A Growing Role for Energy Storage

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The stars are aligning for distributed energy resources (DER) to play an increasingly important role in providing energy services to consumers. Some see the growth in capacity from sources such as solar PV panels, fuel cells, advanced batteries, and other forms of DER as the supreme threat to incumbent distribution utilities, echoing the much ballyhooed utility death spiral storyline. Others see this evolution as an opportunity for utilities to reinvent themselves by aligning their business strategy and business models with the emerging digital economy.

There are increasing signs that it is possible to create win-win scenarios by leveraging the diverse services that energy storage can provide. Advances in software that can optimize DER to provide bidirectional value along with the bridging capabilities that energy storage brings to the market can create order out of what would otherwise be chaos. Is there a way for everyone to come out as winners? The key is intelligent distribution networks, an ecosystem of solutions that include microgrids and virtual power plants (VPPs).

This article highlights the vital role energy storage plays in these two aggregation and optimization platforms. Once a technology that was either reduced in size or eliminated at the design stage, energy storage—especially in the form of advanced batteries—is being viewed as the key enabler of both platforms. Microgrids and VPPs are emerging as key gateways to enable what Navigant Consulting Inc. (Navigant) calls the Energy Cloud, a paradigm shift in the way power grids work. The Energy Cloud shifts emphasis from large centralized fossil and nuclear plants to smaller, smarter, and more sustainable DER located at customer sites.

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Microgrid-Enabling Technology Trends
The evolution of energy markets is accelerating in the direction of a greater reliance upon DER, whether those resources generate, consume, or store electricity. One way to aggregate, optimize, and control DER is through a microgrid, which the US Department of Energy (DOE) defines as such:

A microgrid is a group of interconnected loads and distributed energy resources (DER) within clearly defined electrical boundaries that act as a single controllable entity with respect to the grid. A microgrid can connect and disconnect from the grid to enable it to operate in both grid-connected and island mode.

Lawrence Berkeley National Laboratory (Berkeley Lab) statistics show that 80–90% of all grid failures begin at the distribution level of electricity service. And this is the exact portion of the power system where microgrids can enter the fray, bolstering reliability from the bottom up, rather than from the top down.

The biggest change affecting the mix of DER being integrated into microgrids over the last decade is the rapidly declining cost for energy storage technologies. Led in large part by bold public pronouncements by Tesla, the costs attached to advanced batteries, particularly lithium-ion (Li-ion) batteries, have accelerated the market adoption of energy storage within a variety of networks. Microgrids are benefiting from this trend. While Li-ion batteries are the energy storage technology of choice for the majority of microgrids being deployed today, Navigant Research expects a diversity of battery technologies to gain market traction over the next 10 years. Rather than designing microgrids to reduce or eliminate the need for energy storage, batteries (including hybrid energy storage solutions encompassing flywheels and ultracapacitors) may become the centerpiece of a growing number of microgrids, especially those seeking to capture grid services revenue.

The services that advanced energy storage delivers to microgrids are not dissimilar to the services that these same devices deliver to the traditional grid: resource optimization (solar PV, wind, fuel cells), resource integration (solar PV, wind), stability (frequency, voltage), and load management. Understanding the importance of each service to a microgrid customer is critical to building a compelling business case for different energy storage options, particularly in the face of cheaper alternatives such as default technologies like lead-acid batteries or diesel generators.

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The choice between different advanced battery chemistries depends on the operating characteristics the end-user is trying to optimize. No one battery can support superior operating statistics in the following categories:

  • Cycle life
  • Discharge time
  • Efficiency
  • Specific energy
  • Operating temperature
  • Voltage

Unlike other applications for advanced batteries, such as portable power (with weight and energy density arguably the most important characteristics of a battery), no single operating characteristic will make one battery technology more attractive than another to the broad utility industry, including microgrids. This underscores the complexity of the energy market. In this market, manufacturers and service providers must design battery systems that can provide multidimensional services and thus a better value proposition.

Selecting an advanced battery for different grid service applications is a complex equation of application requirements, grid profile, and economics. As a result, battery manufacturers are looking to design systems that can be leveraged for multiple applications, both short- and long-duration. Some battery manufacturers and systems integrators are looking at innovative ways to pair multiple battery technologies in a single system. Many of these companies are also shifting their focus from the hardware commodity that serves as the foundation of a battery system. Instead, they are focusing on smart inverters and software controls that can maximize the value these systems can bring to individual customers as well as the overall grid.

Li-ion appears to be the top choice for microgrids today since it can provide both power and energy services, while most other choices offer an either/or scenario. Each battery chemistry is at a different stage of commercial maturity, though all are making significant progress in climbing down the cost curve.

It should come as no surprise that energy storage technologies show the most dramatic growth of any DER category being deployed within microgrids over the next decade. By 2027, annual implementation spending on energy storage deployed within microgrids is expected to exceed $4.6 billion, with North America and Asia Pacific being the largest regional markets.

Microgrid Case Study: Inland Empire Utilities Agency
The Inland Empire Utilities Agency (IEUA) is a regional wastewater utility and wholesale water supplier in southwestern San Bernardino County. Over the last several years, IEUA has become a national leader in clean energy by building a series of clean energy distributed generation projects, including wind, solar, and a fuel cell. Recently, the agency decided to optimize its operations using a new energy storage system (ESS) that could maximize economics while also providing revenue opportunities through grid services.

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Large Commercial and Industrial Energy Storage System Installed Cost (CAPEX) Assumptions by Technology, Global Averages: 2018–2027

The existing generation assets were installed at different times and operated independently. IEUA wanted to create an interconnected system, with the ability to island during outages, control resources and costs, and supply energy and services to the regional grid. The grid interdependence microgrid structure is emerging as a model that could enable the widespread deployment of microgrids featuring energy storage. This model integrates economic optimization of DER with mission-critical reliability requirements. It can provide a more cost-effective approach to resiliency than traditional microgrids, which (typically) completely island all operational load within a given area and can thus be prohibitively expensive.

IEUA primarily relies on onsite generation resources to serve its operations, with grid power from Southern California Edison (SCE) as a supplementary resource. Battery ESSs (BESSs) are being deployed at facilities as a load control technology that allows each facility to optimize the use of onsite generation (e.g., increasing the capacity value of solar) while providing warm standby power in the event of a sudden reduction in onsite generation (e.g., fluctuations in solar output due to cloud cover or loss of biogas digester output). The BESS also allows IEUA to provide grid services to SCE such as load reduction for demand response (DR) programs, congestion management, and voltage support without disrupting operations or stressing equipment. Service fees paid from energy cost savings, in combination with revenue generation from enhanced grid service capabilities, support the costs of deploying the BESS and require no capital outlay by IEUA.

Advanced Microgrid Solutions (AMS) held several contracts with SCE in 2016 to develop energy storage projects to help replace traditional resources. It approached IEUA as a host site to develop projects to provide DR when dispatched by SCE or the grid operator. AMS viewed IEUA as a viable site to provide dispatchable DR resources to SCE. AMS and IEUA partnered to install 3.65 MW of energy storage at six IEUA facilities—four treatment plants and two pump stations—under a 10-year energy management services agreement.

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De1903 14The primary goal of a VPP is to achieve the greatest possible profit for asset owners while maintaining the proper balance of the electricity grid—at the lowest possible economic and environmental cost. From the outside, the VPP looks like a single power production facility that publishes one schedule of operation and can be optimized from a single remote site. From the inside, the VPP can combine a rich diversity of independent resources into a network via sophisticated planning, scheduling, and bidding of DER-based services.

As is the case with microgrids, energy storage is not a prerequisite for the creation of a VPP. Instead, it enhances the flexibility and underlying value of other generation and load assets being assembled within the mixed asset VPP portfolio. Once storage is included in a VPP, it becomes dispatchable and schedulable, and other assets that are not schedulable become more attractive. Navigant Research deems VPPs that include energy storage as mixed asset VPPs, distinguishing them from load-based DR VPPs and those VPPs limited to aggregating generation (i.e., supply-side VPPs).

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In the past, Navigant Research did not recognize energy storage as a key enabling technology and major part of the revenue stream that sets the stage for VPPs. The designs of VPPs in the past were optimized to manage DER in the absence of viable and affordable energy storage. The single biggest change in the overall VPP market since 2014 has been the trend of presenting fleets of solar PV plus ESSs into VPPs. This is a global trend, but the market is particularly active in the US, Germany, Australia, South Africa, and Japan.

Various market trends have led to energy storage-enabled mixed asset VPPs:

  • There was a decrease in battery and modular ice energy storage costs to the point that it was economically viable to offer small-scale energy storage to individual consumers.
  • Growth in the frequency regulation market in PJM territory in 2013–2015 brought enough volume to bear on battery manufacturers globally that these companies could invest in manufacturing and offer more competitive pricing.
  • Energy storage software and controls became sophisticated enough that it was possible to do more work with a smaller storage system and aggregate individual systems.
  • Utilities began accepting energy storage thanks to well-publicized demonstrations from major investor-owned utilities.
  • Utilities began to see parallels between solar PV and energy storage. These utilities realized that instead of shunning solar PV—as many utilities did when solar PV became economically viable for end-users—they could avoid missing business opportunities by embracing storage.

The ultimate driver for VPP implementation is software enhanced by artificial intelligence and machine learning. Intentionally broad, this segment of the automation and intelligence market encompasses solutions across the utility value chain, including far-reaching enterprise IT, down to single application, standalone distribution automation solutions. Some forms of telemetry, such as smart meters, are prerequisites for a VPP, as well as individual device controls and some forms of communications infrastructure. However, software that allows for aggregation, optimization, and ultimately market interface is the most vital enabling technology for VPPs.

Along with energy storage, the growing sophistication of DR will be another key driver behind the success of the overall VPP market. The more DR can be automated, called up in near-real time, and surgically administered at the distribution grid to solve problems from cascading to the wholesale market, the better this VPP platform will look to all stakeholders, including utilities. Backing up DR with energy storage can help make it a more dependable resource capable of smart renewables integration, further building the business case for mixed asset VPPs.

An ESS-enabled VPP is a VPP that uses energy storage as the foundation of the aggregation. Navigant Research refers to storage as a foundation for VPPs because once storage is included in a VPP, that VPP becomes dispatchable and schedulable and other assets that are not schedulable become more attractive. For example, DR can be viewed as a type of VPP, but in order to balance the uncertainty of load availability, aggregators design and build portfolios
that meet a commitment to a utility while minimizing risks (such as a large load opting out and causing the aggregator to miss its commitment). However, by using an ESS in a DR portfolio, the aggregator would have more flexibility designing a DR portfolio and could bid more confidently and aggressively in the market. Energy storage adds flexibility to VPP portfolios.

Annual implementation spending on energy storage deployed within VPPs is expected to reach close to $16 billion by 2027, a much larger market than microgrids. Unlike microgrids, Europe is also a major market, along with North America and Asia Pacific.

VPP Case Study: Alectra
Alectra, the second largest municipal utility in North America, was the first utility to develop a microgrid offering for its customers in 2015. It developed a small commercial-scale microgrid and then a utility-scale microgrid, the latter at its headquarters at CityView in Vaughan, Ontario. This utility-scale microgrid integrates a variety of DER (including three kinds of energy storage) while also featuring the ability to island, if necessary, to maintain reliability at a site that includes Alectra’s center of operations.

The utility then developed an innovative VPP pilot project that commenced in 2016 and involved 20 residential units, each to be equipped with a 5-kW solar PV array and a 6.8-kW/12-kWh Li-ion battery. The project is designed to enroll homes on select feeders (which may not be adjacent to each other) to provide system benefits. Perhaps the most innovative aspect of the project is the business model dubbed DBOOME (design, build, own, operate, maintain, and energize). Customers have an opportunity to participate in a zero maintenance solar storage program with an upfront cost to partially cover installation, followed by a nominal monthly service fee for a five-year program. In exchange for the customer’s upfront payment and ongoing service fee, Alectra offers customers significantly reduced electricity bills and resilience.

The key vendor partnering with Alectra on this initial pilot project is Sunverge, which provided residential and commercial building-sited energy storage solutions that integrate renewables such as solar PV. Sunverge offers a combination of onsite hardware and cloud-based services that enable remote monitoring and control of these solar plus storage residential systems, aggregating them into VPPs.

In 2018, Alectra partnered with Enbala, another VPP software vendor, to build upon its utility-scale microgrid. It will integrate offsite EVs, building automation systems, solar carports, and Li-ion batteries into the VPP to mitigate potential demand charge costs increases for the host site (Alectra’s head office in Burlington, Ontario). At the same time, it will pave the way for the provision of grid services to Ontario’s Independent Electricity System Operator (IESO). Along with automated DR, this VPP can tap the diverse pool of assets (in two different locations) in the microgrid and the offsite EV charging station to provide regulation services.

Storage Boosts Value Proposition for Both Microgrids and VPPs
The role of energy storage in both microgrid and VPP platforms has changed dramatically. Rather than being a technology to be avoided or reduced in scale as much as possible due to cost, energy storage is now the centerpiece of designs for both aggregation platforms—particularly in the form of advanced batteries. As costs continue to decline and performance continues to increase, virtually every microgrid and VPP will likely leverage the diverse capabilities of batteries. VPPs in particular represent a major market, as they incorporate the proliferation of residential solar plus storage systems into DER fleets that provide grid services. Such services provide an antidote to the impulse among some customers for total grid independence. Microgrids and VPPs will overlap over time, and both prosumer and distribution utilities will see value in being able to improve onsite resilience and grid reliability from the same set of grid assets. 

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