Energy Storage Business Models- Focus on the Potential

Energy storage business models should be developed around storage system’s potential capacity and wide-ranging benefits.
Published: Wed 11 Sep 2013

As increasing amounts of renewable energy sources are incorporated into  our electricity system, energy storage technologies are growing in importance as a key solution to maintain grid stability and flexibility. As such, energy storage provides one of the biggest market opportunities in renewable energy. The sector boasts one of the fastest-moving areas of innovation, with a wide variety of technologies competing fiercely. The global energy storage market is set to grow nine-fold by the year 2017, according to industry experts, to become a US$10.4 -bn industry. In addition, its ancillary services – all the required maintenance and transmission efforts needed to maintain and transmit energy – will become a US$3.8 -bn market by 2023.

Financial Hurdles

However, technology developers and vendors in the energy storage sector are coming up against serious financial constraints as governments and investors tighten their purse strings. Some experts believe that a diversity of business models in the market is the way forward.

As energy storage complements the electricity grid on every level, the obvious target market would be the utility or Distribution Service Operator (DSO). Although storage systems are developed to ultimately provide more reliable renewable energy, increase the grid’s efficiency and resiliency, and reduce utilities’ costs and consumers’ electricity bills, many utilities are not willing to take the risk when it comes to demonstration-stage technology and DSO’s are hampered but regulatory issues. There is concern that the new technology will have an adverse affect on the reliability and cost-effectiveness of its service delivery. Investors are also known to shy away from technological, financial and regulatory risks see: Energy Storage: Can It Ever Happen? that continue to plague energy storage projects.

Focus On Capacity Potential  

We believe that the introduction of smart grids, storage, and the installation of new renewable energy portfolios will alter the financial balance of the power industry. The critical business decision is one of future investment, and that it is related to the expected rate of return.

The focus should be on energy storage capacity potential and not the actual value of the storage infrastructure. Unfortunately, the act of monetizing and bundling energy storage benefits, as well as capturing potential values to support a busi­ness framework which is acceptable to regulators and utilities is challenging when supporting the business case for storage.

This is partly because traditional methods, used to evaluate the value of conventional generation sources, do not always capture the various potential benefits of energy storage systems. Although storage systems are usually faster and more responsive than con­ventional generation, they are “energy limited” resources with limited discharge duration. Con­ventional generation systems, however, provide power as long as they have fuel.

Cost Justification

In order for customers to justify the cost of  energy storage , the systems are expected to deliver multiple benefits. New system models show that energy storage is cost-effective when all of its services and benefits are recognized. This is because energy storage delivers many benefits from one resource (for example, decreasing peak demand and providing grid support for frequency regulation). This  will accelerate energy storage’s growth. Regulation, system capacity, and deferring capital expenses for transmission or distribution investments potentially provide the highest value for using storage systems. From a customer perspective, using storage to reduce retail time of use charges and demand charges may well provide great value.

Clever Analytics

Indeed, the long-term benefits of grid-scale energy storage are  difficult  to evaluate when the technology-and what it has to offer-is so  new and varied.  However, to make this long-term evaluation process easier, a rather clever piece of analytical software has been developed by the Electric Power Research Institute. It is called the  Energy Storage Valuation Tool (ESVT).  The tool has been devised to develop suitable business plans as the software quantifies the value and assesses the cost-effectiveness of energy storage. The energy storage modeling app, can be used by  utilities, grid operators and energy storage technology makers and project operators to assess the real value of storage systems.

It will play a valuable role in clarifying the value and the variables of energy storage in the grid, according to Haresh Kamath, program manager for Energy Storage research at EPRI. “It can inform business plans, regulatory proceedings and public discourse related to storage, and allows users to see the underlying calculations of the model.”

For grid operators and utilities, this creates a better way of assessing the real potential of various technologies and business models and how these can fit into existing market mechanisms. It will also help model new programs or markets.

The development of more practical tools like this will clear up confusion surrounding the storage market. The storage industry will  be able to  provide potential storage owners with realistic figures pertaining to financial value in a standardized way.

Engerati Analysis                    

Innovation in business models and regulation will be essential to the growth of the storage industry. Data driven modeling tools will play an essential role as they help potential storage owners understand the long-term value of storage systems. Through demonstrating successful business models investor confidence will also begin to grow in response.

Sources

Greentech Grid-EPRI’s Cool New Grid-Scale Energy Storage Tool

Anthony Price-Smarter Grid and Smarter Storage-How Do Business and Technology Meet? [pdf]

Businesswire-Eos Storage Announces Strategic Partnerships with Major Global Utilities and Independent

Electric Energy Online-Energy Storage:A Critical Asset to Enable Transformation to a Smart Grid

Energy and Capital-Energy Storage Company Investing

EPRI-EPRI Software Quantifies the Value of Energy Storage

European Commission-The future role and challenges of Energy Storage [pdf]

Greentechmedia-Energy Storage Experts Explain What Happened at Battery Firm A123

Navigant Research-Emerging Business Models for Energy Storage

Renewable Energy World-The Clean, Simple Solar and Storage Solution to US Utility Business Model Woes

UK Power Networks-Smarter Network Storage (business model consultation) [pdf]