How Retail Customers Can Benefit from Energy Storage

by | May 6, 2015

On April 30, Tesla CEO Elon Musk issued a ballyhooed announcement that the company will sell two battery storage systems that he believes will disrupt the energy industry. These systems, whether they run on distributed solar photovoltaic systems or are fed directly from the grid, can provide backup power that will help integrate variable solar and wind power resources into the grid. Tesla’s two energy storage products are, according to CNET:

  • Powerpack – a 100-kWh module targeted to industrial customers for $25,000.
  • Powerwall – a module that comes in 7-kWh and 10-kWh sizes and will retail at $3,000 for the smaller size and $3,500 for the larger size.

The idea is that, during periods of low demand, power comes from baseload resources, which tend to run very efficiently. During periods of high demand, less-efficient power plants enter the generation mix, which drives up hourly power prices. In theory, customers that own battery storage can “arbitrage energy” by charging their batteries during periods of low demand when energy is cheap (nights and weekends) and selling power back to the grid during periods of high demand when energy is expensive (weekdays).

Tesla is not the first to enter this market, but Bloomberg reported that Tesla partner SolarCity believes Powerwall costs 60 percent less than competing products.

Time-of-Use Pricing

Customers who want to install battery storage systems can participate in time-of-use (TOU) pricing plans in order to benefit from the discrepancy between peak and off-peak demand. Many large commercial and industrial customers are already on TOU plans, whereas most residential and small commercial customers are on plans that offer the same price for power consumed during peak versus off-peak hours. Energy managers who want to consider energy storage to offset their on-site consumption or sell power back to the grid during peak hours need to find retail or utility plans that allow this type of pricing.

In March, Retail Energy Buyer posted an article on Time-Varying Pricing that provides more detail on TOU and other plans that account for time-based price considerations.

Regulatory and Technical Barriers

Customers who want to leverage energy storage systems will also need to figure out how to operate the systems from a technical perspective and how to optimize their dispatch from an economic perspective. Regulatory factors are also important to consider. Some electricity markets require anyone that sells energy to the grid on an hourly basis to become a licensed energy seller.

Futhermore, there are technical considerations about how to optimize battery use. Customers need energy management software and peripherals to help dispatch the stored energy. A company called Green Charge, among others, offers a software solution to help optimize this process.

The Electric Power Research Institute developed a comprehensive analysis of The Cost Effectiveness of Energy Storage in California. This paper is focused on large-scale projects and assumes that projects can benefit not only from energy sales revenues but by providing “ancillary” and “capacity” services to support grid operation. Whether customer-sited projects can provide these services will depend on regulatory developments, battery operation capabilities, and optimization software.

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