Navigant Research Blog

The Battle for the End Consumer: Residential PV and Battery Business Model Innovations in Germany

— June 29, 2017

While solar capacity additions in Germany have collapsed in recent years, the range of innovative residential energy solutions based on solar PV and batteries has blossomed. In recent months, battery OEM SonnenBatterie has introduced a free refills battery solution, while E.ON has introduced a batteryless electricity storage service.

The VPP Approach with SonnenBatterie

Sonnen’s solution, called sonnenFlat, allows the buyer of a Sonnen battery to opt in to sonnenCommunity. This is an independent virtual power plant (VPP) consisting of Sonnen battery owners and Enerix solar systems. The solar and battery assets are optimized to reduce the need to buy electricity from Germany’s wholesale market and to enable participation in Germany’s ancillary services markets.

A residential battery owner joining sonnenCommunity receives a €1,875 ($2,100) discount off the battery price. If purchased together with a PV system, they also get up to 6,750 kWh of free grid electricity on top of the electricity generated by the PV system. This is the approximate number for customers that bought a residential system with 9.5 kWp of PV and a 10 kWh battery, which cost around €27,200 ($ 30,500).

E.ON Envisions a Battery-Free Home

E.ON’s solution seeks to eliminate the battery altogether—at least in the customer’s home. The SolarCloud service offers to store the electricity generated by the customer’s PV system virtually in the grid and return it when needed by the customer (at night or on cloudy days, for example). E.ON charges a €21.99 ($24.60) monthly fee for this service (for a 4 kWp installation). If this service sounds familiar to US readers, that’s because it is net metering—but at a cost.

In essence, Sonnen is offering free electricity with its hardware and E.ON is offering free (virtual) hardware for a flat fee. Both aim to help their customers to reach 100% solar self-consumption (on a net basis).

The Battle for the End Consumer

Although E.ON and Sonnen are very different types of companies, nowadays they are battling each other for the long-term ownership of the customer relationship. From its background as a traditional power utility, E.ON knows that any customer who installs a PV plus battery system at home is a lost customer for at least 10 years (the lifetime of residential batteries). E.ON is therefore willing to use its energy trading capabilities to create a product that replicates what a battery offers.

Sonnen approaches the issue from a different direction. It knows that battery technology is being commoditized and therefore it cannot compete in the long term against utility players without monetizing the services its batteries can provide to other energy users and the grid. Hence, Sonnen has had to become a virtual utility to sell its hardware.

Regulation Matters

This sort of competition between traditional utilities and newcomers is something we expect to witness more and more as the Energy Cloud evolves. It is also important to highlight the key role of Germany’s energy market regulation in allowing this type of innovation. The German market was unbundled years ago with short intraday call auction times (15 minutes). It allows aggregators to participate in the market—and importantly, there is no capacity market. This allows companies like Sonnen to offer free electricity to their customers, which is paid for by trading the customer assets in the wholesale and ancillary services markets.

 

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.

 

Energy Storage Access Issues for Low Income Customers

— June 1, 2017

The total cost of ownership of distributed battery energy storage systems (BESSs) has gone down significantly in the past several years. Given the anticipated continuance of this trend and the emergence of energy storage financing asset classes, Navigant Research expects the global market for residential Li-ion BESSs to reach $310.70 per kWh and commercial and industrial (C&I) Li-ion BESSs to reach $413.90 per kWh by 2026. The drivers behind the growth of this market will encourage the adoption of new technologies like rooftop solar PV + energy storage as well. However, the deployment of these technologies is often inaccessible to many low income customers who perhaps would benefit the greatest from the environmental and economic advantages of storage. Key barriers to the deployment of energy storage that low income households face include:

  • Lack of upfront capital resources
  • Limited appetite for tax credits
  • Poor housing conditions
  • Financing barriers

Energy Storage Providers Face Challenges in Serving Low Income Customers

The need and business case for low income customers for energy storage and other distributed energy resources (DER) is dependent on several factors (e.g., geographic location, housing type, regulatory structures, local electricity prices, and reliability needs). Historically, DER technology companies target suburban, middle- and upper-class customers partly because of favorable capital resource availability and financing credit scores. However, project developers are now focused on expanding their markets and are looking to develop the customer marketing and engagement strategies required to succeed in serving all their customers, particularly their low income contingent.

Community energy storage (CES) is an emerging new model for low income neighborhoods to overcome these hurdles while also lowering customer utility bills, reducing harmful emissions, and strengthening resilience in the face of potential grid disruptions. CES can meet customer needs and overcome barriers by:

  • Allowing co-ownership of energy storage assets through a utility-based customer subscription and cooperative financing structure, which shields project developers from the individual customer financial risks associated with typical project ownership.
  • Aggregating low income households across a diverse, regional customer base to enable larger, more cost-effective projects.
  • Providing subsidized loans, which gives low income customers the opportunity to prepay CES subscription costs at low interest rates.

Restrictions and Possibilities of CES

CES, like community solar, is an issue not only for low income customers, but also for those who do not own a house or have the correct building orientation (roof integrity, adequate room for battery, etc.). Both community solar and community storage vendors are working to educate building owners who rent to tenants to show the many benefits that having community assets could provide to its residents. Flexible ownership structures would help address the social justice of community solar and/or energy storage.

California’s proposed Senate Bill 700 (SB 700), known as the Energy Storage Initiative (ESI), is an example of how to properly incent the development of CES in low income markets. If passed, SB 700 would require the California Public Utilities Commission (CPUC) to establish an ESI to pair with its support of distributed solar generation, effectively creating an incentive program for solar customers to add storage to their systems. Additionally, SB 700 would require up to 25% of the money utilities collect from this initiative to be applied to the deployment of ESSs in low income neighborhoods and housing, along with programs to encourage job training and employment opportunities in the local community. If the bill passes, current ESSs that are eligible for rebates under the Self-Generation Incentive Program (SGIP) would be transferred to the ESI program.

Overcoming Barriers to Provide More Affordable Clean Energy

Barriers to accessing affordable clean energy are rooted in broader systemic issues that low income customers face, like lack of quality housing, education, employment, and healthcare. Community ownership of renewable assets can serve as recurring and long-term sources of revenue for residents. Proactive innovation will help ensure that low income homeowners and renters are not isolated from renewable energy technologies and their benefits.

 

Three Innovative Energy Storage Projects Announced in 1Q 2017

— April 7, 2017

The energy storage industry is heating up in 2017 because of several new projects. Navigant Research’s Energy Storage Tracker 1Q17 report provides a comprehensive list of global energy storage projects and identifies new and emerging market leaders in the industry. This blog discusses some of the most notable new projects that show how these systems don’t necessarily provide just one type of service. Energy storage systems can come in several different flavors and provide multiple benefits.  

ENGIE Deutschland Kraftwerksgruppe Pfreimd Storage Plant

ENGIE Deutschland currently owns and operates a pumped hydro station in Kraftwerksgruppe Pfreimd, Germany, but the company sought to profit more effectively from the load leveling and peak shifting market. To do so, ENGIE awarded a contract to Siemens AG to install its SEISTORAGE Li-ion battery technology, power electronics, and battery management system. Rated at 12.5 MW and over 13 MWh, the battery system works in conjunction with existing pumped hydro resources and will enable the plant to provide all levels of reserve capacity—from short duration frequency regulation services to long duration bulk storage. ENGIE believes that this hybrid energy storage system illuminates the vision of its future energy storage business predicated on how to balance the volatility of renewable energy generation while providing multiple grid services. This project is set to come online in late 2017.

Vattenfall Wind Farm Battery Energy Storage System Installation

State-owned Swedish utility Vattenfall plans to install up to 1,000 Li-ion batteries to address the intermittency issues of several of its wind farms. The batteries, supplied by automaker BMW Group, are the same as the batteries used in the BMW i3 electric car, effectively providing an additional revenue stream for BMW’s existing business. Vattenfall plans to build the first a battery energy storage system (rated at 3.2 MW) at its Princess Alexia wind farm near Amsterdam. A larger 22 MW installation will be constructed at the company’s Pyn y Cymoedd wind farm in South Wales on a later date. This project is a part of National Grid’s Enhanced Frequency Response (EFR) tender issued in 2016. 

E.ON Texas Waves Wind Farm Installation

Multinational energy company E.ON looks to become one of the premier industrial energy storage businesses in the world. E.ON recently announced it will colocate short duration energy storage systems at its Pyron and Inadale wind farms in the western part of Texas. Dubbed Texas Waves, the project will collectively utilize 18.8 MW of Li-ion battery technology from Samsung SDI. The system will provide multiple ancillary services to the Electric Reliability Council of Texas market, namely wind ramping and smoothing, load leveling, and Volt/VAR support. Energy storage software provider Greensmith will provide the battery management system to each of the installations to help ensure the stacked revenue streams of the system.

The Improving Landscape of Energy Storage

Storage is shifting to become an essential component of new energy systems to ensure projects can reach maximum profitability. To match this growing popularity, companies like Tesla and Alevo are expanding internal resources to ensure they have the best and brightest minds to capitalize on new technology and opportunity in the market. Overall, the global energy storage industry is poised to continue growing quickly over the next several years. Energy storage industry stakeholders should explore new and seemingly unconventional methods to become involved in new projects. Doing so could help develop untapped markets, create new technology, and spur innovation in the industry for years to come.

 

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