Table 1 - Energy Storage Value Streams (Adapted from Electric Power Research Institute)
Battery Energy Storage Systems (BESS) - Worthwhile Investment?
The short answer to the question posed in the title is, it depends. Anyone following electric utility trends knows that energy storage tops the list of exciting and transformative technologies in this industry. Rapidly evolving innovations, increasing interest by utilities and consumers, coupled with more competition in this space are key drivers that are making storage more and more attractive to utilities and related companies. On the positive side, prices are projected to continue a downward trend and storage is now being seriously looked at for several different applications on the grid. The downside is that costs are still fairly high and, without regulatory requirements or subsidies, BESS’s still may not be cost-effective in many regions.
Although costs of battery energy storage systems continue to come down, utility scale systems such as utility, ISO, and 3rd party aggregator owned systems have not typically been investments with positive business cases, save for a few unique market or regulatory situations around the world. This is rapidly changing as several forces are converging to make these larger scale systems more attractive. Battery pack costs are expected to fall 40% to around $200/kWh (average of multiple projections), and the Balance Of System (BOS) costs are expected to fall 25% by 2025. The (BOS) costs include all of the equipment required to handle the energy exchange (inverters, cable, switchgear, etc.) which cannot be ignored, and can be up to 40% of the total system costs with 40% being at the high end for systems with higher power exchange or in harsh environments. However with the addition of more prolific use of communication and control standards such as IEEE 1547, and DNP3, greater ability to participate in markets such as PJM, CAISO, ERCOT, and MISO, and the directives under regulations, such as FERC 841 are all converging providing a fertile ground allowing BESS’s to flourish.
The table below is a brief description of some of the possible BESS value streams. These value streams are not mutually exclusive and can be combined to extract the most value from the system. In current markets, the most value to the utility comes from capacity/DR, frequency regulation, and in some cases capital deferment. In the future, as markets become saturated from competing distributed energy resources and BESS prices fall further, the most beneficial combination of value streams to use will be dynamic, varying by region, time of day, and season. It will be a challenge to balance the competing interests of maximizing the near-term value from a BESS with the potentially negative long term impacts of high daily battery cycle count and thermal effects of high power use. Market participation and system control algorithms will be key to getting the maximum return with given system performance parameters (power, energy, response). Improvements in battery chemistry technology may make concerns about battery operation irrelevant in the future (high cycle life and long calendar life) however, for currently available lithium-ion battery technology this limitation is a very real concern. As an example, Tesla’s Powerwall warranty states unlimited cycling for PV self-consumption but a limit of 37.8MWh throughput for any other use. The throughput number equates to roughly 3000 cycles on the battery which is when greater than 20% capacity degradation occurs and is consistent with cycle limitations of most of the available lithium-ion battery technology.
Deploying energy storage for stacked value instead of for a single purpose yields the best chance of a positive ROI. For example, take a case of BESS deployed for distribution capital deferral where infrastructure capacity is at its design limit. The BESS power capability would be sized based on this need however, battery utilization would only be around 1% if utilized exclusively for this purpose (mitigate local peak demand). This leaves a significant amount of energy throughput available for stacked services. Adding to the example, one could use the excess capacity of the system for capacity/DR, load following, or frequency regulation. The combination of stacked services would depend on the relative value of each service, capabilities of the system, and capacity available (power and energy).Table 1 - Energy Storage Value Streams
Customer owned behind-the-meter systems have the potential to provide the most benefits to the grid at large, since they can be located at the grid edge and aggregated in a way to support the grid at the circuit or network level. The primary purpose of these systems is to provide value and benefits to the customer including demand reduction, energy arbitrage or resiliency. Using excess capacity of these systems for services valuable to the utility/ISO would improve the ROI and thus the willingness to invest by the end user. One challenge however, lies in the ability for the utility/ISO to interface with the aggregated, customer-owned, BESS’s and for this reason the industry hasn’t yet seen this type of deployment on a larger scale. In addition, utility rates, tariffs, rules, and business models are undergoing changes to enable distributed generation but further evolution is needed to support more comprehensive demand side resources including demand response and energy storage.
One example where system conditions and the current markets can support BESS is in South Australia. Increased reliance on variable renewable generation resources were beginning to affect system reliability. The recently constructed Hornsdale Power Reserve (100MW, 129MWh) has been participating in short term markets and ancillary services (contingency and regulation) with positive results. Real time system use can be viewed on the project website. The speed at which this system was deployed was much faster than conventional peaking generation could have been developed. More BESS’s are planned for Australia as a result of the favorable conditions for storage and, the positive results of the Hornsdale project.
The Hawaiian island of Kauai currently has a large BESS project underway. However, the drivers of the project were somewhat different from the Australian installation in that the electric grid on the island is capable of serving the load and traditional generation is available. However, renewable energy goals, reducing dependence on fossil fuel fired power generation, and high retail electricity rates were the motivations for installing a BESS sited with a large solar PV generation station (BESS is 20MW/100MWh, solar generation is 28MW peak). Owned and operated by AES Distributed Energy with an 11 cents per kWh power purchase agreement, the project is expected to reduce annual diesel fuel consumption by 3.7 million gallons. This is Kauai’s second system of this type from AES with the first system coming online last year with a power purchase agreement of 13.9 cents per kWh. With the state’s renewable energy goal of 100% by 2045 as a driver, similar projects are likely on the Hawaiian Islands over the coming years.
With an increasing number of U.S. states mandating energy storage, decreasing system costs, and a recent FERC (order 841) decision to allow energy storage to participate in regional energy markets, the future of energy storage is assured. With storage becoming more attractive to utilities, consumers, and energy businesses we will undoubtedly see installed storage increase to some level where the market development will slow. But now is an exciting time in the energy storage market.
 Wesley J. Cole, C. M. (2015). Utility-scale Lithium-Ion Storage Cost Projections for Use in Capacity Expansion Models. Golden, Co: Strategic Energy Analysis Center, National Renewable Energy Laboratory.
 A prior EnerNex project evaluated both the demand response (DR) performance and the power quality associated with BESS dispatch. While no power quality issues were observed, the DR performance was lacking due to both baseline measurement challenges as well as the maturity of the BESS control system. Commercial and Industrial AutoDR with Stationary Batteries, 2015-16: https://www.etcc-ca.com/reports/commercial-and-industrial-autodr-stationary-batteries?dl=1492631575