It may be surprising to know that a significant portion of California homeowners buying energy storage systems today are not doing so to save money. In other words, they are not trying to reduce their utility bill or get a return on investment, as they do from a rooftop solar system. Instead, most storage systems today are being bought and sold based on the promise of back-up power or energy independence from the utility. The primary reason for this is that the avoided cost opportunity for residential storage today is not very substantial. On most residential utility rate schedules, energy storage does not have the ability to significantly reduce the utility bill. Therefore, it’s not the core value proposition being sold today.
Even though the economics of residential energy storage typically don’t pencil out on utility bill savings alone, many solar developers still want to know how much a project can potentially save. Shrewd developers want the ability to run this analysis, so they can identify opportunities that may make sense soon. In many cases their existing customers are asking them about storage, and what the economics of adding a system would look like. When a customer asks about the feasibility of storage, they want the answer to be quantified. If a project “doesn’t pencil out”, to what extent does it not make financial sense? How much savings or avoided cost could storage achieve? What is the payback period? What is the internal rate of return (IRR)?
Quantifying how much a project can save
Accurately estimating how much a behind-the-meter (BTM) storage project can save depends on the specifics of the project. The answer will be specific to a unique customer, their load profile, their utility rate schedule, the storage equipment is specified, and a number of other project assumptions. Here’s a summary of the main variables that will dictate how much a BTM storage project can save:
- Customer load profile: how much power does the customer use at different times throughout the day?
- Utility rate assumptions: what utility rate tariff is the customer on? Is it a Time-of-use (TOU) rate? Are there demand charges? Are there any NEM 2.0 assumptions to account for?
- DER combinations: are we modeling a standalone storage project, pairing storage with PV, or retrofitting storage onto a meter that already has PV?
- Storage vendor hardware: the electrical characteristics of the battery and inverter (e.g. kW power rating, kWh energy capacity, charge & discharge efficiency, etc.)
- Storage control strategies: what value streams the software controlling the battery is targeting (e.g. “peak-demand shaving”, “Time-of-use arbitrage”, “self-consumption”, etc.)
- Controls software restrictions: are there any control restrictions (e.g. requiring the battery must charge from PV, or requiring the battery does not export to the grid)
Given that there are many different variables to define, it’s hard to generalize an answer when a homeowner asks how much money they could save by adding storage. But once all of these discrete variables are defined, it’s very possible to estimate the avoided cost of a specific project. For example, a customer in the PG&E service territory, consuming 1,000 kWh per month, on the E-TOU (A) rate, pairing a Tesla Powerwall battery with their 5 kW PV system, doing a TOU arbitrage strategy, could expect to save between $X and $Y dollars annually.
Energy storage – market demand
Energy Toolbase has roughly a thousand organizations using our software now, so we talk with a lot of solar developers and installers across the country. We can attest that there is a strong demand from the solar development community for the ability to accurately quantify the economics of storage projects. Last month at the Intersolar North America conference in San Francisco we had a steady stream of foot traffic for three straight days at our booth. Everyone it seems wants to talk about storage. One use-case in particular that we’re hearing a lot is the ability to model the marginal economics of adding storage to a customer who already has solar. Another is the potential to utilize storage to preserve the savings of a solar project, now that ‘on-peak’ TOU windows are moving later in the evening, which erodes the value of solar. We recently gave a presentation that touched on a lot of these topics, entitled Quantifying the avoided cost of BTM energy storage projects at a CALSEIA chapter meeting.
With all the hype surrounding the energy storage market, many developers are feeling the pressure to become educated on storage and understand the value proposition on behalf of their customers. This is especially true in California, now that the Self-Generation Incentive Program (SGIP), which provides rebates for customer-sited energy storage projects, has relaunched.
Energy Toolbase – storage software update
We’re a few weeks away from going live on a big energy storage software update that we’ve been planning for over a year now, and our engineering team has been building for the last several months. Our product vision is to give users the ability to objectively and transparently quantify the dollar savings for any type of BTM energy storage project. We are currently in beta and have been getting great validation from developers and energy storage manufacturers who are test driving the new features. We know there is strong demand for great software tools capable of running accurate savings analysis. Even in instances where residential installers sell storage primarily based on the promise of back-up power or energy independence, it will still be valuable to quantify what sort of utility bill savings can be achieved. Even if it’s just a secondary benefit at this point.
