For over 130 years, electrical power distribution has remained essentially unchanged. A central generation station delivered power through a transmission and distribution network to commercial and residential customers, who then consumed the produced energy in real time. An electron produced equaled an electron consumed by the customer. This old world of energy is rapidly evolving to a new world of energy, a world that is becoming increasingly more electric. It is estimated that electricity consumption will increase by 80 percent over the next 25 years. This increase in demand along with the trends of the energy sector’s three Ds (decarbonization, decentralization and digitization) are driving dramatic changes in how energy is produced and consumed, as well as the business models governing its transaction. Let’s explore one of these trends and the role it plays in energy storage.
The new world of energy is evolving towards a world where power is not only produced centrally but where much of the new power generation is also becoming decentralized; in other words, energy is produced at the edges of the grid and behind-the-meter (BTM) of commercial and industrial businesses. These Distributed Energy Resources (DERs) have changed the flow of electricity from a centrally produced, unidirectional flow to a distributed and multidirectional one. Furthermore, these DERs that live BTM have given rise to a more powerful and active consumer, the “Prosumer”, a customer who both produces energy and consumes it. In fact, Bloomberg New Energy Finance estimates that over the next dozen years, 20 percent of new electricity capacity will come from Prosumers. While the trend of decarbonization has driven the proliferation of renewable energy derived from wind and solar, it’s the addition of energy storage that has released the full potential of these sustainable resources.
"This old world of energy is rapidly evolving to a new world of energy, a world that is becoming increasingly more electric"
How does energy storage change the game? While there are many DERs -wind, solar, natural gas or diesel generators - none are as flexible as energy storage. That is because these other resources still require balancing the equation of production matching consumption; remember, an electron produced equals an electron consumed. However, with energy storage, you can decouple in time when an electron is produced and when it is consumed, because you store the energy to be accessed at an optimal usage time, whether for financial benefits or to secure resilience. While there are different types of energy storage, battery energy storage (BESS) is becoming the most economically viable, thanks largely to the massive capacity buildout of lithium ion batteries for the electric vehicle market which is helping drive down the cost of these types of batteries for use in stationary energy storage.
How Battery Energy Storage (BESS) Changes the Game
The Rocky Mountain Institute identifies 13 use cases for BESS, most of which can be realized from BTM, and they can save money, generate revenue and provide resilience. However, today we find a handful of scenarios make the most sense for end users.
The most common use cases surround the concept of peak shaving, i.e. reducing the peak power that you consume from the grid during the time when it is most expensive to consume that power. This could be because it occurs during the on-peak rate periods of the utilities or it contributes to the demand charges from the utility company. Peak shaving, along with renewable self-consumption, are avenues where battery energy storage can help the Prosumer save money by storing energy in the battery when it is least expensive to produce, whether because it is during the off-peak rate period or it is produced “free” from renewable generation and then consumed during the more expensive on-peak hours.
Some use cases for BESS, aided by changes from the Federal Energy Regulation Commission (FERC), can generate revenue for customers. In particular, FERC orders 755 and 841 have paved the way for BESS participation in energy markets. FERC order 755 recognized that the ultra-fast response nature of BESSs allowed for the participation of energy storage in the Frequency Regulation markets. Order 841 directs Regional Transmission Operators (RTOs) and Independent Systems Operators (ISOs) to create market participation rules for energy storage in wholesale energy, capacity and ancillary markets. In these examples, the Prosumer can earn income from the utilities as participants in the various energy markets.
Lastly, energy storage can be used for resilience, as a back-up energy source. When combined into a microgrid, the BESS can become the anchor resource of the microgrid creating a resilient source to ride through power outages or can become the anchor resource for the microgrid. While you can “stack” the value that energy storage can provide, i.e. perform two or more of these services, the reality is that the BESS has been historically targeted to only one of these use cases. If the BESS inverter is flexible enough, then being part of a microgrid as well as a participating in one of the other use cases is the most common stacking that happens.
BESS Will Shift Energy Usage
We are in midst of massive shift in how energy is produced and consumed. Battery energy storage can play a key role in optimizing how we use energy in the future, particularly as the most flexible DER, BESS can help the Prosumer save money, generate revenue and/or help stabilize their microgrid.