Electric utility company business model which took off in 1880s with the first power station in lower Manhattan providing electricity to 59 customers has not much changed since. This is indeed unique as very few other businesses have shown strong resistance to change. Over the last few years though, the electric industry is witnessing certain trends – increased distributed generation and entry of new technology providers.

Increased share of volatile renewable supply and a widening peak and off-peak demand has renewed interest in energy storage. Storage not only helps in making the grid more efficient by helping to incorporate more distributed and variable resources, but also by making the grid more cost efficient since the system can be designed for and operated at average load rather than for peak load.  Energy storage helps in reducing and or delaying investments required in creating new transmission and distribution infrastructure. In the developed economies, such as the United States where the infrastructure is pretty dated, this can be a substantial benefit. Grid reliability and resiliency is now a challenge as a result of disruptions caused by severe weather events and other challenges such as cyber security threats. Storage coupled with distributed generation can be a logical fit for making the traditional grid more reliable and resilient.

Attracting investor interest in energy storage depends upon three fundamental factors – Planning, Procurement and Pricing. Planning helps answer the question of how much and when to procure. Planning would establish amount of storage capacity required at specific voltage level (sub-distribution, distribution or transmission) and location (feeder, utility boundary, city limits or state limits). Depending upon future load growth projections, load serving entity can plan for specifications, such as capacity, type and location. In Japan unlimited curtailment of solar DG production as a result of utilities inability to absorb generation from prosumers has led to the government planning for storage resources at a more holistic level. Planning can result from a need to solve to an immediate problem, such as in South Korea, where the government decided to substitute thermal plants with storage for grid frequency control.

For procurement of capacity, various mechanisms have been tried so far and there is no easy answer to say whether procurement should be done by utilities or by distributed energy consumers themselves.[1]  In California per law AB2514 the CPUC tasked utilities to mandatorily procure energy storage in share of their retail energy sales, similar to an RPS.

Third and perhaps the most important factor is pricing mechanism. While storage can make revenue from price arbitrage opportunities – charging batteries at off-peak times when the prices are low and discharging during peak times when energy prices are high – studies have shown that arbitrage revenues alone are not sufficient for achieving desired breakeven periods, especially given the current costs and uncertainty of rules and regulations governing storage. Another source of established revenue is by participation in frequency control or what is also referred to as ‘regulation’ market. Batteries which qualify as fast-response regulation resource, are compensated for their capacity as well as performance. In developing countries, where power deficit is still a harsh reality, storage can be compensated for providing back-up power supply. Additionally the value of reliability and resiliency offered by a storage resource can be quantified and necessary incentive signals can be provided to investors.

The business model for energy storage is not mature yet and future of the technology depends upon appropriate policy level push. It will be interesting to see how this future unfolds and who will be the actors in the energy storage market.

 

[1] For more details please see “Consumer vs Utility: Who is better off to store energy?” AsianPower, February 1, 2013 http://asian-power.com/power-utility/commentary/consumer-vs-utility-who-better-off-store-energy