Lately, there’s been quite a bit of talk about energy storage price points. This is partly due to the fact that the operating histories of deployed battery energy storage systems (BESSs) are now eliminating concerns about whether batteries can safely and reliable perform in grid-connected energy storage applications. While it’s true that BESS costs continue to come down, this factor is just one piece of the energy storage market development puzzle. Navigant Research’s upcoming Advanced Batteries for Utility-Scale Energy Storage report provides further insights on advanced batteries and related grid energy storage markets—stay tuned for its release in the next few weeks.
Rise of the BESS Value Chain
Navigant Research sees the maturation of battery energy storage delivery chains as another key driver in the growth of energy storage system (ESS) markets. While these projects differ by application (such as whether the project is a grid-scale application or a distributed behind-the-meter system at a utility customer’s property), four key components must come together to deliver the benefits of energy storage. These four components include battery energy storage technology, power conversion equipment, software and controls, and system integration services. These critical value chain issues have been addressed in Navigant Research’s Energy Storage Enabling Technologies report and our recent Navigant Research Leaderboard Reports covering lithium ion grid storage and ESS integrators.
Just addressing the technical BESS value chain issues is not enough to solve the puzzle. Navigant Research sees two other key issues underpinning the development of financially viable projects in ESS markets. First, states and grid operators need to continue to create power market rules and regulations that drive revenue models that will enable ESSs to deliver their unique benefits. Second, as these regulatory factors and revenue models develop, project developers, asset owners, and financiers need to leverage them in a way that creates new business models resulting in bankable ESS projects. One new business model that is garnering a great deal of attention stands at the heart of the unique advantage that battery ESSs have: the ability to provide energy storage services for more than one power market or customer application. Using this approach (called revenue stacking), a single energy storage asset can monetize multiple revenue streams to deliver value and improve the return on investment for the asset owner.
One such signature ESS project will be the focus of a Navigant Research webinar on December 15. S&C Electric and LG Chem have partnered with an Ohio municipal power provider on a signature project that will sell into PJM’s frequency regulation market to improve grid reliability, integrate a 4.2 MW solar system into the municipality’s service area, improve local power quality, and reduce peak demand to help the municipality avoid costly PJM peak electricity pricing spikes. Navigant Research firmly believes that this is exactly the type of project that will drive the rise of ESS markets by enabling innovative project finance equity and debt participation by those who are increasingly anxious to invest in grid-connected energy storage assets.