Residential Energy Storage Economics: Page 2 of 5

Backup power. The role of energy storage in backup power applications, of course, is to support loads in the event of a grid failure. Generally speaking, the installer relocates a subset of the home’s branch circuits to a new subpanel. In the event of a grid failure, loads connected to this backup- loads subpanel can operate for as long as the battery state of charge remains above its allowable depth of discharge. The duration of backup power varies based on the load profile and the battery capacity. A benefit of solar in this scenario is that it provides a battery charging source when the grid is down, which can extend backup power availability from a period of hours to days.

Demand for backup power is an important driver in residential energy storage applications, especially in the short term. However, this is also a classic early adopter market, one driven more by customer desire than by economics. It is simply not possible to develop a business case that justifies residential energy storage for backup power on a dollar per kilowatt-hour basis. Instead, customers willing to pay a premium price to have the latest technology or to ensure that they can keep lights on during an outage are the ones driving these sales.

PV self-consumption. The role of energy storage in a self-consumption or zero-export scenario is to store excess PV production and discharge this stored energy later. Self-consumption and zero-export applications always include solar. As compared to standard interactive or backup power systems, self-consumption applications require additional energy monitoring. In effect, the solar-plus-storage system needs to see the home energy consumption in real time to optimize energy inflows and outflows for maximum customer benefit. Moreover, zero-export systems need to curtail PV production whenever generation exceeds on-site loads and the battery bank’s capacity to store energy.

Markets where utilities value PV outflows at a rate that is lower than the retail price of electricity, or where they simply will not allow PV outflows, drive the demand for PV self-consumption or zero-export systems. In markets with net energy metering (NEM), customers can effectively store excess solar generation on the utility grid. Since these customers receive the full retail price for outflows, the only benefit of adding energy storage is as a hedge against the loss of NEM. In markets without NEM, however, PV customers can use a battery to shift delivery of excess PV generation in time for use later, as illustrated in Figure 2. To be economically viable, self-consumption applications need to offset the inherent efficiency losses associated with energy storage, as well as the substantial up-front costs associated with the additional hardware.

Time of use. As with PV self-consumption systems, the role of energy storage for time-of-use bill management is to store energy for use later. The primary difference between these scenarios is the logic they employ to define high-value versus low-value energy. Since NEM rules do not apply in a self-consumption scenario, customers get a retail credit only for PV generation that directly offsets household loads; they get a fraction of this value for PV outflows, which the utility might credit at the wholesale or avoided cost of electricity. In a time-of-use regime, the standard NEM logic applies; however, the retail rate structure itself values energy differently over the course of a day or year, as illustrated in Table 1. Utilities intentionally design these price differences to correspond with the relative demand for energy, as these signals can help level out electricity demand and even defer infrastructure upgrades.

In a time-of-use scenario, energy has the highest value during periods of peak demand, such as weekday afternoons or evenings in summer, and relatively lower worth at other times. The prime economic driver in these scenarios is the magnitude of the difference between on-peak and off-peak energy rates. In theory, if the spread between high-value and low-value energy is large enough, energy storage customers can achieve a return on investment by storing energy during off-peak periods and discharging it when on-peak prices are in effect. In practice, battery costs are relatively high and retail energy prices are relatively low in most of the US, which works against this business case.

Demand reduction. Demand-reduction applications use stored energy to reduce instantaneous power demand. Demand reduction is one of the most attractive business cases for behind-the-meter energy storage in commercial applications. Whereas utilities typically bill residential customers strictly based on monthly energy (kWh) consumption, they bill commercial and industrial users based on both energy consumption and peak power (kW) demand, typically as measured over a 15-minute interval. For commercial and industrial customers, peak demand charges are not only the fastest-growing part of their electric bill, but also may account for up to 50% of the total. In these applications, service providers can use advanced monitoring and control capabilities to discharge stored energy from the batteries coincident with peak loads.

Though demand reduction is an excellent use case for energy storage, very few utilities factor demand into residential rate structures. A notable exception is Arizona’s Salt River Project, which recently implemented a pilot program for a residential demand–based price plan. Unless residential demand charges apply, demand reduction is not a viable market for in-home energy storage.

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