Navigant Research Blog

Emerging Business Models for Energy Storage

Anissa Dehamna — October 13, 2011

Many technology developers and vendors in the energy storage sector, watching government funding gradually decline, are feeling the pressure to commercialize or bust.  That means the next few years will be critical for the storage industry, not only for technology demonstrations, but for the businesses built around these technologies.

This brings to mind the importance of business models and risk within the energy storage market.  From my perspective, one of the most important indicators of development of the energy storage market is diversity of business models present in the market.

Energy storage improves the efficiency of the grid at every level.  As a result it is easy to think that the obvious customers for energy storage technology are electric utilities.  Unfortunately, many utilities simply are not interested in undertaking the technological risk of implementing these new technologies.  Nor should they; the mandate of utilities is to provide reliable, cost-effective electricity, not leverage demonstration-stage technologies.  But utilities are not the only ones who are gun-shy: many investors (banks, venture capital, private equity) are not comfortable taking on the technological risk, regulatory risk (often an issue with energy storage for the grid), and financial risk of energy storage projects.

That said, how should the energy storage industry target both end-users and financiers to deliver value and mitigate risk?  Two interesting ideas came out of last month’s Energy Storage Summit, in Houston.  One was put forth by AES Energy Storage, a company with a successful track record integrating energy storage and delivering energy storage services.  If utilities are not well-suited to buy energy storage technology, then why keep trying to sell to them?  Instead, try selling to independent power producers (IPPs), taking a page out of the playbook of the solar and wind industries.

A second idea that resonated was raised in Northeast Utilities’ presentation on using bulk storage to maximize a transmission resource: why not bundle the transmission infrastructure (often purpose-built to a remote site) for a wind installation as well as the energy storage installation together into a single power purchase agreement (PPA)?  This way, the PPA covers the full cost of delivery of wind energy to a load center, maximizes the transmission infrastructure, and increases the output of the wind farm.

Undoubtedly, more and more innovative business models (and ways to manage the risk of energy storage for the grid) will continue to develop over time.  As they do, I expect that the market, and investors in particular, will respond with investment.

2 Responses to “Emerging Business Models for Energy Storage”

  1. SAM KELLY says:

    I agree that energy intermittent energy producers would be better customers for energy storage, in particular where the storage system could replace the inverter in addition to storing energy.

  2. Todd Eisenbud says:

    The current low price for gas, reduced demand for electricity due to the economy, high capital costs and the lack of market mechanisms to properly compensate energy storage power producer make it difficult for energy storage power producers to come online, even coupled with wind. All of that will change. Gas prices and demand constantly changes, capital costs for energy storage plants is coming down and market mechanisms are slowly evolving.
    As more and more intermittent sources of energy come online, the need for grid-scale energy storage increases. This alone should drive the development of the innovative business models and regulation needed to spur the growth of grid-scale energy storage.

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