Image credit: Todor Tsvetkov

Multiple uses make behind-the-meter batteries cost effective

Battery economics in behind-the-meter storage in the US can be improved greatly if batteries are deployed to deliver multiple, stacked services rather than single applications, according to a new report by the Rocky Mountain Institute (RMI). With appropriate valuation of those services, such battery business models can also provide net economic benefit to the battery owner/operator.

Batteries are usually deployed for single, primary uses to a single customer – such as demand charge reduction in California or frequency regulation in PJM’s wholesale electricity market. These single use cases are typically compared against the relative cost of a battery, which sells batteries short because they might only be used for 1-50% of their useful life.

For example, distribution deferral typically demands only 1% of the battery’s useful life while demand charge reduction represents a 5–50% utilization rate, the report says.

A battery could be dispatched to deliver a bundle of other services to other stakeholders for the other 50–99% of its useful life and get paid to do so, thus dramatically changing the economics of energy storage, according to the RMI study (see graph below).

Batteries can deliver 13 services to the electricity system at large when placed behind the meters of residential, commercial or industrial customers, according to the RMI. Source: The Economics of Battery Energy Storage, Rocky Mountain Institute.

One case highlighted in the report compares the value generated by a battery deployed behind the meter at a hotel in San Francisco for a single use (demand charge reduction) and for multiple applications (resource adequacy for the utility and a suite of wholesale electricity services) (see graph below).

When the battery is deployed for a single use, it doesn’t pay off (the orange portion of the revenue stack is smaller than the black cost stack in the bar chart), but when several other services are added on top of demand charge reduction, the economics flip in favor of energy storage.

Source: The Economics of Battery Energy Storage, Rocky Mountain Institute.

However, the study’s modelling assumes no regulatory barriers to aggregated, behind-the-meter market participation or revenue generation. While the economics looks promising, current regulations must evolve to allow batteries deployed behind the meter to deliver and get paid for multiple services.

German large-scale storage could pay off in just over 5 years

The payback period for large-scale energy storage in Germany could be just over five years, according to Volker Wachenfeld, SMA Solar Technology’s senior vice-president for hybrid and energy storage integration, and Dr. Alexsandra Sasa Bukvic-Schaefer, senior expert in the same division.

In the current primary reserve market in Germany, using batteries to supply operating reserve to the grid could bring annual income of approximately €130,000 ($145,000) to €150,000 for each megawatt of installed power. At the same time, the battery storage system is expected to cost less than €800,000 ($889,000) per megawatt to install. This means that the investment could pay back in about 5-6 years.

According to Wachenfeld and Bukvic-Schaefer, a conventional power plant could be operated much more efficiently when combined with a battery storage system, with the additional income from the sale of surplus power generation helping refinance the battery storage system.

However, the experts warn that the European market for primary operating reserve is still too small to make this a long-term opportunity – about 3 GW in total, 600 MW of which in Germany. If all of the virtual power plants from household storage systems joined this market in the future, there could soon be a price war that impacts market development in the long run, the experts said.

VC funding for energy storage falls in Q3

Battery and other storage companies received $96 million in VC funding in nine deals in Q3 2015, down from $126 million in 13 deals in Q2 2015, according to new data released by Mercom Capital on Oct. 19.

At the same time, battery/storage companies have raised $290 million so far in 2015, compared to $383 million during the same period in 2014.

VC funding for energy storage varies significantly from quarter to quarter. Source: Energy Storage Update (using Mercom Capital data).

The top deals in Q3 included Stem, which secured $33 million from RWE Supply & Trading; and Primus Power, a provider of zinc flow battery technology for grid-scale energy storage solutions, which raised $25 million from Russia-Kazakhstan I2BF Global Ventures, as well as existing investors Anglo American Platinum, Chrysalix Energy Venture Capital and DBL Partners.

Meanwhile, Greensmith Energy Management Systems – a provider of software and control solutions – raised $12.3 million from utility American Electric Power, and Advanced MicroGrid Solutions raised $10 million from DBL Partners, Engie (formerly GDF Suez), as well as from individuals including former California Governor Arnold Schwarzenegger.

Closing out the top 5 was SolidEnergy, a manufacturer of lithium-ion batteries for electric vehicles, smartphones and drones, which raised $6.6 million.

Top 5 VC funded-companies in Q3 2015. Source: Mercom Capital Group.

Mercom’s “VC funding” estimates typically reflect venture capital, private equity and corporate venture capital deals, as well as other types of organizations that invest in VC rounds.