Application Guidance: Behind the Meter Energy Storage

Building Load

Before installation of a behind-the-meter energy storage system (ESS), it is important to understand the load profile of a facility. Depending on when and how much energy a facility typically uses (and/or produces onsite), an ESS may or may not be a cost-effective resource. The load profile of a building will also determine the most economical way to operate an ESS.

Consider a building with high demand during the regular 9-5 workday and low demand outside of those hours. On-site generation via solar photovoltaics (PV) may be able to reduce energy demand significantly when the load is highest to reduce energy bills without an ESS. However, an ESS could help bridge the time gap between peak solar generation (close to noon) and late afternoon electricity needs (during peak demand). Alternatively, if a building’s energy demand is consistently high after the sun has gone down, on-site generation alone may not reduce electricity costs during peak-hours. In this case, the PV system could be used to charge an ESS in the daytime for use in the evening. Another way to say this is that the further a building’s electricity needs are from matching the solar generation schedule, the more value an ESS provides.

These are just a couple examples of how a facility’s load can affect the economics of an ESS. ESS providers can provide consultation regarding what energy storage solutions make sense (sizing, whether to pair with on-site generation, etc.) at a site-specific level.

Resiliency- Can You Afford a Power Outage?

Like building load, the need for energy resiliency differs on a site-by-site basis. Typical office buildings, for instance, are impacted by power outages much differently than grocery stores that need round-the-clock refrigeration capabilities. An ESS can provide backup power to facilities in need, although there are implications to sizing and ways in which an ESS should be operated if resiliency is required. Depending on the location and type of facility, power outages can be more or less frequent and impactful, and an ESS may be an appropriate solution to make a building/facility more energy resilient.

System Location and Footprint

An ESS is typically a large enclosed system, often housed outdoors on site. An ESS provider should be able to provide sizing estimates and location requirements for a system to ensure that your facility can physically accommodate an ESS.

Financing Options and Tax Incentives

The initial capital costs of purchasing an ESS can be quite high, but most ESS providers offer different financing and ownership structures for their products. Common options available to customers include:

Cash Transactions– Customers can buy their products outright, covering all system costs, but keeping all of the value generated from the ESS. ESS providers may still support system operation for certain incentives.

Fixed Rate Agreements– Depending on the agreement, customers or providers may cover the costs of purchasing and installing an ESS. Customers pay providers a fixed recurring fee for the operation of the system and retain the remaining savings produced by the ESS.

Shared Savings Agreements– These agreements often involve the ESS providers offering customers ESS purchasing, installation, and operation for a fee. This fee paid to the ESS provider is calculated as a portion of the savings the customer receives from the ESS’s operation. Customers therefore have significantly less upfront capital costs compared to Cash Transactions, but do not earn all the ESS-produced savings.

Power Purchase Agreements– Commonly referred to as PPAs, power purchase agreements are arrangements in which a provider owns, installs, and operates an ESS on a customer’s property. The customer and provider agree to a rate for the customer to purchase power from the provider. PPAs offer customers stable low-cost electricity with no upfront costs, while ESS providers are eligible to receive income and applicable incentives from the ESS.

ESS products may also be leased from providers, or customers may be able to take out loans from providers or financial institutions directly. CPACE loans may also be available, which are financing structures that allow energy products like an ESS to be paid off via assessments on property tax bills.

There are also several financial incentives that can lower costs significantly, including California’s Self-Generation Incentive Program (SGIP), Federal investment tax credits, and more.

Efficiency Considerations

The energy efficiency of an ESS will depend on its location, hardware and software used, and operating mode.

The quality of hardware used, such as the thermal management (i.e., HVAC) system or power conversion system (PCS), can incur significant round-trip energy efficiency reductions to an ESS. Round-trip efficiency refers to the electricity delivered by that ESS divided by the ratio of the electricity consumed by the ESS, including both the charging and discharging periods. Considering that a PCS commonly requires converting AC to DC electricity to charge the batteries, and vice-versa to discharge energy to a facility, the inefficiencies of a PCS are compounded.

The thermal management system is what is known as a “parasitic load.” Depending on local climate and component efficiencies, the thermal management system will draw significant power from the batteries to maintain optimal and safe temperatures within an ESS.

Operating an ESS for peak shaving often requires high charge and discharge rates compared to peak shifting. Aggressively charging or discharging a battery has significant negative effects on its round-trip energy efficiency. Also, the longer a battery sits idle, for instance to be used for backup power, the more parasitic loads cause a decrease in the round-trip energy efficiency of an ESS. Aggressive charging and discharging also negatively impact the life of a battery.

It is worth noting that round-trip efficiency is only part of the larger considerations that should be considered when purchasing and operating an ESS. If a facility requires an ESS to be ready to provide backup power at any given moment, energy efficiency may not be a top priority. Additionally, even with the efficiency penalties incurred due to peak shaving operating modes, customers may still save more money compared to more efficient peak shifting operating modes depending on local utility financial incentives. These are considerations that should be discussed between energy storage providers and their customers to ensure that a customer’s financial and energy needs are met.

Different companies’ energy management software may differ in quality in optimizing battery performance. For instance, many of the demand-charge operating modes controlled by an ESS provider’s software require energy and price forecasting. A single missed peak demand occurrence could incur significant charges to a customer’s monthly energy bill. It may be appropriate to ask for a provider’s track record regarding “missed peak” events when comparing energy storage providers. The usability and transparency of a provider’s software may also be important for various customers, and it may be appropriate to discuss this with providers.

Overall, behind the meter energy storage solutions should be customized on a site-specific basis. Energy storage providers should be able to offer consultation to design an ESS that ensures that a customer’s energy and financial needs are met. An ESS may not be an appropriate resource for all facilities.