The Q1 stats for energy storage deployment came out last week and immediately set off a run of commentary on what’s happening with behind the meter storage and why it’s not hitting the same ramp rate as utility-side installations. There are two very easy and obvious answers to this question: regulatory requirements and basic economics.
The first can be applied to both sides of the equation: certain states are now requiring utilities to include storage in their RFPs for resources and in California they have an actual storage mandate for the three major IOUs. Why is utility scale storage growing? Because utilities are required to purchase it.
This same direct requirement is not present for behind the meter customers – residential, commercial, or industrial. This means that growth can only be indirectly influenced through customer-side economics, aka electricity rates. In the case of storage (or distributed energy resources writ large) that’s usually through government incentives and customer savings. So, let’s step back a minute and look at the various capabilities storage brings to the grid and if/how those capabilities are valued in the economics of both the utility and end-user costs.
Storage, in front of or behind the meter, provides two overarching services to the reliability and stability of the grid: load flattening and frequency regulation/voltage control (for the sake of this post, I’m blending them as they are managed together in most systems). Storage provides these services by acting as both a load and supply resource – it can draw or add energy to/from the system – at any point during the day. Fundamentally, storage removes, or at least softens, the importance of time in the delivery of electricity from the system. With a tool to manipulate the impact of time, the need for high-priced peaker plants or replacing over-capacity circuits, is significantly decreased. Storage is not just important for managing the intermittency of renewables but for decreasing the minute-by-minute cost of power as, when charged by renewable energy, there is no additional marginal cost for power discharged from a battery.
There are ample economic signals in the wholesale market to reflect the impact of time on system reliability and stability and limited signals in the commercial and industrial (C&I) space through demand charges, but in the residential space there are no time-value signals to the production or use of power. This slowly starting to change through piloting time-of-use (TOU) rates in various utilities, but given the small number of customers involved in these programs who could take advantage of bill savings from onsite batteries, is the low growth in behind-the-meter storage really that surprising? Of course not, it’s economics!
It is also unlikely to stay this way for long. In 2019, California utilities will be allowed to default all users to TOU rates (which is going to make for some fascinating rate cases in 2018). There is a bill moving through the CA legislature to set up a storage incentive program similar to the California Solar Initiative for distributed storage. Maryland and Hawaii are both implementing storage tax credit programs and other incentives to catalyze deployment.
So, just as I’m not particularly aghast at the slow deployment of distributed storage in 2017, I won’t feign surprise at hockey stick growth in 2019 and 2020. By then, it won’t be the technical need or the economic incentive that holds back storage growth, but the soft costs and financing that will define the multiplier.