Navigant Research Blog

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.

 

Automakers Expanding From the Garage to the Home with Energy Storage

— September 1, 2016

Lithium BatteriesAs the residential energy storage industry continues to take shape around the world, the landscape of companies involved is becoming increasingly diverse. While the industry is still in nascent stages, the number of new companies entering the market (and their differing backgrounds) is growing. Companies offering dedicated residential energy storage products include battery pack manufacturers, inverter manufacturers, software providers, solar PV vendors/developers, and automotive manufacturers. With the growing popularity of EVs, it comes as no surprise that automakers are looking to leverage their battery expertise to develop complementary products. These companies are eyeing a piece of the residential storage market expected to be worth $5.4 billion annually by 2025, according to Navigant Research’s Residential Energy Storage report.

In June 2016, after months of speculation, automaker BMW officially announced a residential energy storage product featuring the same batteries used in its i3 vehicles. The company joins several of its competitors that have already repackaged their vehicle batteries into home energy products. Fellow German automaker Daimler already offers Mercedes-branded home battery systems, and Nissan offers a similar product through a partnership with energy technology specialist Eaton. These companies are not alone; EV pioneers Tesla and BYD both have dedicated residential energy storage products and are actively working to expand in this area.

Seeking Advantages

Automakers see several advantages as they enter the increasingly crowded market for residential energy storage systems. Customers looking to purchase or lease EVs may be prime candidates for purchasing residential energy systems. The ability to upsell EV customers to also purchase home battery systems could provide a lucrative sales channel with lower customer acquisition costs than competitors. Additionally, automakers are actively working to position themselves within the emerging vehicle-to-grid space. Both BMW and Nissan have announced vehicle-to-grid pilot projects with power providers Pacific Gas & Electric and Enel, respectively. These programs seek to utilize the available capacity in EV batteries and the flexibility of EV charging to help alleviate congestion and reduce peak demand on the grid.

Furthermore, automakers may have a distinct advantage in the coming years through low-cost access to repurposed EV batteries. Some companies have already capitalized on this resource through partnerships with storage project developers to supply these used batteries at a competitive price. According to analysis in Navigant Research’s Alternative Revenue Models for Advanced Batteries report, “the effective energy capacity available from EV [lithium ion] batteries for second-life stationary energy storage system applications is projected to exceed 1 GWh per year in 2022.”

Across the growing energy storage market, new players are entering and looking to leverage their expertise from a variety of complementary industries. Automakers are not alone in having identified the advantages their existing businesses will provide as they compete in the energy storage market. Solar PV providers, energy service companies, and even utilities are all seeking to leverage their customer base and technical expertise to provide the most attractive and cost-effective solutions in this rapidly evolving market.

 

Residential Solar and Storage Begin to Transform the Grid

— July 6, 2016

Rooftop SolarAs electric grids around the world transition to a more distributed, intelligent, and clean system, markets leading the charge are facing issues that highlight the challenges to come for all.  These early adopter markets, including Hawaii, Australia, California, and Germany, have many similarities, such as relatively expensive electricity and very high levels of distributed solar PV penetration. While numerous studies have looked into the effects that the evolving energy system will have in these locations, a recent study from the Australian Energy Market Operator (AEMO) makes some bold predictions about the impact of residential solar PV and energy storage systems (ESSs) in particular. This year’s is the first AEMO study to take into account both residential energy use and production in estimates of future demand.

A number of factors are converging to drive unprecedented changes to the electricity industry in Australia. The country has some of the highest penetrations of distributed solar PV in the world, with PV systems installed in an estimated 13% of all Australian homes. Additionally, the country is expected to be a leading market for residential energy storage, with 2.4 GW of new capacity forecast to be installed by 2025, according to Navigant Research’s new Residential Energy Storage report.

Changes Ahead

One of the main conclusions from AEMO’s study is that these residential systems can dramatically shift when the grid’s overall peak demand occurs. While traditional peak demand has been on summer days or early in the evening, PV generation will push peak demand later into the evening, after sunset. In fact, the study predicts that the lowest point of net usage may actually become the middle of the day. This transition is already being seen in areas with particularly high PV penetrations, such as South Australia and Queensland. As peak demand is pushed later into the day, the risk of a rapid spike in net load arises as PV generation quickly ramps down in the evening, a demand spike known by many as the duck curve.

These changing demand patterns will bring about a much greater need for system flexibility both from generation sources as well as the demand side. Flexible loads in homes and businesses that can act as solar sponges by absorbing excess PV generation throughout the day will be critical to maintaining system stability and limiting the rapid increase in demand at the end of the day. As discussed in the new Residential Energy Storage report, residential ESSs are an ideal solution to provide the foundation of a home energy management system that maximizes the use of PV energy onsite while also providing a reliable source of ramp control for grid operators.

Exploring Solutions

Australia’s utilities have been working to address these issues and recognize the unique ability of ESSs to solve many of the challenges they face. Electricity providers Ergon Energy and AGL Energy have been actively exploring opportunities to own residential ESSs themselves to ensure the benefits these systems provide are shared between the grid operators and their customers. While these programs offer great potential, and perhaps a glimpse into the future of the electricity system, many questions remain around how the costs for these systems will be allocated and how to maximize the value they provide. Although there are a number of business cases that support distributed ESSs, most focus on only providing a single service. Unlocking the maximum potential will require new levels of collaboration between utilities, regulators, and vendors to capture the complex value streams these systems offer.

 

Utilities Explore Different Approaches to Residential Energy Storage

— 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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