Customers in Most States Could Cut Energy Costs by Adding Battery Storage to Solar
September 14, 2017 by Seth Mullendore
New research shows that more than 25 percent of all commercial customers across the continental United States may be able to further reduce their electricity bills by adding battery storage in conjunction with solar installations. And perhaps surprisingly, some of the best economic opportunities for customer-sited storage are in states like Colorado, Michigan, and Georgia.
These findings are detailed in a new paper released by the National Renewable Energy Laboratory (NREL) and Clean Energy Group (CEG), Identifying Potential Markets for Behind-the-Meter Battery Energy Storage: A Survey of U.S. Demand Charges. It represents the first comprehensive analysis of commercial battery storage market opportunities across the U.S., finding that about 5 million customers nationwide may have the potential to cost-effectively invest in storage technologies today.
These findings are based on the ability of battery systems to help customers manage their use of grid-supplied electricity. Most medium and large commercial customers are billed for electricity demand through what are known as demand charges. The more electrical appliances and equipment a customer uses at the same time, the higher their demand for electricity. (Here’s a fact sheet where you can learn more about demand charges.)
Both solar photovoltaics (PV) and batteries are capable of reducing electricity demand. However, because demand charges are typically billed based on a customer’s maximum demand across an entire month, a few clouds at the wrong time could basically wipe out any demand-related savings from solar energy systems that aren’t paired with storage. Storage adds flexibility to a customer’s system, reliably delivering demand reductions and savings throughout the month. In an integrated solar and storage system, the technologies can often complement each other and increase demand charge savings through an effective demand management strategy. Pairing the technologies can also unlock federal investment tax credits for the battery system, as long as the batteries are charged by solar energy at least 75 percent of the time.
The analysis by NREL and CEG looks at the energy use of different types of commercial buildings and more than 10,000 existing utility tariffs to estimate how many customers across the country may have high demand charges. As many people would expect, California and New York top the list for states with the highest utility demand charge rates in the country, but many states not known for high electricity costs were also found to have significant demand charges (Figure 1). Colorado was found to have the third highest commercial demand charge rate in the country, followed by Massachusetts, Arizona, Nebraska, and Illinois. The top 10 list of highest rates is rounded out by Georgia and North Carolina in the South and Vermont in the North.
Figure 1. Maximum Demand Charge Rates by Utility Service Territory
The analysis uses a $15-per-kilowatt demand charge rate as the baseline at which battery storage may begin to make economic sense for some customers. Along with finding that one in four commercial customers could be eligible for utility tariffs with demand charges above this level, the researchers discovered a surprising diversity of locations where batteries could play a role in reducing customer energy costs (Figure 2). Along with California and New York, Georgia, Colorado, and Massachusetts also make top appearances in the list of largest potential market opportunities for storage. The Midwest also shows great potential for behind-the-meter storage, with Michigan, Minnesota, and Ohio all making the top 10 market list. Texas and Connecticut fill the remaining market spots.
Figure 2. Number of commercial electricity customers who can subscribe to tariffs with demand charges in excess of $15/kW
When looking at customers eligible for tariffs with even higher demand charges (above $20 per kilowatt), Kentucky, New Mexico, Alabama, and Iowa enter the list of top 10 largest market opportunities. All-in-all, 19 different states were found to have either some of the highest demand charge rates or largest battery storage market potentials in the country.
Based on these findings, the market opportunity for battery storage appears to be much larger and more geographically diverse than it is today. Despite this market potential, there are clearly barriers to broader adoption of batteries among commercial customers. This is in-part due to the invariably slow market uptake of a still-emerging energy technology, but there are also regulatory barriers to greater adoption of customer-sited battery storage and new technology risks (whether real or perceived) that can make storage project financing challenging. Even California’s thriving storage market is largely driven by incentives available through the state’s Self-Generation Incentive Program. This should be notable to other states with high demand charges that are looking to spur battery storage market development within their own borders.
The analysis is just a first step in assessing the potential for battery storage to increase customer savings, particularly customers interested in boosting the flexibility of their solar system. It will take much more locally-focused efforts to identify real-world project opportunities. Along with demand charge rates, how customers use electricity is a major factor in determining whether or not storage makes economic sense. It will take active interest from a wide range of stakeholders, including local organizations, commercial customers, and state governments, to fully pursue solar and storage solutions and to ultimately realize the true market potential of the technologies.
NREL and CEG will host a webinar on Tuesday, September 19 to discuss the findings of the report. For more information on this free webinar and to register, visit www.cleanegroup.org/webinar/NREL-demand-charges-storage-market.
*Seth Mullendore is a Project Director for Clean Energy Group, a national non-profit organization working on innovative technology, finance, and policy programs in the areas of clean energy and climate change. Along with research and reporting of clean energy technologies, policies, and supporting market structures, Seth works with a diverse group of stakeholders on outreach and coordination of solar and energy storage project development across the country.