TODAY’S STUDY: How Get The Stacked Values Of Battery Storage
Stacked Benefits: Comprehensively Valuing Battery Storage in California
Ryan Hledik, Roger Lueken, Colin McIntyre, Heidi Bishop, September 2017 (The Brattle Group for EOS Energy Storage)
Several ongoing initiatives in California are facilitating the deployment of battery storage technology. One such initiative is the California Energy Commission’s (CEC’s) sponsorship of energy storage pilots and demonstration projects. Included in those projects are various battery storage deployments developed by Eos Energy Storage (“Eos”). Among the research objectives of the Eos projects is an assessment of the potential economic benefits of energy storage in California. This report provides the assessment of energy storage economics. The study was developed by The Brattle Group under a contract with Eos.
Much of the existing research on energy storage value focuses only on isolated use cases for the technology, such as energy price arbitrage or peak capacity deferral. In fact, an advantage of battery storage is its ability to capture multiple sources of value.1 Accurately capturing these “stacked benefits” of battery storage requires detailed analysis of both the operational characteristics of the battery and the nature of the value streams it captures. In this study, we have used a modeling approach designed to accurately quantify the benefits of multiple value streams. Other noteworthy aspects of the scope include:
• We assess battery storage value under a broad range of California-specific market conditions and system costs observed between 2013 and 2016. We account for the value of avoided energy, generation capacity (i.e., resource adequacy), transmission and distribution capacity, and ancillary services.
• We model two battery discharge cases to account for differences in the battery operator’s ability to predict future market prices. In the Perfect Foresight case, the battery is assumed to operate with perfect foresight into all future market prices and marginal costs. In the Limited Foresight case, the battery is operated with realistic constraints around the ability to predict prices.
• We analyze the incremental value of a single battery storage project on the California power system. We have not analyzed the impact that the addition of large quantities of storage could have on market prices.
• The scope of our analysis is focused exclusively on quantifying avoided system costs (i.e., we quantify the system-wide benefits of deploying batteries). We do not specifically quantify the value that could be captured at the retail level by individual customers with distributed storage.
Our analysis suggests that, in many cases, the “stacked” benefits of battery storage compare favorably to recent estimates of new battery costs. This finding is sensitive to the marginal cost of generation capacity but is otherwise robust across the sensitivity cases we analyzed. The quantified benefits appear to be in line with those of other studies. Important observations from our assessment of the value of battery storage in California include:
• Under our Base Case assumptions, with limited market foresight, the total value of “stacked benefits” in California for one kilowatt / four kilowatt-hours of battery storage could be around $280/kW-year. By comparison, recent estimates of battery costs have been in the range of $200 to $500/kW-year (though they vary significantly by technology type and configuration).
• Accounting for the “stacked” benefits of battery storage by optimizing its dispatch across all analyzed value streams significantly increases the total value of the battery relative to any individual value stream (by a factor of at least 2x to 3x over individual uses cases).
• Avoided generation capacity, frequency regulation, and energy price arbitrage are the largest sources of quantified value. However, the “depth” of each market should be taken into consideration when valuing large quantities of energy storage. Frequency regulation in particular is a highly valuable service with a very limited system need. At the same time, the need for frequency regulation is likely to increase with greater renewable resource deployment. This consideration is particularly relevant in the California market, as the state progresses toward its 50% renewable energy target.
• Sensitivity cases suggest that uncertainty about the capacity value of storage could significantly impact estimates of total value. In the short run, excess supply means that the capacity value of energy storage in California will be modest unless there are local needs for resource adequacy. In the longer term, as planning reserve margins tighten, system-wide capacity value could approach the levels quantified in this study. Aside from sensitivity to generation capacity cost assumptions, the Base Case results are fairly robust across a range of assumptions about T&D capacity costs, location, and historical study year.
California is considered to be a leader in its efforts to facilitate the adoption of energy storage. Noteworthy energy storage initiatives in California include:
• An aggressive storage procurement mandate for the investor-owned utilities (IOUs);
• The Self Generation Incentive Program (SGIP), which provides incentive payments to behind-the-meter storage; • Enhancements to CAISO’s energy and A/S markets to support storage participation;
• CAISO’s implementation of new wholesale market products that are amenable to storage, such as the flexible ramping product;
• CAISO’s Energy Storage and Distributed Energy Storage (ESDER) stakeholder group, which works to enhance the market participation of grid-connected storage;
• CPUC proceedings to quantify the locational value of distributed energy resources; and
• The CPUC requirement that load serving entities contract for sufficient flexible capacity, which storage is eligible to provide.
Generally, there has been a heavy focus in California on addressing energy storage participation barriers at the wholesale market level. While we have not quantitatively analyzed the customerside economics of battery ownership and utilization, there are also clear options for addressing barriers to distributed storage adoption at the retail level. As such, our scope for this study specifically called for an exploration of opportunities to increase the system value of storage through retail rate redesign. It would be a valuable future research activity to comprehensively evaluate all opportunities to address barriers at both the retail and wholesale levels.
Better alignment of the retail rate design with the underlying structure of system costs can incentivize customers to adopt battery storage and use it in a way that produces system benefits.2 In this study, we discuss two specific innovative rate designs which could provide significant opportunities for monetizing the value of behind-the-meter energy storage. The first is a “threepart rate” which consists of three charges, each designed to recover different types of costs. The “demand charge” in a three-part rate is based on a customer’s peak electricity demand and can provide a particularly strong incentive for battery owners to discharge the battery during peak times in order to reduce capacity costs.
The other retail rate design that could facilitate the capture of battery storage value is a “smart home/business rate.” A smart home/business rate is a form of real-time pricing in which all energy and capacity costs vary on an hourly or even sub-hourly basis. The hourly variation creates opportunities for the battery operator not only to capture fluctuations in energy value, but also to provide resource adequacy in a price-based manner that is tied directly to the underlying drivers of capacity needs.
Operating batteries to capture “stacked” benefits could unlock significantly more value than using batteries to pursue individual value streams in isolation. This finding is fairly robust across a range of sensitivity cases. However, challenges to simultaneously capturing multiple value streams remain. Some of the barriers are technical in nature, and may be overcome as new battery management algorithms and software are developed. Other barriers may be overcome through new policy initiatives. Offering new or revised rate designs which more fully reflect the time-varying nature of the cost of generating and delivering electricity is one of many possibilities. Costs of energy storage are expected to continue to decline, and market adoption is likely to increase as a result. In this scenario, considerations at both the retail and wholesale level will play an increasingly important role in the formation of energy storage policy initiatives.