Navigant Research Blog

Tesla and Storage Industry Take Up Another Challenge to Strengthen the Grid

— August 3, 2017

In September 2016, the massive blackout that hit South Australia cut electrical service to roughly half of the state’s 1.7 million residents for anywhere from 4 to 48 hours, putting grid reliability and renewable energy in the spotlight. Following that event, Tesla CEO Elon Musk claimed that large-scale energy storage could have prevented the disaster, promising that his company could build 100 MW of energy storage in just 100 days or it would be free. While this was seen by many as an attempt to get energy storage in the conversation about grid upgrades, it has now been announced that Tesla won a competitive solicitation to build a 100 MW storage facility.

Tesla’s new project will be located at the Hornsdale Wind Farm currently being built by French firm Neoen. The project will have a 100 MW power output with 129 MWh of storage capacity using Tesla’s lithium ion Powerpacks. The system will be used to smooth the output of the wind farm, shift energy to align with grid demand, and provide reserve capacity for the grid that could theoretically prevent future blackouts as both a source of system inertia and system restart services (in other words, a blackstart).

Major Challenges

Tesla faces some major challenges to build this project in such a short period. If successfully operational within 100 days, it would be one of the few 100 MWh-scale storage systems in the world commissioned in less than 4 months. These records were recently set last year when several large storage projects were built in response to California’s Aliso Canyon natural gas leak to provide emergency reserve capacity.

The key challenges noted by companies that developed the Aliso Canyon response projects involved supply chain and logistics and the overall orchestration/coordination of the project. However, Tesla may have advantages in logistics, as it is a vertically integrated provider of battery systems, which will reduce the time required to order both batteries and balance of system components. Given its recent expansion of manufacturing capacity, it is possible that the company already has many of the modular Powerpack systems built and ready to ship to support this project.

Once the batteries and all necessary components have arrived onsite, the coordination of such a large and complex engineering project is no small feat. Few projects of this scale and type have been built. As with many large storage projects, the experience is a first for local contractors providing engineering and construction work, which can delay the process.

Major Impact

If the project is successfully developed on time, it will represent another milestone, proving the maturity of the energy storage industry. The relatively short timeframe needed to build new large-scale storage projects gives the technology a major advantage over alternatives such as thermal power plants and transmission and distribution infrastructure. A shorter development period allows for shorter planning cycles for utilities, allowing them to quickly respond to changing grid conditions.

This project represents the first major competitive win for Tesla’s large-scale storage business in the Australian market. However, Tesla is not alone in developing massive storage plants in Australia. The Lyon Group recently announced its third solar plus storage project in the country, bringing its total pipeline of projects in development to 640 MWh. However, many stakeholders still question the economic viability of these storage projects, and regulatory rules are still evolving in Australia and other markets around the world. Despite the concerns, these projects are evidence that energy storage is starting to play a major role in the global electricity industry, with large-scale projects able to solve grid issues faster than conventional systems.

 

Best Practices for Residential Energy Storage Implementation

— June 27, 2017

A growing number of utilities are exploring opportunities to develop networks of residential energy storage systems throughout their grid. When properly developed, these programs can provide numerous benefits to both utilities and their customers:

  • Reduce peak demand—avoid transmission and distribution upgrades and costly peak generation
  • Integrate higher levels of distributed generation
  • Improve resilience for customers
  • Increase customer engagement and develop new products and services
  • Gain greater visibility into usage behind the meter

Given the multitude of potential benefits, residential energy storage is a growing topic of interest among utilities. Projects launched to date have taken different forms around the world depending on the specific needs of utilities and local market structures, such as those in New York, Vermont, and Australia. Working with a diverse group of utilities, Navigant Research has identified best practices for residential energy storage programs and organized them into three key categories: program design, customer adoption, and implementation.

Program Design

Key to any early stage residential storage initiative is establishing a program that is well-defined but highly flexible. These programs should be developed as if they were full commercial offerings, rather than solely pilot projects, with defined revenue streams and payback/performance targets. As the technology and business model are new to most utilities, it is important to allow for the program to evolve over time based on customer feedback and any technical issues that may arise. Program directors should plan to identify and implement lessons learned as they gain a greater understanding of the impacts and benefits.

Customer Adoption

It is important to ensure that presenting the program to customers is kept simple, as most customers are likely to be unfamiliar with distributed energy storage technologies and their value. Programs should be designed to target existing concerns or desires of customers. For example, many residential customers place a premium on the ability to have backup power. Some early residential storage programs have marketed their offering mainly as a backup power solution to customers. However, the systems will be used primarily as a tool for the utility to reduce peak demand and congestion in certain parts of the grid.

Implementation

When implementing and operating a residential storage network, the focus should remain on having a program that is both well-designed and flexible. By defining the necessary operating parameters and specifications, utilities can select the best vendors and products to meet their requirements upfront, limiting the need to add or change suppliers. A key aspect of this is determining the operating specifications for systems up front, while also planning for them to change over time. For example, identifying what percentage of battery capacity must always be held in reserve in case of an outage to ensure customers have backup power. Additionally, the optimal charging and discharging patterns to align with grid needs in each area is an important consideration. These types of parameters should be determined upfront; however, they are likely to change over time and program operators should have a plan in place to make the necessary adjustments.

The residential energy storage industry is evolving rapidly as new products and business models are developed around the world. New potential revenue streams for these systems, such as frequency regulation, may begin to emerge over the coming years. Ensuring that change and evolution are part of any program upfront will enable utilities to realize the maximum benefits of this technology while reducing the risk of stranding assets.

 

Thermal Energy Storage Solutions Are Heating Up

— June 16, 2017

While the new generation of battery energy storage systems have captured the attention of the global electric industry and media, more traditional forms of energy storage have been quietly operating for decades. Thermal energy storage is already a well-established technology that has been utilized in large buildings to reduce energy expenses by freezing water overnight and using lower priced off-peak electricity to offset air conditioning (AC) compressor needs during daytime peak demand periods. These systems allow building owners to generate significant savings on their utility bills with no effect on comfort or daily operations.

Despite limited media attention, thermal energy storage theoretically has many advantages over battery-based storage systems, including generally lower costs (both on an upfront and total cost of ownership basis), longer system life expectancy, non-toxic designs and materials, and ease of recycling at the end of a project’s life. These advantages and the maturity of the technology have allowed thermal storage to play a critical role in district heating and cooling systems around the world. However, in recent years, new thermal storage solutions have been commercialized, targeting new markets and providing competition for lithium ion and other battery technologies.

Thermal Storage Solutions Expanding

In late 2014, utility Southern California Edison (SCE) announced awards for a landmark procurement of energy storage capacity to optimize grid reliability, support renewable energy integration, and fulfill local capacity requirements. While most contracts were awarded to battery energy storage providers, up and coming thermal energy storage provider Ice Energy won a contract to provide 25.6 MW of capacity. Although Ice Energy’s technology operates similar to many other thermal storage systems, its approach to the market—targeting utilities with peak demand reduction solutions—provided SCE with a cost-effective way to reliably reduce customer demand and strain on its distribution system. The key to Ice Energy’s offering is the ability to virtually aggregate its distributed systems and give utilities control, providing a reliable, location-specific form of peak load reduction. Ice Energy continues to land contracts with utility customers, and it has expanded its product line to target residential customers in addition to commercial and industrial buildings.

Thermal storage solutions are expanding from an early focus on managing AC loads to target other building systems that require large amounts of cooling power. One of the more successful innovators in this market to date has been Axiom Energy. The company’s refrigeration batteries are being installed by major retailers, including Walmart, and through a partnership with New York utility Con Edison. Axiom Energy’s technology works on a similar principle as AC-based storage systems and can be installed on existing refrigeration systems without major modifications or reprogramming. These systems offer both utilities and customers a reliable, non-disruptive way to reduce their peak power consumption and the associated expenses.

Best of Both

The recent advances made in thermal energy storage technologies are heating up the debate over the merits of these systems versus battery storage. Both technologies have certain advantages and disadvantages, and both should play important roles in the modernization of building energy management and power grid operations. However, battery storage continues to grow in popularity and market share in the storage industry. The ability of battery systems to provide both peak demand reduction and backup power in a more compact physical footprint is a key advantage over thermal storage. As the industry progresses, there will likely be increasing opportunities for both technologies. In fact, for many customers, the best approach may be to utilize both thermal and battery storage, taking advantage of the best of both to maximize their potential savings.

 

Distributed Energy and Community Choice Making Big Gains with Small Utilities

— May 2, 2017

The falling costs and improving economics of solar, wind, energy storage, and other distributed energy resources (DER) are driving a growing movement toward community-based energy systems around the world. The concept of community power has been around for centuries and is characterized by local ownership, local decision-making, and the local distribution of economic and social benefits. Over the past decade, island nations have emerged as pioneers of new community power models given their high electricity prices and natural requirement for local energy systems. The falling costs for DER, along with regulatory changes, are now laying the foundation for growing community power movements in larger and more traditional power markets. The first World Community Power Conference was held in Fukushima, Japan last November. The location of this event was no coincidence, with the city’s recent history highlighting the disadvantages and potential dangers of traditional, centralized energy systems.

Community energy movements could be a driving force in the reshaping of America’s energy systems and the growing DER industries. North America already has a strong tradition of community-based energy with thousands of cooperative and municipal utilities, in addition to the growing number of community choice aggregation programs around the country. However, many of these organizations have been locked into long-term contracts to buy nearly all their energy from a single provider. This dynamic has limited local renewable energy development, as power providers can charge these customers a fee for any lost revenue through the self-generation caps in contracts. A major breakthrough for these small utilities came when the Federal Energy Regulatory Commission (FERC) prohibited these self-generation fees in a ruling last year. This ruling freed cooperatives to begin local solar and other DER developments in their own communities, now a viable alternative to conventional sources. Cooperatives in the United States now own nearly 1.3 GW of renewable capacity and plan to add 2 GW more over the next 5 years.

Falling Costs Generate Increase in New DER Projects

Community power organizations are increasingly interested in renewables and local energy sources due to their falling costs and the potential to stimulate significant local economic development. DER also allow organizations to add generation capacity on a much more incremental and flexible basis, as opposed to contracting energy for a decade or longer. Since the FERC’s ruling last year, the number of cooperatives with new DER projects has grown significantly.

In early 2017, Texas Electrical Cooperatives Inc. (TEC) announced a partnership with energy solutions provider Advanced Microgrid Solutions (AMS) to develop distributed energy storage systems and provide DER management software for its members. The cooperatives will receive discounts on AMS’ products and services that help maximize the use of local generation resources and lower costs. One of TEC’s most ambitious members, the Pedernales Electric Cooperative, recently announced that it is developing 15 MW of local solar generation capacity at numerous sites in its territory. Elsewhere in the American Southwest, the Kit Carson Electric Cooperative in Northern New Mexico recently announced a solar and energy storage development plan to achieve summer solar independence by 2022. This plan includes the development of over 30 MW of solar generation along with energy storage that is expected to save ratepayers more than $50 million over the next 10 years alone.

With so much of the industry’s focus on large projects and the activities of major utilities, the numerous opportunities with cooperatives are often overlooked. In many ways, the community power movement and the efforts of these cooperatives are the epitome of the global energy transition and the shift to a grid centered around renewables and DER.

 

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