The Changing Landscape of Battery Storage

Robert Magyar • VARTA Storage GmbH

In the last several years, there has been tremendous media attention surrounding the potential for battery storage to play a significantly larger role within the public electricity grids both at the utility level and within the market-side ownership of Distributed Energy Resources. Much like 10 to 12 years ago, when the photovoltaic (PV) solar market was beginning to mainstream, today’s view of the battery storage market often appears complex and confusing. While some see battery storage as the complete answer to the intermittent power production of PV solar energy, others see the technology as costly and difficult to maintain. As in all technologies, the answer is not within the technology itself, but the business model applications and government regulations which will ultimately determine how far ”the great battery storage revolution” will go.

Photo-5-VARTA-Flex-Storage-Photo---iStock_000037838108_LargeThe idea of using DC to AC power electronic inverters connected to a series of batteries to store electricity, for such applications as emergency backup power, is not new. Neither is the idea of using inverters and batteries with off-grid PV solar installations to provide property owners power when the sun goes down. Uninterruptable Power Systems (UPS) employing large banks of batteries with inverters and related controls have been the backbone of the information technology (IT) industry for more than 20 years protecting valuable computer data from loss in the event of power outages. Generally speaking, the use of inverters and batteries as battery storage systems have existed primarily for IT applications and the small segment of off-grid PV solar users. In 2011, the idea of how battery storage could play a much larger role within PV solar industry began to take shape in Germany.

Germany Begins Mainstreaming Residential Battery Storage
The seeds for the recent surge in the US’s interest in battery storage began in Germany shortly after the Fukushima Daiichi nuclear disaster in March 2011. As a result of this event and other energy issues within the country, the German government moved ahead with its energy policy known as Energiewende, which translates to “Energy Transition” in German.  There were a number of policy mandates stemming from Energiewende, one of the largest being the government’s ddecision to close all of the country’s existing nuclear power plants. Within the German Renewable Energy Act, changes to Germany’s renewable energy policies for the first time included incentives for the installation of battery storage systems to German homeowners to either add to their new or existing PV solar systems.

The new German government incentives allowing residential homeowners to add battery storage along with their PV solar systems set off a rush of manufacturers offering a wide variety of such systems. For the first time fully integrated battery storage systems, those which contained the power inverter electronics, battery racking and batteries along with monitoring performance systems all in one lockable enclosure, began to appear from such companies as Robert Bosch, Panasonic, Sonnebatterie and VARTA Storage GmbH. Such fully integrated systems represented a major change in design within the battery storage market long known for installers and integrators having to buy one manufacturers inverter, another firms batteries, yet another firm for monitoring while figuring out how to enclose such “integrate yourself” storage systems.

For the first time, many of these newer storage systems featured lithium ion battery chemistries known for their extended charge/discharge cycling properties. The idea of using lithium ion batteries better fit the hundreds of duty cycles found in the German residential battery storage model over lead acid batteries typically known to have significantly less performance cycles when compared to lithium ion.

In May 2015, Dr. Harry Wirth, Division Director Photovoltaic Modules, Systems and Reliability at Fraunhofer ISE, published the report, “Recent Facts about Photovoltaics in Germany” on the effectiveness of Germany’s now decade-long move to more renewables. In his report, Wirth provided a roadmap as to what the battery storage market for Germany might look like. Wirth stated, “Investing in storage is first profitable when large differences in the electricity price frequently occur, either on the electricity exchange market European Energy Exchange or at the consumer level.”

According to the German government, since the full scale introduction of their battery storage incentive program began in May 2013, just over 10,000 systems have been installed, 4,000 in the first year then 6,000 in the second year with an estimate for more than double that amount in 2015. Markus Hoehner, head of Hoehner Reseach & Consulting, stated, “For 2015 we estimate 12,500 new systems will be installed, with and without KfW support.”

Following Germany’s Lead, a Handful of States are Now Driving Battery Storage in the US
In the US, where interest in battery storage is high, the economic case is not so clear cut as it is in Germany. Unlike Germany, just a handful of states in the US contain the necessary market pricing, electric utility regulations and incentives to make the economic argument for many people. The states where battery storage is beginning to emerge within the energy mix is California, New York, Texas, Massachusetts, New Jersey, Hawaii and Arizona.  Two of these states, California and New York, are in the process of instituting groundbreaking electric utility regulation overhauls to focus on more generation from the market side of Distributed Energy Resources with a big emphasis on battery storage.

In September of 2013, the California Public Utility Commission (CPUC) passed a mandate for 1.325 gigawatts of energy storage for both behind and in front of the meter applications by 2020. The CPUC mandate, “Order Instituting Rulemaking Pursuant to Assembly Bill 2514 to Consider the Adoption of Procurement Targets for Viable and Cost-Effective Energy Storage” states that each of the three large public investment-owned electric utilities must plan for and deploy a specific amount of cost-effective battery storage, thermal energy storage and other storage technology installations within their respective service areas. Southern California Edison and Pacific Gas and Electric each must allow or install a total of 580 megawatts of storage capacity while San Diego Gas and Electric must allow or install a total of 156 megawatts for a total by all three utilities of 1.325 gigawatts of capacity.

The 2013 CPUC storage mandate has already made California a strong market for all types of battery storage systems including large multi-megawatt electric utility scale storage. The three state electric utilities involved are now offering incentives for battery storage under their “Self Generation” programs. Southern California Edison, for example, is offering $1.46 per watt for residential battery storage installations.

In New York State, the process for overhauling the current electric utility operating regulations to allow for more market-side deployment of technologies such as PV solar and battery storage is now underway in the State’s Reforming The Energy Vision (REV). According to the state’s REV web site the initiative, “Under Governor Cuomo’s ‘Reforming the Energy Vision’  strategy, New York is actively spurring clean energy innovation, bringing new investments into the state and improving consumer choice and affordability. In its role, the New York State Public Service Commission, or PSC,  is aligning markets and the regulatory landscape with the overarching state policy objectives of giving all customers new opportunities for energy savings, local power generation and enhanced reliability to provide safe, clean, and affordable electric service.” Under its REV initiative, New York State has targeted significant increases in generation from solar and wind with an increased focus on improved grid reliability through battery storage during the peak of the summer cooling season and power outages from increasingly extreme weather events.

Existing and Emerging Business Models for US Battery Storage
Because batteries are much like Swiss Army knives in that they can be used in a wide variety of ways, the business models for battery storage in the US vary significantly and have considerably different value across a number of electric grid users.

Photo-4-VARTA-Engion-SENTRY-Interior-ViewAccording to the recent study, “The Economics of Battery Energy Storage,” published October  2015 by the Rocky Mountain Institute, there are now a dozen different business models among the three major groups involved with and/or using the parts of the US electric grid. A summary look at each of these three groups and which of the 13 business models involving battery storage begins to say a lot about where the technology is heading over the long haul.

For the electric utilities, the first of the three user groups, owing and operating large scale multi-megawatt along with distributed battery storage from the market-side, enables utilities to use storage for transmission congestion relief, black start of operations, distribution and transmission deferrals along with resource adequacy. In other words, a centralized electric grid using battery storage within its backbone combined with numerous decentralized battery storage sites, provides the utilities with a wider range of tools in managing their grids to demand or when weather or other events disrupt grid service.

For the grid Independent System Operator/Regional Transmission Organization (ISO/RTO) operators such as the Pennsylvania Jersey Maryland Interconnection and California ISO, significant amounts of embedded battery storage bring five business models to the table. They are energy arbitrage, frequency regulation, spin/non-spin reserves, voltage support and black start. Similar to how electric utilities gain additional tools to manage their grid service areas, the Independent System Operators who oversee regional high transmission sections of the electric grid gain more flexibility in management of demand to price to power reserves requirements by having more “instant on/instant” off battery storage capacity deployed within their respective oversight regions. For residential and commercial customers, battery storage has in many ways some of the greatest benefits to grid users. Battery storage systems become effective protection in case of power outages for those customers who cannot or will use gasoline or natural gas fired generators. Quiet and generally installed indoors, inverter based battery storage systems do not produce any carbon monoxide, one of the consistent risks in the use of fossil fuel based generators of any type. When combined with PV solar systems, battery storage as evidence in Germany, allows end users to self consume the electricity made during the day from the solar arrays at night for as long as they can based on size of system and load profile use.

For commercial meter accounts in particular, battery storage allows the user to minimize demand charges, participate in electric utility Demand Response Programs and become aware of and practice Time of Use Bill Management Programs offered by a variety of energy services firms.

These benefits are recognized in the recent Rocky Mountain Institute report as its states in its executive summary, “However customer-sited, behind the meter energy storage can technically provide the largest number of services to the electricity grid at large even if storage deployed behind the meter is not always the least cost option.  Furthermore, customer sited storage is optimally located to provide perhaps the most important energy storage service of all: backup power.”

The Choice of Lead Acid Versus Lithium Ion in Battery Storage
While business models premised on the merits of battery storage value continue to emerge, it will take time for different users of the electric grid to figure out their best options for use of the technology. As the process of finding out what makes economic sense, careful consideration needs to be given to what type of batteries or more importantly, battery chemistries should be used in what specific type of storage application. A significant amount of confusion is currently in the market when it comes to choosing one of the two most popular battery chemistries, lead acid and lithium ion.

The grandfather of battery chemistry is lead acid, which has now been available for more than 100 years. It’s used in everything from handheld flashlights to automobiles and boats. It also plays a leading role in the telecommunications tower cells, most UPS systems for IT applications and backup power for large corporations such as Google’s server farm systems. Highly stable and not normally subject to thermal runaway issues, lead acid batteries tend to serve best when fewer rather than more charge/discharge cycles are required. The majority of batteries used for battery storage applications average about 1,000 to 1,100 charging cycles over their lifetimes. At an average cost range of $200 to $250 per kilowatt hour, they are an excellent choice in most battery storage applications configured for power outage needs as the number of use cycles required for power outages over a five to 10-year period fall well within the duty cycle lifetimes of lead acid.

Best in class lead batteries from such industry leaders as East Penn Manufacturing are fully sealed and feature valve regulated technology, which means hydrogen gas within the battery is quickly converted back into water which allows for a lead acid battery, which does not require ongoing watering during its operating life. Lithium ion batteries vary greatly in performance characteristics from lead acid batteries.

Lithium ion batteries can easily be in the 5,000 to 15,000 charge/discharge cycle range depending on how the battery is being used. Depth of discharge and operating temperatures play a major role in the lifetime performance of lithium ion batteries. It is a battery chemistry which performs best when used on a regular basis making them the best choice for commercial accounts wanting to install a battery storage system for participating in an electric utility demand response program. While lithium ion batteries cost more than lead acid batteries, in the range of $350 to $600 per kilowatt hour, their longer life often makes them a better value particularly in demand response and demand charge mitigation business programs.

What Does the Future Hold for the US Battery Storage Market?
Size of market estimates vary among analysts but the overall consensus is battery storage will play a significant role in the future of the US electric grid operations. According to a recent report from GTM Research and the Energy Storage Association, the US is forecasted to deploy 220 megawatts of battery storage in 2015, more than three times its 2014 total. New York City-based Lux Research, Inc. which follows the battery storage market closely estimates the total market for battery storage, anticipates all applications including electric cars, will reach $50 billion by 2020. For the worldwide U.S. grid tied battery storage market, the research firm estimates a $2.7 billion market by 2018. If batteries and inverters experienced a drop in price combined with improvements in operating efficiencies such as what the worldwide PV solar module market did over the last 20 years, the market for battery storage could be significantly bigger than current estimates.

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Where to Learn More About Battery Storage

The Energy Storage Association
A powerful voice and indispensable resource for the entire global industry:

The Global Energy Storage Alliance (GESA)
A 501(c) 3 non-profit organization founded in 2014 with a mission is to advance education, collaboration, knowledge and proven frameworks about the benefits of energy storage and how it can be used to achieve a more efficient, cleaner, reliable, affordable and secure electric power system globally:

The European Association for Storage of Energy
The European Association for Storage of Energy (EASE) is the voice of the energy storage community actively promoting the use of energy storage in Europe and worldwide:

The Stella Group, LTD
A clean energy technology optimization and strategic policy firm specializing in blending clean, distributed energy technologies and financing for commercial, industrial, governmental, institutional, and mixed-use projects. Scott Sklar has forty years of experience in the energy sector, including national military and energy policy as a US Senate aide, technical performance and standards as Acting R&D Director at the National Center for Appropriate Technology, and business/financing running (15 years) the solar and biomass industry associations:

BVES the German Energy Storage Association
Our objective is to unite and promote all industry players under one banner. Members of the association include companies from all sectors related to energy storage, such as technology manufacturers, project developers, system integrators, consulting firms, research institutions and other market leaders in the clean tech sector: