Energy Storage Update
Since Part 1 of this series was published in June 2015, energy storage has continued to make headlines across the country. GE announced a 30 MW battery storage system in California, Tesla trumpeted new cost targets for their Powerwall system, and a host of new market entrants have emerged to battle for a piece of the action. While there’s certainly a lot of hype in the news, it’s important to take a step back and look at the value that battery storage systems can actually provide to customers. This recurring blog series surveys the various revenue streams that battery storage can provide, focusing on behind-the-meter applications. Today’s entry focuses on peak shaving, currently one of the most lucrative revenue streams for behind-the-meter battery storage projects.
Factors Affecting Battery Value – Demand Charges
In many utility territories, a large portion of commercial customer’s electricity bills are composed of “demand charges” set by the highest power demand measured in kilowatts (kW) or kilovolt-amperes (kVA) in a given period. Typically, the “billing demand” is determined by the maximum kW or kVA measured in a 15- or 30-minute interval within a demand measurement window.
To give you an idea of their magnitude, demand charges for a typical commercial customer in Con Edison’s territory (NYC and Westchester County) are 25%-30% of the total electricity bill (including both supply and delivery portions) during the summer months. Depending on the utility territory, these charges may be assessed on a “per-month” basis, meaning the maximum demand is calculated over the entire billing cycle, or on a “per-day” basis, meaning the maximum demand is calculated for each day individually. Utilities sometimes also define different demand windows, with different per-kW or per-kVA charges billed at different prices according to maximum kW or kVA measured in each window. For example, during the summer, Con Edison has three distinct demand measurement windows for large commercial customers, as shown in the table below. Note that these charges are cumulative, so if a customer’s peak demand for the month of June is during the G&T window, they would pay the sum of all three demand charges for that peak (i.e. almost $35 per peak kW overall). Behind-the-meter battery storage systems can drastically reduce the peak electricity demand for a commercial customer, and the higher the demand charges are for the customer, the more can be saved through a battery storage system.
Factors Affecting Battery Value – Building Demand Profile
High per-kW or per-kVA demand charges create a compelling value stream that batteries can take advantage of. However, determining how much a battery can reduce a building’s demand charges is not a straightforward exercise, as it depends on a number of project-specific factors. The biggest of these factors is the building’s demand profile.
To illustrate how battery storage can capture value from peak demand reductions, we’ve created the two hypothetical building demand profiles in Figures 2 and 3 below. Note that the total electricity usage (measured in kilowatt-hours, or kWh) is the same in both scenarios. The hypothetical battery is assumed to be a 500 kW/2,000 kWh battery best suited to one discharge/charge cycle per day.
In the first case (shown above), the demand profile is very “peaky” with a sharp load increase over a concentrated number of contiguous hours right in the heart of the demand measurement window. This might be seen at certain manufacturing facilities where power-intensive process equipment needs to run simultaneously for part of the day. The 500 kW battery is able to provide 500 kW in continuous demand reduction over the four “peakiest” hours (2,000 kWh overall). (Note: Full discharge is an ideal assumption; actual discharge will depend on battery life-cycle stage.) The battery can then charge during overnight hours, when the utility account is not subject to the priciest on-peak demand charges.
In the second case (above), the demand profile features an extended “peak plateau” with a consistently high load across a long stretch of contiguous on-peak hours throughout the demand measurement window. In order to extend its discharge period to cover, say, an 8-hour peak plateau, the 500 kW battery would have to reduce its power output to 250 kW (still 2,000 kWh overall). Therefore, the battery owner would receive only half the peak-shaving value for their capital expenditure than in the case of the “peaky” building.
Factors Affecting Battery Value – Building Demand Volatility
The amount of value that a given battery system can derive from peak shaving is also dependent upon the building’s demand volatility; buildings with extremely consistent and predictable load profiles are able to obtain maximum peak shaving value from a battery storage system. To understand why, consider that in a utility territory that calculates demand charges on a “per-month” basis, a single high 30-minute demand can negate the peak shaving for the rest of the month. Therefore, it is important to carefully determine, at the beginning of each month, what your building’s target peak demand should be. Choose a kW peak demand too high, and you leave money on the table. Choose too low, and a surprise load spike caused by weather or changes in occupant or equipment operator behavior could cause your battery to run out of charge too soon or withhold from discharging in order to keep reserves for a predicted load spike, and you may lose the entire month’s savings. See the chart below, in which a surprise load spike late in the day overcame the battery’s capacity, resulting in no savings for the month. Note that, in the case below, a less aggressive set-point targeting 2,600 kW instead of 2,500 kW would have resulting in 400 kW of savings for the month, instead of none. In summary, the more unpredictable your building’s load, the more of a buffer should be built in when determine the difference between the theoretical maximum amount of peak shaving that your battery is capable of and your actual monthly target. You should also consider whether your goal is to maximize the long-term value of your battery, or if you would prefer to have slightly higher, but more predictable, month to month energy bills.
The Bottom Line
In today’s market, peak shaving represents the single largest value stream for most behind-the-meter energy storage applications. But, even this relatively straight-forward revenue stream has a lot of complications that need to be analyzed when determining whether a battery is right for your site. Contact GI Energy today to for an estimate of how much you could expect to save with an on-site battery. And watch our blog for the next installment of The Value of Energy Storage, where we explore the value that can be derived from electricity arbitrage.