Resurrection of residential energy storage
The desire to have residential energy storage is not new and some products have been available in the past. In the US, barely any of the companies offering residential storage products before 2010—mostly lead acid batteries—survived the harsh market realities beyond selling a limited number of prototypes and demonstration units. Behind-the-meter storage at the commercial level has been a little more successful in the market. This success is going to be shared by the smaller residential units now. I believe we will witness a turnaround in the residential and small commercial storage market now for many reasons and factors that I will explain in this article. As shown in Figure 1—besides the fact that battery cost has come down over the last decade and will continue to do so—there are factors and drivers that are making residential and behind-the-meter storage options economically viable today.
The first and foremost factor is the availability of low cost solar energy, which is helping the justification of add-on storage. Solar energy, in many parts of the world, has already reached grid price parity, and this trend will continue to increase to the extent that the Rocky Mountain Institute calls it “grid defection” in its recent report. In many parts of the world, including Germany, it could be more economical for utility customers to “self-consume” their solar energy, rather than sell it back to the utility. This issue has been attractive enough to the Tesla’s CEO, Elon Musk, to dedicate 15 GW of his yet-to-be-built 50 GW li-ion GigaFactory to this type of stationary application in collaboration with Solar city. In Hawaii, the rooftop solar disruptions is forcing the Hawaiian Electric to install and centrally control a chain of small behind-the-meter storage units supplied by Stem.
The second factor that is helping behind-the-meter, and especially residential storage, is the escalating sales of the electric vehicle (EV), and its impact on the battery industry. According to the Electric Drive Transportation Association (EDTA) the total number of plug-in vehicles on the road in the US almost doubled between July 2013 and July 2014. If this trend continues, the number of plug-in electric cars would almost double each year until it reaches its saturation level. A similar growth in acceptance of rechargeable electric cars has been noticed in Europe over the last year. It should be noted that the amount of battery (GWh) sold in electric transportation is far larger than what is being sold to the electric grid. For example, in 2013 alone 97,000 plug-ins were sold in the US. If we assume a conservative average of 22kWh battery in each car, that would be over 2.0 GWh of battery in one year—and just in the US. It is no surprise that, due to the large synergy between the size and requirements of a car battery and residential storage (cost, compactness, and safety), the EV industry will start to dictate the nature of the storage technology that will end up to be in houses and, by extension, in some other larger stationary applications. The above mentioned Tesla article, which discusses how the company is dedicating 30% of its EV battery factory to residential storage, is just an indication of this inevitable market force. A recent UBS report also concludes that solar, batteries, and electric cars—all behind-the-meter—will re-shape the electricity system and leave many utilities at high risk.
The third factor that helps the economics of behind-the-meter storage is the availability of the communications and controls technologies which are needed to do an effective aggregation of these broadly distributed resources. In fact, most suppliers of behind-the-meter PV or storage offer or finance their product as part of an aggregated system package. SolarCity, Green Charge Networks, Sunverge, and Coda Energy are just a few in the US, and there are many more globally. While this appears to be a technical driver, its real impact is indeed on the economic side. The cost of energy storage to system aggregators is far less than what it would be to an individual owner at retail. On the other hand, aggregation of small kW-scale storage units into MW-scale storage opens up a wider access to the energy market and other use cases with higher values. Therefore, aggregation, through improved communications and controls, is helping the economics of energy storage on both sides of the cost-value balance.
The fourth factor boosting the use of behind-the-meter storage is emergence of regulations, allowing direct participation of behind-the-meter storage units in the market. This is critical in raising the total value of energy storage to help its business case. This higher value is achieved by using the distributed storage to collectively dispatch power to the grid to serve the grid needs in addition to serving the local needs where the storage is located. Smart algorithms are used to make sure both local and grid needs are served without interfering with each other.
This approach of aggregating broadly distributed storage into an effectively or functionally larger storage for delivering more value is going to be a dominant trend. The shortest phrase I can use to explain this phenomenon is the oxymoron term “distributed bulk” storage, because it is distributed and bulk at the same time—distributed in appearance (multiple kW scale units) and bulk in function (MW scale). Regardless of what term we use to explain aggregation of broadly distributed storage units, there is a key issue of reliability. It could make or break this market.
Reliability of Aggregated small Storage Units
The broadly distributed storage behind-the-meter is happening now, and will grow significantly over the next several years in different parts of the world. It will be used in aggregation as “distributed bulk” storage to maximize its value. If reliability was confined to the availability of storage units (hardware) or total kWh available, then using a larger number of distributed storage units would be more reliable than using a single large storage unit, due to inherent redundancy. However, experience has shown that most of the failures in the storage units installed in the field could be traced back to their power electronics and controls not just the battery. Aggregation of a large number of small storage units located at different geographical locations, by nature, requires a more complicated control scheme than running one large storage unit especially when a variety of different local values of the energy storage (to different home owners) need to be balanced against the aggregated value. So, storage aggregations may improve reliability on the “hardware” side, but could increase the risk on the “software” side. In a rapidly growing but fragile market like energy storage, I cannot stress enough the significance of adequate testing of storage hardware, and especially its software in a “hybrid acceptance test” before pushing a product to the market.
Impact of residential storage on utilities and their Options
For simplicity, let’s use the term “utility” in a generic sense here as in different parts of the world people use a variety of terms for energy providers ranging from the traditional vertically integrated to individual generation utility, transmission utility, distribution utility, independent system operators, independent power producer, etc. and each has its own regulatory set of rules to work with. So, here we use “utility” to mean supplier of electric energy regardless of its size, business structure or what it may be called at different parts of the world.
As discussed in my earlier article—Who is at Risk with the fast Expansion of Distributed Resources?— deployment of PV on the customer side of meters is continuing at an astronomical rate, and almost doubling each year in the US. The global growth rate is not much slower. There is no doubt that this will be a disruptive change in the utility’s energy business in the coming years, but whether it will be a threat or opportunity depends on the utility.
The occurrence of grid price parity for PV depends on the actual utility, its fuel cost and other expenses. Even if a utility rate is high enough to encourage residential and commercial customers to leave the grid, the impact of such a departure on the utility business is not universal and depends on whether they can prevent or cope with it. As described in the above mentioned UBS article, large central power plants that are too big to cope and too inflexible, will be the most impacted, and most likely will not be replaced after their retirements. On the other hand, owners and operators of smaller and distributed generation can better cope with disruption of customer load. Utilities with distributed or decentralized assets would be in a better position to work with their customers to either prevent or minimize the impact of their departure. In General, as shown in Figure 2, customer departure will have the most negative business impact on utilities with mostly central assets, limited distribution assets, and high electric rates.
The simplest and least expensive preemptive move for utilities is to help customers reduce their electric bills with a variety of energy efficiency and load management programs. Many utilities that can do such programs are already doing that but this approach has its own limitations and cannot stop all customers from seeking their own generation. The next step is to offer a service to manage the behind-the-meter PV and storage assets. Alternatively, utilities may “own” the assets or the right to aggregate and control them to serve the utility needs with the Distributed Bulk PV and storage. In cases where customers have the PV but not storage, utilities can de-incentivize the customers to obtain their own individual storage by offering them a form of Community Energy Storage (CES) at their doorstep. There are so many ways that a utility, depending on its business structure and regulatory environment, can help prevent or minimize the impact of customer loss to PV and storage. These solutions, however, cannot be generalized much beyond the above statements and need to be devised and designed for each utility, customer and the specific incentives that are driving the customer to leave the grid.
The bottom line is that some utilities, one way or another, will survive as they are needed to run the backbone of the future smart energy systems and cities. As far as what utilities survive to serve the future customers is a matter of specific variables, as well as what their managements decide to do today.