Evaluating the Financial Returns of Energy Storage

A number of factors now contribute to changes that allow storage to reap returns for owners and operators, says Wes Kennedy, instructor of HeatSpring’s Comprehensive Solar Plus Storage course. 

“Storage makes money with demand charge management, time of use arbitrage and resiliency. These use cases are more or less profitable based on various utility rate structures,” he says.

To ensure they’re making the most of energy storage, designers and installers should take advantage of software programs that provide insight into the financial returns of storage, as well as solar.

Demand Charge Management with Storage

Storage can save money by reducing utility demand charges. A commercial customer’s utility bill includes two components. The first is for total consumption per month, in kWh, and the second is for demand, based on the highest capacity the commercial customer requires during a billing cycle. Demand charges are usually billed at 15-minute intervals.

“With demand charge management, you discharge your battery onto your buildings’ electrical system and offset the load behind the meter. The utility meter never sees that load, it sees it as load that didn’t occur,” says Kennedy. This type of management can significantly reduce demand charges from utilities. 

Deploying Storage with Time of Use Rates

Time of use arbitrage is another way to save money using storage. Under time of use rates, utilities offer incentives for customers to change the time of day they use electricity.  This helps the utility save money and stabilize the grid during periods of high demand. If you sign up for time of use rates, you pay lower electricity rates for consuming when demand is low, and high rates during high demand periods. Portland General Electric, for example, offers its lowest time of use rates between 10 pm and 6 am, which are off-peak hours.

Understanding the Impact of Different Utility Rates

To understand potential rate-related savings, you can integrate solar with storage and analyze the effects of switching the rate.

To do this, designers use software modeling, which compares the effects of various rate structures provided by utilities. 

For example, one software company conducted a study that examined the effect of different rates from California utilities on energy storage, PV and solar plus storage projects. It found, for example, that Pacific Gas & Electric’s B-6 rate yielded savings from PV systems, but not much from energy storage. Ninety-five percent of savings came from PV, while 5 % came from energy storage. The conclusion: B-6 is a great rate for PV, but not for storage. That’s because the rate offered no meaningful price differential in its time of use rates.

The study also found that commercial and industrial solar customers in California can save money by switching to solar-friendly rates. With rate switching, customers can move from a high $/KW demand charge rate to a lower $/KW demand charge in exchange for higher $/kWh energy charges. This allows PV to capture more value because PV doesn’t efficiently reduce demand charges.

The study concluded that it generally makes sense to switch rates with solar plus storage.

 Identifying the Value of Energy Resiliency

To determine the value of solar plus storage or storage alone, it’s not only important to look at rates. Designers should also try to place a value on resiliency, which is the ability to avoid costs associated with power outages. This is an important value that’s often overlooked, says Kennedy.

You can examine the value of resiliency by evaluating the cost of outages. A survey of 800 businesses by E-Source Market Research identified the financial costs of power outages by business sector. It found that at the very minimum, for government and education industries, it cost around $5,000 for every outage. At the maximum, it cost batch manufacturing companies more than $140,000 per outage. Losing power cost healthcare services and hospitals almost $60,000, and grocery stores more than $35,000 per outage. 

This is information designers and installers can provide to potential customers to demonstrate the savings that are  associated with using storage to avoid power outages.

The Importance of System Level Modeling

Without taking into account issues like rate switching, demand charge management and the value of resiliency, it’s difficult to identify the financial benefits of a storage or solar plus storage system, says Kennedy.

“We aren’t done when we design the systems; we have to look at the impact of rates on the system and examine changes in rates,” says Kennedy. “It’s the 21st century, you have to use the power of system level modeling in your business.”