Parker Hannifin (NYSE: PH), an American energy company, recently announced the completion of the Cochrane energy storage facility, a project undertaken with AES Gener.  The partnership with the Chilean energy producer and supplier has resulted in a large plant located Mejillones, Antofagasta, Chile. The facility will provide spinning reserve and grid reliability services to Northern Chile, part of the Norte Grande Interconnected System. This system in particular primarily provides energy to the country’s mining operations, which take place in the north. The facility can provide 20 megawatts of energy storage.

AES is also partnered with Parker Hannifin in the building of an energy storage facility in San Diego, California. The contract with San Diego Gas & Electric includes the installation and commission of two storage arrays, which will help energy reliability and renewable energy grid integration. 75 megawatts of flexible storage capability will be added to the grid when completed. One of the arrays included in this project is in Escondido, supplying 30 MW of the power. When completed, this array will be the largest battery-based storage project in the United States.

The storage containers for the Chilean Cochrane project were commissioned and manufactured in Charlotte, North Carolina. It consisted of ten 2.2 MVA outdoor 890GT-B PCS and 2-MW containers. These units are essentially large batteries, and the storage allows for better integration of both traditional and renewable energy. Renewable energy sources provide high-output fluctuation, making it hard to match supply and demand. This is especially true of solar and wind energy. Storage facilities such as these allow for better management of the difference between forecasted and actual energy usage and production, which increase price efficiency. Furthermore, some analysts have gone as far as to suggest that renewable energy sources will not be able to effectively penetrate the energy market without extensive battery and storage systems in place.

Jim Hoelscher, General Manager of the Energy Grid Tie Division at Parker Hannifin, had the following to say concerning the project’s completion: “We have a proven record of accomplishment in engineering and commissioning advanced battery energy storage systems around the world, and we look forward to meeting global demand for clean energy solutions for many years to come. Our power conversion systems are highly scalable and can be customized for many applications, making them ideal for use by AES, our longtime partner.” This scalability is of particular importance as the rise of renewable energy will require more energy storage units across the world.

The Cochrane project added 20 megawatts of storage capability to Chile’s grid. The US as a whole has over 21.6 gigawatts of energy storage, and the world as a whole has 149.91 gigawatts (as of June 2016). Between 2013 and 2016, storage facilities in America increased 105%. However, the US falls behind in terms of how much energy is cycled through these storage facilities; only 2.5% of delivered electric power comes from a storage facility. This compares to 10% in Europe, and 15% in Asia. As America and other industrialized countries transition from traditional to renewable energy, the need for storage facilities will certainly increase.

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This excellent infographic on global megacities from Visual Capitalist caught my eye because of what we might be able to extrapolate about energy/transport issues. The infographic notes that while in 1950 30% of the global population lived in cities, by 2050 70% will live in urban areas, many of which will be megacities. I think this dynamic has the potential to significantly impact future fuel demand because, as I’ve pointed out before, cities are already struggling (and will continue to) with traffic and transport-related air pollution.

This is an underlying force propelling transport policy solutions such as improved/expanded public transport, zero emission vehicles (ZEVs) and outright car bans (or limitations). I believe that’s going to continue. And oddly enough, neither the recent BP and ExxonMobil energy outlook appear to account for these potential impacts. The focus from some other stakeholders has been on the disruptive force ZEVs (particularly battery EVs (BEVs)) present to future oil demand. But I wonder if the real attention should be paid to the potential power shift from national/provincial governments to the cities — especially as it pertains to future energy/transport policies.

It will be cities, for example, that institute car bans, expand and improve infrastructure for both public transport and ZEVs, autonomous, shared driving, and redesigning cities to promote walking and cycling. Some advocates are encouraging and planning for this power shift, and recently, a Global Parliament of Mayors was created to “leverage the collective political power of cities.” It may be cities that end up carrying much of the water to actually implement the Paris Agreement. And consider: McKinsey has estimated that the 600 top urban centers contribute whopping 60% to the world’s total GDP today.

The infographic notes seven types of global cities, with these classifications and data coming from the Brookings Institute.

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Energy storage deployments in emerging markets could grow 40% annually over the next five years, from 2GW today to 80GW, but barriers include the lack of access to low-cost capital, a new report from the International Finance Corporation has found.  

The IFC, which finances and provides advice for private sector ventures and projects in developing countries, has produced Energy storage trends and opportunities in emerging markets. Its authors, analysts Alex Eller and Dexter Gauntlett of Navigant Research, took an exhaustive look at everything from physical grid infrastructure to market design and regulatory structures and the different uses and applications for energy storage.

At present, some 1.2 billion people in the world lack access to electricity. Eller and Gauntlett quote the United Nations Sustainable Energy for All Initiative (SE4All) that US$45 billion in investment through 2030 would be required to provide universal access to “modern electric power”.

Energy storage is a vital tool for enabling the increased use of renewable energy and other distributed resources and in providing resilience to power supplies, the report says, but the development of energy storage systems (ESS) has been confined to a small number of select markets.

“Despite rapidly falling costs, ESSs remain expensive and the significant upfront investment required is difficult to overcome without government support and/or low-cost financing,” the authors write.

Eastern Europe and Latin American countries showing promise

Much of the report is an overview assessment of the global picture including the factors which might influence the speed and scale of adoption of energy storage in different regions. Worldwide the report’s authors anticipate the addition of 378.1GW of solar and wind generation capacity over the next five years, with the added variability forming a powerful driver for utility-scale storage in particular. The reduction of carbon emissions mandated by the multilateral Paris Agreement could also mean inertia on the grid is provided increasingly by large-scale storage systems.

While existing grid infrastructure could lean on energy storage to provide a growing number of services, remote microgrids could drastically reduce their dependence on diesel fuel to meet energy demand, the report highlights. Cost comparisons show both utility-scale and distributed lithium ion battery storage systems competing favourably with diesel in terms of annual fuel savings, with an installed cost of US$2,062 per kilowatt and US$2,150.3 per kilowatt respectively and saving US$2,223.6 per kilowatt in fuel costs in either case.

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A US-based coalition featuring companies such as Apple, Microsoft, Amazon and Tesla as members has applauded the efforts of the Federal Energy Regulatory Commission (FERC) to open-up US wholesale electricity markets to energy storage and demand response initiatives.

The Advanced Energy Economy (AEE) seeks to impact policy decisions to influence energy concerns. Its members, which also includes General Electric, Veolia, Siemens and a host of renewable energy companies have penned a joint statement to the FERC over the integration of energy storage into selected US electricity markets.

The FERC issued a Notice of Proposed Rulemaking (NOPR) for the energy storage market in November last year, after external campaigning form organisations such as AEE. Under the rulemaking, companies and organisations were invited to submit comments about expanding the market, which were due last week.

“We are entering a new era where advanced energy technologies can compete based on lower costs and increased reliability but are not allowed to do so because of market rules that were designed with incumbent technologies in mind,” AEE’s vice president of federal affairs Arvin Ganesan said.

“This rulemaking can remove some of the market barriers these technologies face, allowing advanced energy businesses to provide reliable energy at lower cost.”

The FERC established the parameters for what types of organisations and what types of energy and infrastructure can connect to power grids in the US, and how the technologies will be subsidised. The latest NOPR has agreed that battery storage can support the grid and ruled that the technology should be viable to receive income from transmissions, making them more attractive to investors and private sector companies.

The new amendments will likely target markets overseen by US Regional Transmission Organisations (RTOs) and Independent System Operators (ISOs). These third-party operators were put in place to ensure that no bias or preference is given to certain generators, and cover two-thirds of the US’ economic activity.

The NOPR will now seek to remove barriers for energy storage and demand response in these markets and RTOs and ISOs will likely be required to revamp tariffs. However, any amendments will have to wait until the FERC is at full capacity. Currently, the Commission is waiting on the appointment of three new commissioners to fill empty seats, and the vetting process could take at least two months.

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Solar Leaderboard (solarleaderboard.com) published its January 2017 Solar Index report and initial estimates indicate that installation activity declined by approximately 40% year over year. The Solar Index tracks permits issued in select areas and is meant to be an indicator for activity across the state.

The report is available for download here.  There are a number of factors that are likely causing the decline including record precipitation, high solar penetration and net metering changes.  We believe that weather has had the most significant impact.

Weather Impact

California experienced strong rain in January, which likely had a major impact on the decline.  Most areas of California experienced rain levels 300% higher than average for the month of January, as reported by the National Weather Service of California.  January is already a slow month for solar and the rain constrained sales and installation activities.

High Solar Penetration

Certain areas in California have high solar penetration and early adoption may have hit a saturation point.  Our research indicates that residential solar penetration in CA reached 7.2% in mid 2016 with some areas reaching as high as 20%, as indicated in the map below and the list of the top 20 CA zip codes with the highest solar penetration.

Net Metering Changes

Net metering 2.0 was introduced in much of California in 2016 with SDG&E switching in mid-2016 and PG&E in December 2016.  SCE is expected to meet the cap by mid-2017.  The changes include TOU rates, interconnection fees and other charges.  Although the financial impact of the changes is relatively minor, it may cause pause for some potential solar adopters.

2017 Outlook

The long-term outlook for rooftop solar is positive, particularly as prices have come down and February and March activity will help validate that the January slowdown was primarily weather related.  Subscribe to our Weekly Solar Index to receive an update on February activity the first week of March.

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Spurred by state mandated renewable energy goals, Panasonic, Xcel Energy, and Younicos have formed a public/private partnership with the city and county to promote a microgrid centered around the Peña Station NEXT, a 382-acre transportation hub located near Denver International Airport. The Xcel Energy feeder for Peña Station NEXT already has 20% solar penetration and is expected to have 30% solar penetration by the time the microgrid project is completed in the first half of 2017.

The project will feature a 1.6 megawatt carport solar system, a 259 kW rooftop solar array installed mounted on top of the Panasonic Enterprise Solutions Company’s building and using Panasonic HIT solar panels, and a Younicos 2 megawatt/2 MWh lithium ion battery system with inverter and controls. The battery storage component will be integrated into the company’s innovative Y.Cube system. Panasonic’s Denver operations building, which has an intelligent building energy management system, will serve as the initial anchor load for the microgrid.

“We’re so excited about this ‘portfolio’ microgrid….because of how a system such as this can unlock more benefits for more stakeholders,” said Peter Bronski of Panasonic, “and how this public-private partnership approach to the microgrid and the battery system’s stacked use cases can strengthen the overall economics and value propositions.”

“Many microgrids and energy storage systems are deployed for single use cases by single entities, such as a corporation pursuing demand charge reductions or a university campus strengthening energy resilience. By contrast, the Peña Station NEXT project used a public-private partnership approach that resulted in a multi-stakeholder “portfolio microgrid.”

The battery energy storage system will have five usage scenarios:

1) Solar energy grid integration via solar smoothing ramp control and solar time shifting

2) Grid peak demand reduction

3) Energy arbitrage

4) Frequency regulation

5) Backup power for Panasonic’s network operations center

“As part of Xcel Energy’s Innovative Clean Technologies program in Colorado, we’re eager to demonstrate how energy storage can integrate more solar energy on our system. We’ll also examine how battery systems can become more cost effective by supporting the grid and providing reliability for customers,” said Beth Chacon, director grid storage & emerging technologies at Xcel Energy.

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An energy trade association which includes Apple, energy storage maker AES and solar giants SunPower and First Solar in its leadership has welcomed the proposal by US energy regulator, FERC, to remove barriers to participation in wholesale markets for energy storage and distributed energy resources (DERs).

Advanced Energy Economy (AEE), which seeks to have an impact on policy matters shaping future energy concerns, was among the groups submitting lengthy documents to FERC, which was soliciting views until 13 February on its Notice of Proposed Rulemaking (NOPR).

The NOPR was issued in November last year and proposed to integrate electricity storage into organised markets, specifically the wholesale markets operated by the US’ Regional Transmission Organisations (RTOs) and Independent System Operators (ISOs), which between them ensure the reliability of the majority of the country’s electricity supplies.

In order to remove barriers to participation in these markets, RTOs and ISOs would be required to alter tariff structures in order to recognise specific characteristics of energy storage resources and give energy storage operators a new classification for their assets.

Critical first step

Acting chairwoman of FERC, Cheryl LaFleur, was widely quoted as saying the regulator had received “a lot of comments” in her appearance at the National Association of Regulatory Utility Commissioners (NARUC) earlier this week.

Advanced Energy Economy, which also includes Johnson Controls, Schneider Electric and GE in its leadership council, along with general members that include Amaresco, Alevo, Tesla, Sunverge and Younicos, from the world of energy storage along with diverse mainstream names such as Amazon and Facebook, was “strongly supportive” of the FERC NOPR, its comments said.

“The NOPR is a valuable and critical first step in what must be a comprehensive effort to eliminate unjust, unreasonable, and unduly discriminatory barriers to participation for advanced energy technologies in FERC-jurisdictional wholesale markets,” AEE said.

Currently, FERC, which should have a five-person executive board, is led by former utility executive LaFleur and just one other board member, Collette D Honorable, who is set to step down in summer as her five-year term ends. The NOPR cannot be acted upon definitively until the full board is completed, which requires nominations from the White House, followed by a vetting process and confirmation vote, which some sources said could take at least two months.

Battery-friendly PJM’s ‘supportive’ response

PJM Interconnection, which is noted in energy storage for being the first of the US RTOs to allow batteries to provide frequency response grid services in a competitive market, said it was “supportive” of the NOPR. PJM coordinates wholesale markets in 13 US states and the District of Columbia.

“…Electric storage resources (“ESRs”) have already flourished in a number of PJM markets, and through its stakeholder process, PJM is working to expand its market rules to allow for additional opportunities for ESRs and distributed energy resources,” PJM’s comment said.

Nonetheless there were two areas where PJM said it wanted to see changes in the NOPR before it passed into a new set of rules. The first was on “key threshold issues such as potential jurisdictional issues” which relate to charging and discharging of behind the meter resources, the second was that rules should be flexible enough to accommodate the sometimes subtle differences between each RTO/ISO.    

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Call it one of the stranger battery storage systems out there. California municipalities are reportedly placing orders for as much as 1 MW of ice storage batteries from firm Ice Energy.

The Southern California Public Power Authority (SCPPA), an organization of the municipal utilities of 10 cities and one irrigation district is placing the order with the systems to be installed at consumer’s homes in a pilot program.

The battery storage market is booming – literally growing by several hundred percent annually over the last few years – in large part because traditional utilities are excited about the opportunity to avoid costly investment in new peaker plants. Using home battery storage systems enables these firms to defer that investment.

The ice battery systems are slated to be installed in about 100 homes with each 9.6kW system replacing the outdoor condensing units of homeowners’ air conditioning systems. Ice Energy’ batteries in off-peak (low energy cost) periods use copper coils filled with cold refrigerant to create ice from the homeowner’s regular tap water.

Once the ice is created, the residential Ice Bear 20 can cool a home continuously for four hours, and the company says that can save 95% of associated electricity costs compared with traditional HVAC units. The firm also has a large Ice Bear 30 for commercial customer. The system is particularly beneficial in states with large time of use differences in electricity pricing such as northeastern states like Connecticut and west coast states like California.

Utilities like those in the California alliance benefit from reduced peak load demand thus avoiding the cost of buying peak wholesale power or (eventually) building new peaker plants.

Ice Energy is not the only firm in the market for ice batteries though. Competitor Viking Cold reported last year that a California utility was interest its products to help counter the challenge the “duck curve” of solar energy energy supply and demand.

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In high school, I visited the Princeton Plasma Physics Laboratory’s fusion reactor, a huge metal donut replicating conditions at the center of our sun. But a more pedestrian 19^th century technology caught my eye: giant spinning flywheels providing an electricity buffer so the local electric grid wouldn’t blackout with every reactor startup. I’m reminded of that visit whenever I read reports of energy storage reaching its “holy grail” moment.

While a fusion reactor’s huge load may need storage to buffer its use, the rest of us don’t have to worry turning on our lights or microwave will destabilize the grid. That’s because the grid is a network that aggregates us for central power stations and averages all our idiosyncratic electricity demands into a smooth load profile managed by turning generators up and down. This is the historical reason the electric grid hasn’t needed storage: It is an expensive solution for problems easily solved other ways.

So how should a savvy investor interpret conflicting reports on grid-connected electric batteries’ breakthrough? Morgan Stanley calls it an “underappreciated disruptor,” while Deloitte earmarks it for “exponential growth – although not perhaps this year.” Has energy storage’s moment arrived, or is it still just around the corner?

Be Careful Of Narrow Energy Storage Market Opportunities

One way to understand these predictions is considering the energy storage market as a frozen pond in springtime. The battery production motivated by electric vehicles from giants like LG Chem, Tesla’s Gigafactory and Mercedes, hand-in-hand with plummeting battery costs, is turning up the market’s heat, thawing the pond. Yet like the thawing pond with scattered pockets of meltwater, energy storage has so far only taken off in various niche markets with especially enhanced value propositions.

One of the first utility-scale battery deployment niches has been ancillary services markets, which offer services for maintaining grid reliability. Payments made for small tweaks matching supply and demand on a second-by-second or minute-by-minute basis, often called “frequency response” or “regulation”, are particularly interesting here. In August 2016, the United Kingdom’s grid operator announced 201 megawatts (MW) of winning bids in its first-ever “enhanced frequency response” tender, dominated by battery storage and valued at $86.4 million.

Like scattered meltwater pools, these are relatively shallow markets in the much deeper electricity sector pond because they can only accommodate new projects by the tens and hundreds.

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