Energy storage has been called a “swiss army knife” because it’s highly versatile, adaptable and can provide many different benefits to the grid. This flexibility can be financially rewarding. For example, when storage is deployed in behind-the-meter applications, it can be programmed to target different value streams like peak-demand shaving, time-of-use arbitrage or self-consumption. These value streams are effectively different ways for an energy storage system (ESS) to make money by reducing a customer’s utility bill.
Smart energy storage developers highlight the versatile nature of an ESS when selling systems today. It’s a powerful selling point to show that storage can make money in different ways. It’s also a compelling value proposition to show that storage can adapt to future policy changes. For example, when an ESS is paired with solar PV, it can hedge against future changes to utility rate design or net metering (NEM) rules that erode the economics of solar. Storage effectively acts like an insurance policy to preserve future savings. In some cases, storage may not make financial sense from a pure return-on-investment perspective. But if a customer is convinced that storage can future-proof his or her solar savings, this may be reason enough for them to pair an ESS with a PV system.
Solar economics are eroding
Electric utilities all over the country are proposing changes to their utility rate designs and net metering frameworks. In Q3 2017 alone, 41 states took action on distributed energy solar policy and/or rate design, according to the most recent 50 States of Solar Report, published by the NC Clean Energy Technology Center. The types of changes being proposed and implemented are all different, depending on the state and utility territory. The one commonality they share is that the changes almost always erode the value of solar. Meaning that the “avoided cost” that solar can achieve, gets diminished because of the policy change.
A great example of this is the new time-of-use rates (TOU) that went into effect in the San Diego Gas & Electric (SDG&E) territory in December 2017. The new TOU rates, which solar customers are now being defaulted onto, dramatically shift the summer season on-peak period (the highest priced energy) from 11 a.m. to 6 p.m., all the way out until 4 p.m. to 9 p.m. in the evening. This radical shift erodes the value of solar, as afternoon solar production now gets valued at a lower priced mid-peak rate, instead of the premium on-peak rate, as illustrated in the chart below for the DR-SES schedule.
In California, both Pacific Gas & Electric and Southern California Edison have proposed similar TOU window shifts in their most recent general rate case filings, which are likely to be adopted in 2018.
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