Later today Tesla Motors is expected to make a major announcement about new stationary storage offerings—both a home battery and a very large utility-scale battery. Everyone, it seems, has been abuzz for days, evidenced in wall-to-wall coverage from Bloomberg to Yahoo!. Investment analysts have been weighing in, too, and Tesla’s stock is up significantly this week on the forthcoming news.
Without speculating on the product’s technical specifications or other details we won’t know until Tesla makes the actual announcement, I think we can safely assume that Tesla’s talking points will follow a general three-point outline:
- Stationary storage—including behind-the-meter—is here for the long haul
- Storage has gotten very cheap (or will soon, thanks to the Gigafactory)
- Storage offers value to residential, commercial, and utility customers today
For residential and commercial customers, Tesla’s announcement is another proof point that cost-effective, customer-sited solar-plus-storage systems are coming, as we recently analyzed in The Economics of Load Defection.
However, an obsessive focus on cheap storage for customers risks missing the bigger opportunity. For batteries to be truly transformative—for customers and the grid—we need to recognize the full range of values they can provide and remove barriers (especially market participation) preventing customer-sited batteries from providing all of those values.
Twelve Services Energy Storage Can Deliver to the Grid
For sure, Tesla’s new systems will be used for backup power. They’ll also be used to lower customer bills through arbitrage against rates (such as demand charges) and demand response programs, as many other energy storage companies currently do. But without even knowing additional detail about the product itself, I can safely say that Tesla’s new product will able to do much, much more for multiple stakeholder groups including customers, utilities, and independent system operators (ISOs) / regional transmission organizations (RTOs).
In fact, when products like Tesla’s are installed behind the customer meter and networked with hundreds or thousands of other similar systems, storage is capable of providing about a dozen services to the electricity system at large. Furthermore, in many cases, it costs less for aggregated behind-the-meter storage to provide these services than what we pay for them to be delivered now in other ways.
The services energy storage can deliver when installed behind the meter like Tesla’s planned products fall into three categories: 1) services for customers, 2) services for ISOs / RTOs, and 3) services for utilities.
Services for Customers
- First, they can be used to directly benefit customers by:
- Providing backup power
- Reducing demand charges
- Optimizing customer bills against time of use or other non-volumetric rates
- Increasing self-consumption of distributed solar energy. In places like Germany and Australia where net metering doesn’t exist or in some corners of the U.S. where electricity is expensive and net metering isn’t available, storage can be used to increase building-level self-consumption from a distributed solar system to maximize the economic benefit of solar.
These services, especially the first two, are likely to be squarely in line with what Tesla and its partners will announce as major values of their new battery product. However, these customer benefits tell only part of the story; an exclusive focus on these aspects of Tesla’s (and others’) batteries will miss the bigger story and a bigger opportunity.
Services for ISOs / RTOs
Second, storage—especially fast-response batteries like the chemistries found in electric vehicle batteries—can support the grid by delivering a suite of ancillary services. In restructured states like California, this means energy storage can bid into wholesale electricity markets. In non-restructured states like Colorado, these services are delivered using assets directly controlled by the utility—not a marketplace. These services include:
- Frequency regulation
- Spinning and non-spinning reserves
- Load following / energy arbitrage
- Black start
- Voltage support
In many cases, batteries can provide these services more reliably and at a lower cost than the technology that currently provides a majority of them—thermal power plants—so by using energy storage to deliver these services, some electricity systems can be maintained at a lower cost.
Services for Utilities
Third, storage systems installed behind the customer meter can be dispatched to provide deferral or adequacy services to utilities, such as:
- Transmission and distribution upgrade deferral. When load forecasts indicate transmission or distribution nodes will exceed their rated load carrying capacity, incremental investments in energy storage can be used to effectively increase the node’s capacity and avoid large, overbuilt, expensive upgrades to the nodes themselves.
- Transmission congestion relief. At certain times of the day, ISOs charge utilities to use congested transmission lines. Discharging energy storage systems located downstream of congested lines can avoid these charges.
- Resource adequacy. Instead of using or investing in combustion turbines to meet peak generation requirements, utilities can call upon other assets like energy storage instead.
In the U.S. alone, we’re slated to spend an estimated $1–2 trillion over the next fifteen years on electricity infrastructure. By deploying energy storage—along with demand response, energy efficiency, smart controls, and distributed solar—many of these investments can be avoided in the first place, saving money for society along the way.
Barriers to Market Participation
There’s little argument that systems like Tesla’s, when installed behind the customer meter, can technically deliver these services to the electricity grid. However, even though in many cases behind the meter energy storage—in addition to demand response and distributed solar PV—can provide these services at a competitive cost, several regulations, laws, and misunderstandings have largely restricted the ability of the technology to do so.
In Tesla’s home state of California and in a select number of states like New York, Texas, and Minnesota, regulatory reform efforts are under way that should help overcome many of these challenges.
But until those efforts are successful, these barriers currently restrict behind-the-meter storage to delivering a much shorter list of the services outlined above—even in states leading the charge for electricity system regulatory reform. Encouragingly, even with a truncated list of services to work with, Tesla will still be able to use its new product and create value for thousands of customers including commercial customers looking to reduce their demand charges and residential customers under dynamic rates. In fact, by deploying their new product to deliver only one or two of the twelve services energy storage is actually able to deliver, Tesla will demonstrate the value that their systems can create for the electricity system at large. This act will help overcome myriad regulatory challenges and utility misconceptions facing energy storage by pointing to real-world successes.
A Path Forward
Tesla won’t be alone in working to overcome these barriers to unfettered market access for energy storage and other distributed energy resources. Groups like the Electric Power Research Institute have research and analytical tools coming down the pipeline that will help to illustrate what batteries like Tesla’s can do for the system, and at what cost. And later this summer RMI will be releasing new research as well, including a body of work focused on quantifying the costs and benefits of behind-the-meter energy storage to the grid.
Through these efforts and with the availability of new products like Tesla’s in the marketplace we hope to provide tangible evidence to decision makers on the merits of distributed energy resources and the changes that need to take place in order to unlock their full potential