Navigant Research Blog

Can California Wield Energy Storage to Grid’s Advantage?

— July 25, 2017

The California Public Utilities Commission has proposed a ruling that could require thousands of energy storage projects to be more responsive to the dynamic grid as the state continues to grapple with integrating intermittent renewables. The ruling would apply to projects funded by the Self-Generation Incentive Program (SGIP), which underwent a major overhaul this year in a bid to grow energy storage.

In the theme of continual refinement, the ruling proposes to improve projects’ grid support, one of the three key policy goals of SGIP. It would require systems to operate under dynamic tariffs like critical peak pricing or time of use (TOU) or participate as an aggregated demand response or distributed energy resources (DER) product that is bid into the California Independent System Operator’s (CAISO’s) wholesale markets. The goal is to make DER more reactive to real-time changes on the electric grid. The effect on the California’s storage market could be significant, with SGIP likely supporting most of the state’s gigawatt-sized industry through 2020.

Industry Weighs In

The ruling requested comments from all interested parties. Utilities, vendors, and others have weighed in, revealing some key themes:

  • Storage revenue predictability impacts: Many storage deployments primarily monetize by demand charge management, a practice that could become more complex under the new rules. As storage revenue streams continue to be a moving target, this ruling could add complexity to vendors attempting to reliably model the profitability of their projects.
  • Some customers are ineligible: For example, community choice aggregator and direct access customers don’t have access to all the programs and tariffs available to investor-owned utility (IOU) customers. Regarding aggregation in the CAISO market, commentators noted that, while there is a great deal of promise, stakeholder engagement is still in early phases, which could present hurdles to broad adoption.
  • Challenges with existing tariffs: Some expressed concern that existing tariffs and programs may not directly align with SGIP goals. For example, certain TOU customers are guaranteed grandfathered TOU time periods for up to 10 years, which may or may not incentivize battery storage operations to align with SGIP.

New Regulatory Constructs Needed

Many opined that new tariffs or programs are needed to truly get storage systems to align with grid priorities (and carbon emissions mitigation, another of SGIP’s goals). Some predicate their position on whether new TOU rates are rolled out effectively. Others point out that aggregation of storage into virtual power plants may get easier as more DER providers gain approval. And toward the goal of limiting emissions, integrating real-time marginal grid emissions into tariffs would be a major step toward fulfilling SGIPs (and the state’s) carbon emission reduction goals. To that end, companies like the non-profit WattTime are pushing to make such real-time data available, actionable, and ready to implement into tariffs.

The outcome of this ruling remains to be seen, as comments are still being considered. However, one thing is clear: California will continue to push for aggressive integration and aggregation of responsive DER in its quest to develop an advanced and distributed electric grid.

 

Saving the Sun for Later: Opportunities and Barriers for Solar PV plus Energy Storage

— June 22, 2017

At the recent Better Buildings Summit, I had the opportunity to moderate a session with Karen Butterfield of Stem, Ben Myers of Boston Properties, and Jessie Denver with the City of San Francisco to discuss their strategies and experiences related to adopting solar PV plus energy storage. It was a spirited discussion and we received in-depth, informed questions from the audience on feasibility, system costs, lessons learned, and how to make the business case for project deployments.

Lessons Learned

Stem opened the session and provided many great lessons learned from its experience to date:

  • Solar PV plus energy storage can be applied to save energy costs and demand charges, but a concise site- and tariff-specific use case is required to make a project work.
  • Robust software is required to integrate building load, solar PV system performance, and battery deployment scenarios to generate cost savings.
  • Utility partnerships can improve project economics and help make the business case.

Boston Properties highlighted that, as part of its sustainability plan, it has installed solar PV at many of its properties across the United States and has reduced its energy charges. The company is now looking at solar PV plus energy storage to guarantee tariff-specific demand charges as well. While Boston Properties has yet to complete a project, it is in the process of negotiating contracts using a solar PV plus energy storage power purchase agreement with a shared demand charge savings component.

Whereas Boston Properties’ drivers were financial and sustainability, the City of San Francisco’s drivers are resilience and sustainability. The city recently won a US Department of Energy SunShot grant to study the feasibility of installing solar PV plus energy storage at critical facilities to provide power in case of an earthquake or another emergency. San Francisco is currently selecting pilot sites and completing its feasibility analysis. As part of the project, the city and its project partners have created a free online tool to help others assess the feasibility of using solar PV plus energy storage for resilience.

Growth of Distributed Solar PV plus Energy Storage

The topics and session discussion at the Better Buildings Summit highlighted several key issues that Navigant sees as important for the growth of distributed solar PV plus energy storage markets:

  • The ability of energy storage software platforms to forecast energy and demand charge savings for anticipated building load and battery deployment scenarios is critical to the business case for these projects.
  • The multitude of regulations and rate structures affecting both solar and energy storage, and their expected evolutions, will increase the value of project design and operating software by helping lower customer acquisition and development costs.
  • As with standalone energy storage deployments, the predictability of costs savings from these projects will further the development of financing innovation to drive the deployment of these technologies.
  • The value of resilience and resulting business case criteria will differ greatly between solar PV plus energy storage customers. For example, the resilience value of solar PV plus energy storage for commercial office building occupants differs from that for a municipality like the City of San Francisco. Building occupants likely have a business continuity plan to address long-term energy outages at their facilities while the city is charged with critical first responder responsibilities in the event of a disaster or emergency.
 

Batteries Overtake Fuel Cells as California Reopens SGIP

— June 12, 2017

California’s Self-Generation Incentive Program (SGIP) reopened in May after a hiatus that included an overhaul and expansion of the program. Public program data continues to shed light on the competitive distributed energy resources (DER) scene in California as vendors stake their claims. Energy storage, historically a small funding recipient, is now front and center. Stationary fuel cells, historically funded by $0.5 billion in SGIP funds, accounted for zero applications (though the industry forges ahead elsewhere).

The key changes to SGIP are as follows:

  • SGIP reopened on May 1, 2017 with double the previous annual budget—$567 million through 2019.
  • There is a new emphasis on storage, with more than 75% of the budget allocated there. Key reasons for this shift include the need for storage to support intermittent renewables and a shift from carbon-emitting generation.
  • Power generation projects, including small wind and natural gas distributed generation (DG), are allotted less than 25% of total funds—in a category that historically took more than 90% of the $1.25 billion of incentives paid since 2001. Gas DG projects must add at least 10% biogas into the gas mix in 2017, increasing in steps to 100% by 2020.
  • Incentives are awarded across the investor-owned utility territories in 5 steps, with a 20-day minimum waiting period between. If a step is fully subscribed, applicants are entered into a lottery. This lottery was needed for the initial storage steps and allowed all applicants to have a shot at program funds.

A deeper look at the 1,237 applications logged during May serves as a guide to California’s DER space:

  • No fuel cell projects applied in 2017—after nearly half of historical SGIP funds (more than half a billion dollars) were awarded to fuel cell projects. Many stationary fuel cell manufacturers are regrouping around a technology that still has potential.
  • Storage was popular, with step 1 fully subscribed on day one across most utilities: 1,198 of the 1,237 total applications were received on the first day.
  • Generation accounted for just 9 of the 1,237 projects. However, the funds requested for those large projects exceed $6 million, more than 10% of total funds in step 1.
  • Generation’s step 1 was not fully subscribed; it appears the rigid biogas rules are discouraging many potential applicants. This requirement aimed to encourage growth in the biogas industry, but it seems there is insufficient supply or the economics aren’t panning out yet. All four natural gas project applications were based around onsite digester gas rather than directed (offsite) biogas.
  • The program roughly subscribes to the 80/20 rule: 80% of the funds were requested by less than 20% of developers (17 of 117, developers requested 80% of the funds). For equipment providers, there is a favorite: Tesla equipment, presumably all lithium ion batteries, accounts for $29 million, or more than half the applicant funds.

A summary of the leading participants is available at the SGIP website. Note that new data is coming in from step 2, which opened the week of June 5. A historical statistical overview of the program is provided below.

Selected SGIP Statistics

(Source: Center for Sustainable Energy, as of May 8, 2017)

SGIP has had its share of detractors, including claims that it unfairly rewarded certain technologies or companies or overspent ratepayer money. Yet, SGIP’s $1.25 billion in payments have helped cement California’s role as a global DER leader by developing industries that that may be worth much more in the future. In addition, the program has supplied valuable data, including information on capacity factors, efficiency, cost, and other metrics. The understanding of these metrics contributes greatly to the public good and the goal of a transparent and sustainable future.

 

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.

 

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