Competitive markets are wonderful crucibles of innovation. With decades of accumulated manufacturing experience for use in portable electronics, lithium-ion battery prices have steadily dropped. As a result, larger battery products for electric cars and buses have emerged, making them more affordable and paving the way for grid applications.

The early versions of energy storage systems were relatively small. With declining battery prices, their size and volumes have grown, opening up new markets. A few now store enough energy to manage the variable nature of wind and solar energy over the course of a day. Even larger systems are in planning and development, but progress is still gated by battery costs.

Looking a few years ahead, our scientists at Utopus Insights studied the characteristics of hybrid power plants that combine wind and/or solar power with battery storage.1 While the industry has focused almost exclusively on pairing solar with batteries, we found, to our surprise, that wind pairing offers unique benefits.

With solar pairing, there are many days when it is not possible to meet a target power commitment during peak hours. In most of the cases we studied, wind pairing yields many fewer missed days.

In hindsight, these results make sense. Peak hours typically start when the sun is setting, yet the wind may continue to blow. Thus, solar requires more “lift and shift” because a larger proportion of the energy supplied during peak hours must be provided by discharging storage.

Significantly, we found that for a given battery capacity, combining wind and solar further improves the ability to meet peak demand. Reliability is improved because the two energy sources complement each other temporally.

Just as choosing a judicious mix of stocks and bonds may reduce the volatility of our financial investments, diversifying renewable energy sources and pairing them with the right amount of battery storage is a good way to make sure we have enough energy during peak hours.

The optimal mix of wind and sun depends, of course, on the local climate and timing of peaks.

As a wholly owned energy analytics subsidiary of Vestas Wind Systems, the world’s largest wind turbine manufacturer, the generation forecasting and storage optimization that we are developing will be crucial in enabling such hybrid plants to achieve their maximum value. Hybrid plants can reliably supply electricity during the hours of peak demand, eliminating the need for expensive gas-fired peaker plants. This would be the beginning of the end of fossil-fired electricity production.

One of the biggest criticisms of renewable energy has been its inherently intermittent nature. Solar energy plants don’t produce power at night, and wind turbines don’t produce power without wind, so utilities need fossil-fuel or power plants to keep the grid running. Without a way to store renewable energy, fossil fuel will always be the backbone of the electric grid.

What’s changed in the past few years is that energy storage is suddenly an economical asset to consider as part of the electric grid. If regulators and utilities find ways for energy storage to generate revenue, finance companies will open up their wallets and fund investment. Before long, energy storage could change energy forever.

Solving the revenue problem

Energy storage is starting to make financial sense, which is the only way it will ever be able to reach scale. Utilities see value in energy storage as a way to offset expensive peak generation on high-demand days. For example, in one time of use rate plan in Southern California Edison’s territory (southern California) peak rates during the summer are $0.38 per kW-hr but rates during off-peak hours are just $0.13 per kW-hr. The $0.25 difference can be cost savings for homeowners with a battery by using the battery’s energy during peak hours and charging during off-peak. Depending on the size of the battery, savings could be a few dollars per day for consumers and for utilities it means buying less power from expensive peaker plants, helping lower rates for everyone.

Utilities are also seeing it as a way to reduce transmission and distribution costs, and even put off investment in new power plants. Con Edison is using batteries as part of a plan to defer $1.2 billion in substation investments. And new bids from solar plus energy storage are beating the cost of building new power plants.

Residential and commercial customers are seeing value from a different angle, using energy storage to reduce electricity bills. SunPower (NASDAQ:SPWR), Sunrun (NASDAQ:RUN), and Tesla (NASDAQ:TSLA) are starting to build energy storage systems that reduce on-site electric bills and can even bid capacity into electric grids by creating a virtual power plant. There are different models for consumers, but the time of use rate savings I highlighted above is one option and another is commercial building owners saving on demand charges by batteries lowering their peak electricity usage each month.

There’s now money to be made in energy storage, so if costs are low enough, the investments will make financial sense.

The cost problem

When batteries cost thousands of dollars per megawatt (MW), it was tough to justify their value to the grid because the up-front expense was too high. But costs have fallen nearly 90% in the past decade, according to NextEra Energy (NYSE:NEE), and will be only $8 to $14 per MW-hour by next year, or about a penny per kW-hour. For perspective, the average kW-hour of electricity costs about 13 cents for retail users.

A 4.8MW / 16.4MWh battery energy storage system supporting the local grid of utility Con Edison in Brooklyn, New York, has begun operation through Enel X and global real estate firm Related Companies.

It’s not the biggest battery project so far in the state, which is newly embued with full-on low carbon energy transition policy ambition – the state wants to go use 100% renewable electricity by 2040 – and has an energy storage target of 3GW by 2030 to match.

That accolade currently is held by developer Key Capture Energy’s 20MW lithium-ion system supplied by NEC, which Energy-Storage.news took an in-depth look at back in September. While New York has long been discussed as a region of huge potential for energy storage, the market has been relatively slow to take off for reasons including a need for stringent safety regulations in the state’s many densely populated urban centres.

The 16.4MWh front-of-the-meter (FTM) battery energy storage system (BESS) deployed by Enel’s new energy spin-off Enel X is, however, the largest in New York City so far, Enel X said in a release today. Hosted by Related Companies at one of its properties in East New York, the batteries will help support Con Edison’s grid in times of peak demand. Con Edison said in July that it is seeking 300MW of energy storage of at least four hours duration.

Perhaps the more important ‘bigger picture’ aspect of the BESS’ switch on in Brooklyn, is that it is the latest piece of the feted Brooklyn-Queens Neighbourhood Program (aka Brooklyn-Queens Demand Management Program), which is an initiative designed to use demand response, energy efficiency and related technologies including BESS and virtual power plants via aggregated behind-the-meter (BTM) resources to relieve grid congestion in the area.

Investment in the programme, which since 2016 has also included 13MWh of storage from Green Charge (now ENGIE Storage) could potentially save big money on the need to upgrade transmission and distribution infrastructure. The programme already led to the deployment by Enel X of a solar-plus-storage microgrid at the Marcus Garvey Apartments. Meanwhile, Enel X claimed that the novel lease arrangement between Related Companies, Enel X and Con Edison could be widely replicated to help the state meet its clean energy goals.

As energy storage becomes an increasingly critical element of the modern grid, a wide range of business models are available on the market. Energy storage as a service (ESaaS), in particular, is gaining traction among service providers. Corporate commercial and industrial (C&I) energy and sustainability managers are increasingly seeking cost-effective, customized, and comprehensive energy solutions that guarantee energy use reduction and cost savings without CAPEX or an impact on day-to-day operations.

ESaaS refers to the deployment of an advanced energy storage and energy management system under a fee-for-service, shared savings, or management model other than a direct purchase of the asset by the end customer. The business model was initially developed by Constant Power. This model is being adopted elsewhere to generate steady returns for investors upon completion of a distributed energy storage system (DESS) project. Since energy storage deals were previously avoided by investors due to complexity surrounding cash flow, ESaaS is a promising model that has the potential to attract financing and further grow the industry.

Role of Financing

Project financing is critical for the health, direction, and momentum of the distributed energy storage industry. For many years, the industry has made great progress in developing the technology, standards, public policy, and market rules that form the basis of today’s market. While these factors have led to expanding opportunities for energy storage, the lack of available and cost-effective capital is still a hindrance.

One strategy that firms are employing to assuage the reservations of lenders contemplating the distributed energy storage market is to show the effective adaptation of contracts and financing structures that proved successful in other markets. Specifically, energy savings performance contracts (ESPCs) used widely throughout the energy efficiency market are also well-suited for the C&I energy storage market. C&I customers are exposed to higher and more volatile electricity rates as utilities shift more of the service charge from a commodity basis to a demand basis through rising demand charges.

How Does It Work?

DESSs allow for the targeted reduction of load without affecting the operational profile of a facility. By coupling the ESPC with a DESS to affect the guarantee, both customer and firm can enter into an agreement where greater cost savings from demand charge reductions can be guaranteed. Including the capital cost of the DESS within the contract allows the customer to enter into an operating lease agreement providing guaranteed cost reductions. Many DESS providers are calling this ESaaS, where customers get the benefit of a DESS without having to buy the equipment.

The good news is that the world’s largest fund manager, BlackRock, just closed $1 billion of a record $2.5 billion fund dedicated to solar, wind, and energy storage projects.

BlackRock’s Global Renewable Power III fund has commitments from more than 35 institutional investors in North America, Europe and Asia and “reflects strong investor demand for renewable power assets,” according to a press release.

BlackRock already has one of the world’s largest renewable power portfolios, with $5.5 billion in assets under management, and investments in more than 250 wind and solar projects since 2011.

“As global power generation shifts from two-thirds fossil fuels to two-thirds renewables over the next few decades, renewables are increasingly becoming a standalone allocation for investors and one of the most active sectors in infrastructure;” said David Giordano, global head of BlackRock Renewable Power.

The bad news

The bad news is that the $2.5 billion fund is a tiny fraction of BlackRock’s $6.96 trillion balance sheet and small change compared to BlackRock’s $17.5 billion (and growing) investment in coal.

According to The Global Coal Exit List, “BlackRock is not only the largest investor in companies developing new coal plants, it is also the largest shareholder in oil, gas, and thermal coal reserves.”

The Financial Times quotes Christopher Hohn, founder of the TCI hedge fund, as saying that “major asset managers such as BlackRock have been shown to be full of greenwash.“ The newspaper added that BlackRock “continues to pour money into sectors such as fossil fuels through its mainstream investment products – dominated by passive funds that track indices.”

ImpactAlpha expanded on that: “As a manager of mostly ‘passive’ portfolios pegged to indexes, BlackRock has been loath to divest from fossil fuels and other environmentally destructive industries and only rarely bucks management on shareholder resolutions.”

But other large funds are changing their ways: Japan’s $1.6 trillion Government Pension Investment Fund is potentially shifting up to $50 billion of its fund to add more careful review of the “negative externalities” created by firms in its portfolio.

The Public Utilities Commission of Nevada (PUCN) has approved NV Energy’s Integrated Resource Plan to bring an additional 1,190MW of new solar energy projects.

The new projects will provide energy enough to power 230,000 homes – and an additional 590MW of energy storage capacity.

The three projects will be located in southern Nevada and are expected to be completed and serving customers by 1 January 2024. With the addition of these new projects, NV Energy will also meet the commitment made to customers last year to double its renewable energy.

The three new projects are:

• Arrow Canyon Solar Project – 200MW solar photovoltaic project with a 75MW – 5-hour battery storage system. The project will be located in Clark County, NV, 20 miles northeast of Las Vegas on the Moapa Band of Paiutes Indian Reservation. It is being developed by EDF Renewables North America, a market-leading independent power producer and service provider with over 30 years of expertise in renewable energy. EDF Renewables’ North American portfolio consists of 16 gigawatts of developed projects and 10 gigawatts under service contracts.
• Southern Bighorn Solar & Storage Center – 300MW solar array that includes a 135MW-4 hour Li-on battery energy storage system. The project will be built in Clark County, NV on the Moapa River Indian Reservation about 30 miles north of Las Vegas. It is being developed by 8minute Solar Energy, the largest independent developer of solar PV and storage projects in the United States, with over 15GW of solar and storage under development in California, the Southwest, Texas, and the Southeast, with more than 2GW of solar power plants now in operation.
• Gemini Solar + Battery Storage Project – 690MW solar photovoltaic array coupled with a 380MW AC battery storage system. The project will be located in Clark County, NV 25 miles northeast of Las Vegas on approximately 7,100 acres of federally-owned land under the management of the Bureau of Land Management. It is being developed by Quinbrook Infrastructure Partners in collaboration with Arevia Power, who are managing the development phases of the project. Quinbrook is a specialist investment manager focused exclusively on lower carbon and renewable energy infrastructure investment and operational asset management.
• The projects will create more than 3,000 construction period jobs using union labour. This will ensure the highest quality construction is used in delivering these projects so they can serve Nevada’s energy needs for the long term.

NV Energy signed its first renewable power purchase agreement in the 1980s and has since prided itself on making renewable energy development a priority. The company exceeded Nevada’s current renewable energy requirement for the ninth straight year in 2018.

For a brief period a few days ago, Bordesholm in Germany became a showcase for how entire communities could switch over to renewable energy, with the backing of energy storage capacity.

Solar inverter maker SMA’s devices, including its Sunny Central Storage battery inverter and SMA Hybrid Controller XL, were used in a trial whereby the town’s energy supply was disconnected from the grid, proving for a one-hour window that local energy networks could be powered stably and reliably using renewable energy.

The name of the town may ring a few bells of recognition for regular readers of Energy-Storage.news. In January 2018, this site documented RES Group’s win of a competitive tender to build a 10MW energy storage system in the town, in Schleswig-Holstein, northern Germany, from local energy supplier Versorgungsbetriebe Bordesholm (VBB). Supported by the local state and funded through the European Union (EU), VBB and RES officially broke ground on the project in June 2018.

According to a RES Group case study, it has 10MW peak power output and 15MWh storage capacity, utilising lithium nickel manganese cobalt (Li-NMC) batteries. RES carried out EPC duties and remains in charge of maintenance, while the utility owns and operates it. Bordesholm is already 75% renewable, but the small town’s 8,000 inhabitants hope to see it reach 100% during 2020.

The battery system’s ‘full-time job’ is providing frequency containment reserves to the local network operated by grid company TenneT. In helping to stabilise power supply and integrate renewable energy, it also provides much-needed reductions in carbon emissions. However, it was also designed as part of a complete system that can be used as an ‘independent local grid’ using its islanding capability, notably in the case of power outages or other emergencies, and can also fire the local grid back up into operation (black start capability).

The latter has already successfully proven to be possible with energy storage over the past couple of years by various system integrators, notably by Younicos (now Aggreko Microgrid and Storage Solutions), also in Germany, in 2017. National Grid in the UK has said previously that it wants to see energy storage systems provide black start to the grid in the near future, to give a further example.