Navigant Research Blog

How Solar PV Plus Storage Fits into Corporate Energy Management Strategies

— May 12, 2017

The electric power industry is now facing a fundamental shift toward a more decentralized grid, known as the Energy Cloud. As highlighted in a previous two-part blog series, technology and financing innovations sit at the heart of this shift as key enabling factors that are driving business model innovation and customer choice. For years, corporate commercial and industrial (C&I) energy and sustainability managers had no say about the price and type of electricity they used. Now, these same managers are choosing to apply new technology and business model innovations to meet their sustainability needs. These new customer needs can be categorized into the following important trends:

Fortune 500 C&I utility customers are seeking cost-effective, customized, and comprehensive energy solutions that can meet these evolving needs without capital expenditures or impact to their day-to-day operations. And the market is just now beginning to respond in a turnkey, comprehensive way.

Navigant Research will highlight how these solutions are being brought to the marketplace to meet Fortune 500 customer needs in an upcoming report titled Energy as a Service, which is scheduled for release in 2017.

Distributed Solar PV Joins the Solutions Table

Given these evolutions, it is now clear that distributed solar PV plus energy storage is starting to take a seat at the table as an integrated component of the solution set that Fortune 500 C&I customers are seeking. The drivers for the development of distributed solar PV plus energy storage markets are highlighted in Navigant Research’s recently released report titled Distributed Solar PV Plus Energy Storage Systems.

For example, Sharp now offers solar PV plus energy storage financing. And Macy’s recently announced another series of solar PV installations, several of which included integrated solar PV plus energy storage. The advantage that a solar PV plus energy storage installation can provide is twofold: a solar PV system can produce energy for use onsite at a per-kWh rate that is lower than the local utility rate, while an energy storage system can guarantee the type of tariff-specific demand charge savings that solar PV alone cannot deliver. Both the Sharp and Macy’s announcements are key examples of technology and financing innovation being deployed to meet the needs of C&I corporate energy and sustainability managers.

 

Applying Financing Innovation in Distributed Energy Storage to Make Battery Technology Bankable

— March 20, 2017

In a recent blog, I took a look at the importance of proper evaluation of the total cost of ownership (TCO) of battery energy storage systems (BESSs) from both a power and energy performance standpoint. Such an analysis reveals how extended battery lifetime and other battery performance factors can reduce the ultimate costs BESS owners would pay over the life of the system. This type of revenue and cost predictability is key to unlocking energy storage financing innovation anticipated to drive new technology deployments.

The Bankable Battery Challenge

Today, equity and debt providers and project developers looking to finance BESS have a limited choice of battery technologies. NGK Insulators has a proven sodium sulfur (NaS) battery technology that plays a role in certain long duration, utility-scale energy storage or microgrid applications. For other applications, lithium ion (Li-ion) technology backed by warranties from large, multinational conglomerates like LG Chem, Samsung SDI, BYD, and Panasonic are among the few technologies determined to have bankable BESS technology from a financing standpoint to date. This remains to be the case even though few of these Li-ion BESS installations have been up and running for extended periods of time.

Financing Innovation Enabled by Contracting and Technology Advancements

Many developers, systems integrators, and technology providers are focusing on creative ways to make BESSs bankable from a financing standpoint. Powin Energy is an Oregon-based energy storage systems integrator that recently developed and commissioned a 2 MW, 8 MWh battery energy storage system in Irvine, California under Southern California Edison’s (SCE’s) Alison Canyon emergency procurement. But there is more behind Powin’s efforts than just project development/systems integration.

Powin’s patented Battery Pack Operating System (bp-OS) is designed to enhance the monitoring of battery performance. Its software claims to do this by tracking battery system functions and lifespan at the cell level using its proprietary Battery Odometer and Warranty Tracker products. The Battery Odometer reportedly measures degradation and calculates remaining battery lifetime based on voltage, temperature, state-of-charge, and charge and discharge durations on a cycle by cycle basis. And the Warranty Tracker claims to express that status of battery performance relative to the specific warranty status in real time.

A technology package that truly enhances and simplifies the approach battery warranty monitoring would be compelling. Such clarity and simplicity from a battery performance standpoint could open up opportunities to standardize battery performance warranty insurance coverages across a variety of battery cell technology manufacturers, which would lower costs and provide additional comfort to project finance investors, thereby driving more financing activity.

A Promising Sign for Energy Storage Financers?

A proper turnkey financial TCO analysis should look at the total cost of operation for power and energy. However, projecting the cost of operation of the BESS at year 3 or 4 of a 10-year financing is uncharted waters. Technology such as Powin’s bp-OS coupled with battery performance insurance underwriting merits a careful eye in the journey by project developers to develop and finance BESS projects. As discussed in previous blogs, lower costs coupled with more predictable project revenue feeds the growth financing innovation that will drive the deployment of stationary energy storage technology.

 

Why Financing Innovation in Distributed Energy Storage Should Focus on Total Cost of Ownership

— March 15, 2017

In Part 1 and Part 2 of my recent two-part blog series on financing innovation, I focused on two new types of standardized contracts that have emerged to enable the financing of distributed battery energy storage systems (BESSs). But standardized contracts are only one part of the financing innovation story. Another key component is the proper evaluation of the total cost of ownership (TCO) of BESSs from both a power and energy performance standpoint.

Overview of BESS TCO

Purchasers of BESSs—such as utilities, project developers, and end users—are faced with an array of energy storage technologies from which to choose. By simply comparing these technology options on the upfront cost and nameplate performance parameters, many of the complexities that affect actual cost and performance over the life of a system will be ignored. Further, many of the stakeholders in this sector are under a constant barrage of media coverage about lower battery cell and or pack storage technology costs. The storage technology represents only a portion of the all-in installed capital cost associated with the hardware, software, and services required to develop, finance, and install a BESS.

Energy Storage Value Chain

(Source: Navigant Research)

Key Factors That Fuel a TCO Analysis

A proper turnkey financial TCO analysis should look at the total cost of operation for power, known as normalized TCO (expressed in $/kW), and energy, known as the levelized cost of storage (or LCOS, expressed in $/kWh). Such an analysis evaluates the factors that affect several different battery selection and deployment scenarios. This approach reveals how extended lifetime and other performance factors can reduce the ultimate costs that BESS owners would pay over the life of the system.

The required inputs incorporate several parameters that affect the construction and operating costs and revenue aspects of energy storage systems (ESSs). Some examples are summarized below.

(Source: Navigant Research)

Standardizing the Approach to Quantifying TCO

Navigant Consulting has developed a TCO model that combines detailed asset financing with technology-specific and application-specific performance considerations to evaluate normalized TCO and LCOS. The model leverages insights into ESS capital costs routinely gathered by the energy storage team here at Navigant Research.

I anticipate the continued growth and refinement of these analysis techniques as distributed energy storage markets mature. Such growth will enable developers to employ new business models to better quantify the flexible benefits of storage. This type of approach eliminates the “cheapest first cost is best” hurdle. And as that hurdle is overcome, the sector will see new business models with improved revenue prediction capabilities. As I’ve highlighted, these de-risked, predictable revenue streams will feed the growth financing innovation that will drive the deployment of stationary energy storage technology.

 

Distributed Energy Storage Deployments Driven by Financing Innovation, Part 2

— February 13, 2017

As highlighted in the previous post in this two-part series, the development of standardized power purchase agreement contracts by the National Renewable Energy Lab’s Solar Access to Public Capital Working Group has contributed to the continued growth of at-scale solar PV financing. Building on those solar PV standardization successes, Navigant Research is witnessing the development of new energy storage business models and financing instruments driven in part by contractual standardization. Navigant Research recently explored these new energy storage financing instruments in a recent research brief, Financing Advanced Batteries in Stationary Energy Storage.

A second type of standardized contract has emerged to help finance behind-the-meter distributed battery energy storage systems (BESSs). This new standardized contract focuses on aggregating BESS assets across multiple sites as a virtual power plant (VPP) to reduce energy demand.

Demand Response Energy Services Agreements

A demand response energy services agreement (DRESA) is typically executed with a local utility responsible for managing load on the distribution system by means of VPP technology. In this case, the utility compensates a third-party VPP owner for system availability (capacity) and actual DR energy storage services provided (performance). With a DRESA, the local utility can utilize the VPP for a defined duration for grid DR. But in most cases, the energy storage system owner or operator also promises to provide demand charge costs savings to hosts by means of a demand charge savings agreement (DCSA).

Advantages and Challenges for DRESAs

Key advantages of financing distributed BESS VPPs using a DRESA include:

  • The ability to deploy reliable DR assets in local power markets without upfront capital expenditures by either the local utility or the commercial and industrial (C&I) host facility
  • The ability for utilities to deploy reliable DR assets to optimize the local distribution system without the need to own and operate new storage assets

Key challenges facing the financing of BESS VPPs using a DRESA include:

  • The ability of BESS VPP software platforms to evaluate historical building load profiles and site-specific tariff requirements across large portfolios of C&I host sites to predict VPP deployment scenarios and project revenue.
  • The hardware/software complexity involved with integrating building load, onsite distributed generation, and building control across large portfolios of C&I host sites into VPP deployment strategies.

Standardized Approach to Quantifying Complexity, Risks, and Revenue

One can only imagine the complexity required to be addressed in these types of standardized agreements and technology deployment scenarios. For example, for a DRESA VPP application, the highest value will often be for the energy storage software system to leverage automated DR building efficiency technology to aid in reducing building load. Quite simply, installing and deploying this technology with some degree of battery energy storage capability will likely have a lower overall installed cost than deploying only larger batteries and inverters to do all the work.

Navigant Research can point to two examples where these issues have been sufficiently addressed, resulting in BESS VPP financing commitments:

As referenced in the previous post in this blog series, Navigant Research anticipates that standardized contracts such as DCSA and DRESAs will lead to the kind of financing innovation necessary to drive the deployment of distributed energy storage technology.

 

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