading market for residential energy storage, with 2.4 GW of new capacity forecast to be installed by 2025, according to Navigant Research’s new Residential Energy Storage report.

Changes Ahead

One of the main conclusions from AEMO’s study is that these residential systems can dramatically shift when the grid’s overall peak demand occurs. While traditional peak demand has been on summer days or early in the evening, PV generation will push peak demand later into the evening, after sunset. In fact, the study predicts that the lowest point of net usage may actually become the middle of the day. This transition is already being seen in areas with particularly high PV penetrations, such as South Australia and Queensland. As peak demand is pushed later into the day, the risk of a rapid spike in net load arises as PV generation quickly ramps down in the evening, a demand spike known by many as the duck curve.

These changing demand patterns will bring about a much greater need for system flexibility both from generation sources as well as the demand side. Flexible loads in homes and businesses that can act as solar sponges by absorbing excess PV generation throughout the day will be critical to maintaining system stability and limiting the rapid increase in demand at the end of the day. As discussed in the new Residential Energy Storage report, residential ESSs are an ideal solution to provide the foundation of a home energy management system that maximizes the use of PV energy onsite while also providing a reliable source of ramp control for grid operators.

Exploring Solutions

Australia’s utilities have been working to address these issues and recognize the unique ability of ESSs to solve many of the challenges they face. Electricity providers Ergon Energy and AGL Energy have been actively exploring opportunities to own residential ESSs themselves to ensure the benefits these systems provide are shared between the grid operators and their customers. While these programs offer great potential, and perhaps a glimpse into the future of the electricity system, many questions remain around how the costs for these systems will be allocated and how to maximize the value they provide. Although there are a number of business cases that support distributed ESSs, most focus on only providing a single service. Unlocking the maximum potential will require new levels of collaboration between utilities, regulators, and vendors to capture the complex value streams these systems offer.


California Incentive Updates Recognize Value of Storage

— June 29, 2016

??????????????????California’s Self-Generation Incentive Program (SGIP) has been one of the most successful and contentious programs supporting the deployment of distributed energy resources (DER). The program has generated significant attention in recent years from stakeholders pushing changes to how financial incentives are awarded. As a result of recent controversies and the looming grid stability issues facing the state, the California Public Utilities Commission (CPUC) officially announced modifications to the program late last week.

These reforms include a number of significant changes that regulators believe will better align the program’s goals of reducing greenhouse gas emissions and peak demand, improving grid stability, and supporting technologies that have the potential to enable market transformation without long-term subsidies.

Storage Wins Big

The newly agreed upon rules highlight energy storage systems (ESSs) as a key priority for the program moving forward. Most notably, 75% of the program’s $77 million annual budget will be allocated specifically for ESSs, with priority given to systems tied directly to renewable generation. Within this, a 15% carveout has been mandated for residential ESSs specifically, which to date have struggled to secure incentives. The remaining 25% of the budget will go to generation systems, including wind turbines, gas-powered microturbines, and fuel cells. In response to concerns over single companies monopolizing the submission process and taking up a large percentage of the program’s budget, all awards will now be determined based on a lottery system, with no developer able to claim more than 20% of the total annual incentives.

In addition to ESSs being guaranteed the majority of the program’s funding, the actual incentive rates and how they are determined have also changed and will step down gradually each year. Incentives will now be determined based on the total energy capacity (or watt-hours [Wh]) for each system. This change helps align incentives with a system’s discharge duration, and in turn, its ability to reduce peak demand or shift usage to off-peak times. Furthermore, the CPUC has established separate incentive rates for systems that are also receiving financial support through the Investment Tax Credit (ITC). The initial rate for ESSs not receiving ITC support is now set at $0.50/Wh and at $0.36/Wh for systems that do receive the ITC. All residential systems (<10 kW) will receive the full $0.50/Wh incentive.

The new incentive rates also take into account the duration of each system by assigning decreasing rates based on the number of hours of discharge duration. For example, at a $0.50/Wh incentive level, a 4-hour 10 kW ESS would receive a total incentive of $15,000. $10,000 is awarded for the first 20 kWh of capacity, the first 2 hours of duration at 10 kW. An additional $5,000 would be awarded for the remaining 20 kWh, the second 2 hours of duration at 10 kW at a 50% reduced rate.

Looking Ahead

With an estimated $270 million in funding remaining through 2019 for the SGIP, these newly announced changes could have a major impact on California’s DER markets. Hopefully, the reformed program will support a more diverse and competitive market for ESSs that will result in a greater number of new systems and more rapidly falling costs. The state’s regulators recognize the unique and significant value that ESSs can provide the grid and are working to ensure the technology plays a key role in the evolution of the electricity grid.


Pending Blackouts Highlight Benefits of Energy Storage

— June 2, 2016

Production Plant - NightConsequences of the largest natural gas leak in U.S. history continue to be felt across Southern California. The leak at the Aliso Canyon storage facility in Porter Ranch, California had a major impact on the local environment, forcing thousands of residents to abandon their homes and releasing the equivalent of the annual greenhouse gas pollution of 572,000 cars. While the leak has been stopped, the facility is now out of commission and the region faces a major shortage of natural gas, which could lead to 14 days of blackouts this summer and potentially 9 more in the coming winter unless action is taken.  The situation highlights the danger of relying too heavily on any one source of energy and is accelerating plans to transition to a system based on renewable energy.

What the Grid Needs

The potential blackouts this summer result in part from the shortage of gas supplies to fuel peaking power plants needed when demand spikes on hot summer days. In order to avoid widespread outages, the peak demand on the system needs to be reduced. Reducing the overall peak demand has been a focus of grid operators for year, and a number of solutions, including energy efficiency programs, demand response and energy storage systems, are being employed to meet this challenge. While these solutions all have their downsides (such as a low reliability or high upfront costs), the current situation in Southern California highlights the benefits of distributed energy storage systems in particular.

California is already a leader in the distributed storage market, and the threat of numerous blackouts may result in increased demand for these systems. As explored in Navigant Research’s Solar PV plus Energy Storage Nanogrids report, distributed storage systems can provide backup power during an outage (perhaps indefinitely when paired with solar PV) in addition to reducing electricity bills. While backup power is one of the main drivers of interest in distributed storage, these systems can provide much greater value to the grid as a whole. Storage systems aggregated into a virtual power plant can allow grid operators to reduce demand on the system at peak times, shifting energy usage to maximize the use of solar PV and limiting the need for gas-fired generation.

Central vs. Distributed?

As grid operators in California consider how storage can reduce the risk of blackouts, they are examining one of the key debates in the energy storage industry: Is it better to deploy centralized or distributed storage systems? While some of the issues facing the grid can be solved with centralized storage, distributed systems are being installed in increasing numbers without any action from utilities. Centralized storage systems won’t keep the lights on for customers in the event of a major outage and can take much longer to develop, an important consideration given the immediate need for new resources. Overall, it seems distributed storage systems are in the best interest of the California grid. While some customers get improved resilience, everyone benefits from the improved reliability that comes with these flexible assets on the grid.


Australia Leading Solar PV plus Storage Innovation

— May 23, 2016

Rooftop SolarImprovements in technology and cost have allowed solar PV plus storage systems to become an attractive investment in many parts of the world. However, what remains to be determined are the optimal business models to unlock the full value of these systems. Pairing solar PV directly with energy storage holds the potential to dramatically transform the electricity industry and provide customers with cleaner and more secure power at a predictable price. Despite the potential, there has been little consensus in the industry on the best way to deploy these systems on existing grids and on how to overcome the significant barriers that the required upfront investment presents. 

Although solar PV and energy storage systems (ESSs) have been paired up in microgrids and remote settings for decades, their integration into existing electrical grids presents new challenges. Innovative models for the ownership and operation of these systems are being explored around the world, driven in part by the increasing funding flowing into the distributed energy industry. Australia has been at the forefront in the development of distributed energy resources, and two recently announced projects in the country offer different paths forward.

Dueling Approaches

In early adopter markets around the world, two primary models for deploying solar PV plus storage systems are emerging. Many stakeholders in the industry believe the optimal way to deploy these systems is through incumbent utilities and electricity providers that can leverage technical experience and access to financing. The recently developed suburb of Alkimos Beach in Western Australia was seeking a community-scale solution to help manage an increasing number of distributed solar PV systems and limit the need for new infrastructure to serve its growing population. The neighborhood elected to work with local energy provider Synergy to deploy a 1.1 MWh lithium ion ESS that is being fed by over 100 solar PV systems located on rooftops throughout the area. In addition to reducing costs for customers, managing the intermittency of PV generation, and limiting the need for new infrastructure, the project provides Synergy an opportunity to use community engagement as a way of combating the threat of grid defection.

Alkimos Beach is not the only community in Western Australia exploring innovative ways to harness the power of the solar PV plus storage combination. The community of White Gum Valley has chosen a different path toward a sustainable, local energy system both in terms of ownership and technical design. Most homes in the community will have both solar PV and battery ESSs onsite that will be operated in concert. In addition to the physical distribution of energy storage in this model, systems in White Gum Valley will be owned by the company managing most of the community’s apartment buildings. The company will act as a utility by owning assets and retailing energy directly to customers, a rare situation in Australia’s regulated electricity markets.

The Path Ahead

These two projects may provide some unique insights into how solar PV plus storage solutions can be optimally developed. They provide clear examples of some of the major debates in the distributed energy storage industry, such as whether it is better for systems to be centrally located or distributed, or if they should be owned by utilities or by customers. While it may take several years for these projects to illuminate the merits of one approach versus the other, they may be a sign of things to come as the distributed energy industry takes shape.


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