The energy storage industry needs better financing to break out of its early stages. So far, commercial project financing is becoming more widely available, but residential financing has barely gotten started.

The high upfront cost of storage makes it hard for behind-the-meter customers to purchase out of pocket, and they can’t call on the kind of capital available to utilities or large power producers. For financiers, meanwhile, energy storage poses several risks: It’s a relatively new technology with emerging business models and revenue streams, both of which are subject to the influence of shifting tariff structures.

“If the energy storage market is going to grow beyond the early adopters, there’s going to have to be more widely available, low-cost financing,” said Brett Simon, a behind-the-meter storage analyst at GTM Research, who recently published a report on storage financing.

Here are the key indicators of where storage financing stands today.

Commercial financing is growing, with a clear pathway to success

The pool of project financing is swelling. It jumped from almost nothing in 2015 to $796 million in 2016, and the storage financing in 2017 hit 51 percent of that amount by mid-May. That money is going almost exclusively to commercial projects, although a growing cohort of lenders now at least cover residential storage.

The minimum internal rate of return needed to attract financiers ranges from the high single digits to the low 20 percent mark, according to Simon’s latest research on the topic. The bulk of financiers are looking at the low to mid-teens.

Contracted revenue streams can cut the cost of capital for a project, the study notes. Capacity payments from utilities are an early form of this, and many utilities are examining new ways for distributed storage to provide grid services. Such an arrangement provides the lender with greater certainty that the storage installation will bring in revenue.

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Two of the biggest names in energy storage development have decided to join forces.

AES, a leader in megawatt-hours deployed, will launch a new company along with global energy systems provider Siemens. The jointly owned venture, dubbed Fluence, will scale up commercial and grid-scale storage deliveries worldwide.

The unprecedented move marks a pre-emptive consolidation of power in a young industry — and a new competitor for emerging market leader Tesla. 

AES started deploying large utility-scale storage a decade ago, making it a seasoned veteran in the new and emerging advanced energy storage world.

The major independent power producer deployed its own projects in PJM’s frequency regulation market, and gradually transitioned to selling its Advancion system to third parties. The company recently completed the largest lithium-ion battery to be deployed date for San Diego Gas & Electric as part of the Aliso Canyon gas leak response.

It could have kept going with the same game plan. But early leaders of emerging markets don’t always retain that lead. With Fluence, AES hopes to solidify its position amid an increasingly bustling competitive landscape.

“We have to massify this product to continue to bring down costs,” said AES CEO Andrés Gluski, in an interview. “On long-duration systems, we think we’re the most competitive in the market, but we’ll be even more competitive if we’re even larger.”

For more than a century, Siemens has built the heavy-duty equipment that drives the grid, like generators and balance-of-plant devices. In the storage space, it has focused on commercial and industrial development for the last five years with the Siestorage product, and will bring that expertise to the joint venture.

Perhaps more consequential, though, is the company’s global footprint, which includes a sales presence in 160 countries with deep ties to utility, industrial and commercial customers.

“If you look at our energy business, we’re very well connected with all the leading utility players in the world,” said Dan Wishnick, sales and business development manager at Siemens Energy. “It’s a rare customer we haven’t touched in some shape or fashion.”

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The energy storage industry needs better financing to break out of its early stages. So far, commercial project financing is becoming more widely available, but residential financing has barely gotten started.

The high upfront cost of storage makes it hard for behind-the-meter customers to purchase out of pocket, and they can’t call on the kind of capital available to utilities or large power producers. For financiers, meanwhile, energy storage poses several risks: It’s a relatively new technology with emerging business models and revenue streams, both of which are subject to the influence of shifting tariff structures.

“If the energy storage market is going to grow beyond the early adopters, there’s going to have to be more widely available, low-cost financing,” said Brett Simon, a behind-the-meter storage analyst at GTM Research, who recently published a report on storage financing.

Here are the key indicators of where storage financing stands today.

Much has been made of the interoperability problem with home energy storage systems. Existing solar customers need battery systems that can connect easily with their legacy equipment. AC-coupled storage has proliferated to solve that problem.

When Maine-based Pika Energy got to work designing power electronics for a new residential storage platform, the team decided to go in a different direction.

“AC coupling is attractive because you can retrofit it. However, actually getting the new battery inverter to talk to the legacy PV inverter is not a simple thing to do,” said company President and co-founder Ben Polito. “Do you want to send your best technician to figure out how to interact with that 2011 inverter in an optimal way? It becomes more like a science project than a scalable solution.”

The desire for easily scalable deployment and reduced installation time led Polito to a plug-and-play platform approach. That product is now available for order as the Harbor Smart Battery, a collaboration with Panasonic Eco Solutions North America.

The system will ship later this year in 10- and 15-kilowatt-hour configurations, offering up to 6.7 kilowatts of instantaneous power. It integrates Panasonic lithium-ion battery modules and is designed for easy pairing with solar generation using the same inverter for both. It can handle islanded backup as well as solar self-supply.

The different elements link up through Pika’s REbus nanogrid platform, which Polito describes as “USB for clean power.” It provides a ready-made hookup so that different home energy assets can all communicate with each other, coordinating system performance based on market price signals. 

The Harbor system has built-in electronics to connect the Panasonic batteries into the REbus system. That makes it easy to slide the battery modules into place with minimal electrical work. The individual components weigh less than 75 pounds, so they don’t require large teams to carry.

“The whole 15 kilowatt-hour battery solution can be installed by one guy or gal in less than an hour,” said Polito, whose company recently raised $2 million.

The design concept reflects a theory of what the residential storage market will look like in the future. 

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The municipal utility in Austin, Texas is trying to figure out how much money can be saved when solar and storage talk to each other.

Austin Energy will install its first large-scale batteries this year to join a growing fleet of solar generation, both central and distributed. With funding from the Department of Energy, the utility is syncing up the efforts around an integrated control system, to quantify the value added by coordinating the dispersed assets.

That will be more than an academic exercise, because Austin Energy is working toward 10 megawatts of distributed storage and 55 percent renewable energy by 2025. The grid implications of that surge will manifest more acutely in a smaller, municipal-sized service territory.

Kurt Stogdill, green building and sustainability manager for Austin Energy, pointed out that “200 megawatts [of] PV spread over 437 square miles is different from 200 megawatts spread over the whole of ERCOT.”

The program started with a challenge to reach a 14 cents per kilowatt-hour levelized cost of energy for solar and energy storage. The utility won $4.3 million from the DOE’s Sustainable and Holistic Integration of Energy Storage and Solar PV (SHINES) program, in addition to $1 million from the Texas Commission on Environmental Quality, to support the solar-plus-storage exploration.

To get the costs down that low, the team started looking at how to add value with intelligent controls, rather than leaving the distributed resources to operate independently.

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The rapidly growing U.S. energy storage industry deployed 71 megawatts and 234 megawatt-hours of capacity in the first quarter of 2017.

Now, Canada is showing signs of life with a 12.8-megawatt/52.8-megawatt-hour energy storage project to be built and installed by Powin Energy.

It will be the largest energy storage project in Canada when operational.

Powin has joined with Hecate Energy to build and install the project at two sites in Ontario, using a modular 140-kilowatt element to construct the systems. The project applies energy storage to frequency regulation, voltage control, and reactive power support.

The Independent Electricity System Operator (IESO) is employing these projects as part of its long-term energy plan and expects the systems to be on-line by the end of September 2017. That’s one of the clear advantages of energy storage: fast deployment.

The company building this system has experience in rapid installations; Powin deployed a 2-megawatt/9-megawatt-hour storage system in less than six months to help compensate for the Aliso Canyon natural gas leak in Southern California Edison territory. (Tesla, Greensmith Energy and AES Energy Storage completed even bigger projects for the Aliso leak in six months’ time.)

“When IESO announced 34 megawatts of Phase 1 procurement back in July 2014, it was the largest such procurement of energy storage in North America, of which the Hecate project was the single biggest award. Since then, the project, along with the remainder of Phase 1 projects, haven’t become operational yet. It almost seems like eons ago in storage years,” said Ravi Manghani, director of energy storage research at GTM.

“From Powin’s perspective, the delay couldn’t have worked any better,” Manghani explained. “Back in 2014, Powin was still an early-stage company throwing everything at the dartboard, but since then it has received investment from SFCE (parent company of Suntech), and Powin has slowly but surely started winning contracts in California and the Pacific Northwest — and now this 52-megawatt-hour contract in Canada.”

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The solar industry is no longer just talking about pairing energy storage with solar generation.

An increasing number of solar-plus-storage projects have been cropping up around the country, as lithium-ion prices drop lower and customers get more comfortable with storage technology. The AES plant in Kauai set a record-low price in January, only to be beaten by Tucson Electric Power’s sub-4.5 cents per kilowatt-hour PPA announced in May — proving this technology isn’t just for islands and remote microgrids anymore.

For the large developers in particular, storage makes the solar product more appealing to a utility by giving the power plant flexibility and mitigating its effects on grid operations. On the islands of Hawaii, storage has already become necessary for adding major solar capacity; on the mainland, its value increases along with renewable penetration.

To get a handle on just how extensive the interest in storage-backed solar is, I got a list of the 10 largest utility-scale solar developers from my colleagues at GTM Research and tracked down the storage status of each one.

Seven of the top 10 solar developers have incorporated storage into their business strategy, and have either deployed storage alongside PV or are pursuing hybrid installations. The remaining three did not comment on how storage fits into their plans.

“This is well beyond one developer — this is really a trend we’re seeing in the industry,” said Colin Smith, a solar markets analyst at GTM Research. “Solar-plus-storage has become a forced differentiator in the industry.”

First Solar: Bidding on storage

The thin-film solar specialist first invested in energy storage in 2015, when it joined a $50 million investment round in German startup Younicos. At the time, First Solar CTO Raffi Garabedian commented, “As the promise of storage continues to evolve, we are eager to understand how it will broaden our own power plant offerings.”

These days, the No. 1 U.S. solar developer routinely permits new projects in the western U.S. for the possible addition of storage, because so many customers are asking about it, said Scott Rackey, head of PV-plus-storage development at First Solar.

“It’s a small cost to gain the optionality later,” Rackey said.

First Solar has been bidding on solar-plus-storage, including several projects at the scale of 100 megawatts of PV with 100 megawatts of battery capacity. The ideal ratio varies depending on the local grid, Rackey noted: the Southeast tends to have more appetite for PV generation during the day than Arizona, for instance, where oversupply of nondispatchable PV is becoming a challenge.

“It’s really become cost-effective in roughly the last year or year and a half for dispatchable PV,” Rackey said. “We can deliver energy comparable to or less expensively than a new-build fossil fuel plant.”

Expect some storage news from this company, then, in the months to come. First Solar, by the way, prefers the svelter acronym “PVS,” rather than the cumbersome hyphenations of “solar-plus-storage.”

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