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Utilities Explore Different Approaches to Residential Energy Storage

Alex Eller — August 31, 2015

Residential energy storage systems are anticipated to see exponential growth over the coming decade. The capacity of annual installations worldwide is expected to grow from 562 MWh in 2015 to 38,525 MWh in 2024, according to Navigant Research’s report, Community, Residential, and Commercial Energy Storage. While numerous storage system developers are lining up to begin selling residential batteries, utilities around the world are struggling to determine how to integrate these new distributed energy resources into their networks.

Utilities can receive numerous benefits from residential storage, including deferring investments in distribution grid upgrades and stabilizing circuits with high penetrations of solar PV. Additionally, the use of residential storage in an aggregated virtual power plant configuration helps utilities manage their financial risk by calling on distributed batteries to supply loads at times of peak demand, thus avoiding purchasing costly wholesale energy. Despite these benefits, many utilities are unsure how residential storage can be integrated into their networks. While much uncertainty remains, two major utilities have recently announced pilot projects employing very different business models.

Different Approaches

In August, Australian utility Ergon Energy announced a program with leading vendors SunPower and Sunverge to deploy residential storage systems tied to solar PV (initially in 33 Queensland homes). Through this program, Ergon will own the battery systems located behind the meter in customer homes. The utility claims these 5 kW/12 kWh lithium ion systems paired with a 4.9 kW PV array will supply around 75% of a home’s electricity needs. Participating customers will pay an $89 monthly fee, and Ergon claims they will save at least $200 per year by purchasing much less grid-supplied electricity. This utility-owned approach to residential storage represents one path, while a very different model is being tested across the Pacific.

California utility San Diego Gas & Electric (SDG&E) recently launched a pilot program to encourage homeowners to install residential storage themselves. In contrast to Ergon’s program, SDG&E would like its customers, or third-party vendors, to own the distributed systems. The utility will offer a tiered system of cash incentives and reduced rates that could, when combined with the state’s other incentives, render the storage free to customers. SDG&E envisions a rate that reflects forecasted system and circuit conditions on a day-ahead basis, and through hourly price signals, will incent both charging and discharging activity. Grid operators will then rely on energy stored in these batteries during peak demand, reducing the need to upgrade their equipment, and avoid utilizing more costly conventional generation sources. This approach can greatly improve the overall efficiency of the grid and help address the duck curve issues that arise from the ramping down of distributed solar PV systems during peak demand. A key feature of this model is that outside of peak demand periods, customers can utilize the battery however they want to maximize their consumption of solar energy, reduce demand charges, and ensure they have power during grid outages.

Potential Paths

The economics of both pilot programs will be determined over the next several years and will likely influence other utilities around the world. SDG&E has also proposed a separate pilot project that will deploy utility-owned batteries under its direct control, and it will compare that project’s performance against the tariff-based systems in terms of cost and effectiveness. Key questions for both utilities revolve around opening the residential storage market to additional participants and ensuring optimal benefits for both customers and grid operators. Despite the uncertainty, these pilot programs demonstrate potential paths forward for what is expected to be a massive global industry.

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