Will utilities miss the boat on battery storage?
With another year of enormous battery storage growth on the horizon, the stakes are higher than ever for utilities. Failure to plan now risks directing significant dollars to storage without maximizing benefits for the grid and customers.
Gradually, and now suddenly, storage is coming
Battery storage has been on the edge of a revolution for several years. Now, it is poised for tremendous growth thanks to historic declines in technology prices and developer bids.
State storage goals are spurring further adoption. California, Oregon, New York, New Jersey, and Massachusetts have established ambitious energy storage goals, and others are likely to follow their lead. Ongoing proceedings at FERC related to Orders 841 and 845 are also expected to facilitate greater participation in wholesale markets and streamline interconnection for market-facing applications, setting the stage for enhanced value from storage.
Utilities continue to test different storage use cases and business models to understand the range of possible services, but are they prepared to maximize the potential benefits?
Many utilities are already in the early stages of pursuing storage through several avenues, including demonstration projects, non-wires alternatives (NWA), and next-generation demand response (DR) programs. However, there are ample reasons to believe that the pace of storage deployment will accelerate further as market opportunities expand, technology improves, and supportive policies gain traction, creating greater urgency to get a strategy in place.
ICF sees three deliberate and pragmatic actions for utilities to take now to effectively manage risk and ensure future storage deployments maximize safety, reliability, resiliency, and customer benefits:
- Develop expertise on the optimal siting of storage assets
- Establish frameworks to define the prioritization of different services
- Determine operational requirements to ensure utilities achieve desired use cases
By implementing these three actions, utilities will bolster their near- and long-term storage integration plans to maximize grid and customer value.
1. Location, Location, Location
Energy storage has the technical capability to provide a range of services across all levels of the electrical grid (see figure below). However, current business models and policy frameworks limit storage assets to only providing services within their grid domain and areas upstream of it (Figure 1).
For instance, assets interconnected in front of the meter on the non-bulk transmission and distribution (T&D) system do not respond to or serve individual customer needs.
Figure 1: How Energy Storage Benefits Move Through the Grid
Comprehending the optimal siting of storage on the grid and the relevant policies and tariffs will allow utilities to achieve targeted use cases, whether strategically siting assets themselves or guiding third-party storage to higher-value areas. When designing the targeted use cases for specific storage assets and long-term storage strategies for utilities, considering location-based factors is critical.
The specific physical location of the asset informs the overall value it is capable of providing. For example, siting storage assets in constrained areas of the grid can potentially defer traditional distribution investments, but deployment in underutilized and unconstrained areas will not provide any investment deferral value, possibly resulting in a mismatch between compensation and value achieved.
2. Storage utilization matters
Storage assets have the flexibility to tap into a multitude of value streams. Utilities need to decide early on how they want to prioritize asset performance across a range of services. While storage has the technical capability to provide multiple services, policy may ultimately preclude the provision of certain services simultaneously, making it critical to understand how policy and tariffs impact a storage asset’s operations.
There may be instances when a storage asset receives conflicting signals, one to provide a service through a utility NWA and another service to the wholesale market. Without a clearly-defined set of operational coordination requirements (i.e., how to communicate potential issues with other relevant parties, including DER owners/aggregators and the relevant ISO/RTO), utilities may find themselves having to respond to DER actions that could jeopardize the safety and reliability of the system.
To define these types of requirements and develop a framework for prioritization of services, some jurisdictions are implementing a policy that prioritizes reliability-based services when there are conflicting signals. This is evident in California’s Multiple-Use Applications proceeding and the December 2018 New York Public Service Commission Order on an energy storage goal. While these rules are still in the nascent stages of implementation, they represent an important distinction likely informing storage use case development across the country, including for vertically-integrated utilities in organized markets.
As storage assets seek to stack multiple values, some of which may create conflicting signals, utilities must have a clear arrangement to prioritize use cases. They must determine whether to outrightly preclude a storage asset from providing certain services, or develop a set of performance requirements and non-performance penalties to incentivize prioritization of a utility system need.
These utility objectives and relevant policy frameworks ultimately inform the development of a pragmatic set of terms and conditions governing the operation of third-party owned storage assets as part of a utility NWA or DR program. The specific terms and conditions will not only direct which services the asset owner is willing and able to provide, but they will also impact the overall economics of the project and determine the amount of risk borne by the utility for non-performance.
3. How you operate storage dictates the value you achieve
The final step to locking in the value of storage is ensuring the asset can effectively meet system demands. Utilities need the ability to verify performance and operation within defined parameters for the specific targeted use case(s) of storage assets. Additional confidence in the technology’s performance will also facilitate integration of energy storage into the utility’s T&D system planning.
If operators of storage assets (utility or third party) are unable to control and dispatch the asset in times of need, the storage asset may not achieve its maximum potential value.
Generally, the greater the level of utility control over an asset below the bulk system level, the greater the alignment with maximum potential system value.
While utility-owned assets are under their direct control, utilities can develop agreements with a third party owner or operator, such as an aggregator, to directly connect to the storage asset via an Advanced Distribution Management System (ADMS) or Distributed Energy Resources Management System (DERMS) instead.
It is vital to align new storage capabilities with advancements in utility management and control systems as storage penetration grows. As utilities leverage storage assets to provide real-time services, near instantaneous coordination of myriad resources will be necessary to preserve system safety and reliability. Grid modernization that facilitates the integration of these resources will become a prerequisite for realizing the full benefits of storage to the T&D system and an essential component of a storage growth strategy.
Maximizing storage benefits on the grid
Significant policy momentum is driving continued exponential growth of the energy storage market. We have identified targeted steps that will help ensure utilities maximize the value of these resources to the system and customers as opportunities emerge.
Success will rely upon a strong understanding and clear prioritization of the storage asset’s siting and use cases. Utilities must build a technological backbone capable of monitoring and controlling assets — all while verifying actual performance and seamlessly integrating them into planning and operations — to meet their goals.
These actions will allow utilities to manage the risks of deploying and integrating these resources, ultimately benefiting the entire grid.
