The Age of Customer-Sited Energy Storage is Approaching

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Distributed energy storage offers big new opportunities for utilities, customers, and the grid

By Michael Matz

A key objective for Joana Abreu in her job as demand response program manager at Eversource is to find ways to reduce the utility’s peak load. “Ten percent of the hours of the year account for 40 percent of the load in our service territory, and those 10 percent happen in the summer,” said Abreu. “By reducing these summer peaks, we can limit the amount of fossil fuel-powered generation capacity that we need to bring online—and help reduce greenhouse gas emissions.”

While her objective to reduce peaks is typical among utility demand response managers, Abreu is taking a notably novel approach to achieve it. She manages a program that pays incentives to homeowners and businesses for allowing the utility to use energy stored in their battery systems at times of high demand, targeting that critical 10% of hours. The program, called ConnectedSolutions, has had success in reducing peaks. For example, during a heat wave in July 2019, Eversource requested energy from its entire portfolio of customer-sited storage, helping to prevent outages and avoiding the need to bring more fossil fuel generation online.

Current enrollment is 687 residential storage systems with a cumulative capacity of 2.5 megawatts and 11 commercial and industrial systems totaling 9.6 megawatts. In the summer, homeowners receive $225 per average kilowatt for allowing Eversource to use the energy stored in their batteries during as many as 60 three-hour, high-demand periods. A typical home battery could contribute as much as 5 kilowatts per event, earning $1,125 for the season. Businesses receive $200 per average kilowatt, which means that a larger storage system contributing an average of 100 kilowatts could make $20,000 for the summer. According to Abreu, Eversource determined these incentive levels based on the expected cost savings from not having to purchase additional generation capacity on the wholesale energy market. Long term, Eversource may explore the use of storage for targeted dispatches at the substation level to relieve local areas of high demand.

New Storage Business Models for Utilities

With accelerating deployment of customer-sited, behind-the-meter storage, Eversource is one of a growing number of utilities investigating various ways to use these systems to support grid operations. More than 12 gigawatt-hours of behind-the-meter storage systems have been deployed globally, accounting for about half of all energy storage connected to the grid. According to Wood Mackenzie, 60 gigawatt-hours of global behind-the-meter capacity is expected by 2025. For context, that’s about the same amount of electricity that was sold in Maryland in 2019.

More frequent fires, hurricanes, and other extreme weather are driving greater customer interest in resilience and on-site, backup power. In fact, a desire for uninterrupted power during outages is one of the most common stated reasons that homeowners purchase battery storage systems, according to Michael Norbeck, director for grid services business development at Sunrun, the largest installer of residential solar/storage systems in the U.S.

In addition to peak demand reduction and backup power during outages, customer-sited storage can provide a broad range of grid services, including energy to compensate for dips in solar and wind power production, energy arbitrage, frequency regulation, voltage support, and deferral of grid infrastructure upgrades. Relative to front-of-the-meter storage, customer-sited storage can potentially offer more cost-effective grid services because it is located closer to where many grid problems may emerge, such as overvoltage and an imbalance of energy supply and demand.

New business models are unfolding. In 2020, FERC approved Order 2222, which allows distributed energy resources like solar-plus-storage systems to participate alongside traditional generation resources in wholesale energy markets. Companies that provide solar-plus-storage systems to customers can aggregate these resources into fleets and receive compensation in energy markets for grid services.

“Utilities can explore these new business models to benefit both their distribution and transmission operations,” said Nick Tumilowicz, an EPRI expert on grid integration of battery storage and other distributed energy resources. “Utilities already engage with their customers in various ways such as helping them make their homes more efficient. If they want, they can begin engaging with their customers to tap the value of their storage systems. By putting these flexible resources to good use, they can reduce costs for grid operations and for their customers.”

According to EPRI’s Tumilowicz, utilities are evaluating several approaches to manage customer-sited storage, each with different advantages and disadvantages. One option, owning and operating storage systems, enables utilities to have full control over systems for grid services and build on existing customer relationships. The utility would need to configure the systems so that customers could still use them for backup capacity in case of an outage. While this option offers potential for a utility to include storage systems in its rate base, it may present regulatory constraints. “Regulated utilities are not allowed to own and operate certain types of assets, including storage, though this may change over time in different regions,” said Tumilowicz.

A second option for utilities: customers own the storage systems, with the utility aggregating them via its control systems. “With this option, the utility has to invest in software and hardware to set up in-house aggregation capabilities,” said Tumilowicz. “The utility can have considerable control over the storage assets, though less control than if it owned the systems. There may be fewer opportunities to cultivate customer relationships and less potential to capitalize the assets.”

Under a third option, the utility purchases aggregation services from a third-party company, which can provide grid services upon request. While the utility does not need to invest in in-house aggregation capabilities, this option may offer limited control over storage assets, even fewer opportunities to cultivate customer relationships, and little opportunity to recover costs. By avoiding investments in physical assets and aggregation capabilities, utilities can potentially reduce costs for their customers.

Eversource’s ConnectedSolutions program uses the third approach, working with its customers’ aggregators, which include more than a dozen companies. Eversource schedules the events, during which its Distributed Energy Resources Management System (DERMS) communicates with the aggregators’ control systems. The aggregator notifies customers of events by email and text 24 hours in advance. Some aggregators allow their customers to opt out of events by responding to these emails and texts.

According to Eversource’s Abreu, Eversource intentionally opted not to serve as the aggregator. She explained that existing aggregator companies already have relationships with customers focused on offering a suite of options and applications to optimize their battery systems. Participation in Eversource’s demand response program is one of many possible applications, such as continuous power during outages, energy arbitrage, and consumption of solar power generated onsite. “We see our role as narrower than an aggregator’s,” said Abreu.

Aggregators: Potential Utility Partners and Competitors

Storage aggregator companies are pursuing many different types of grid-related business opportunities. Sunrun, which has deployed about 16,000 residential solar-plus-battery storage systems in the U.S., offers a good case study. On its website, the company describes itself as a potential utility partner and provider of grid services to build a more resilient grid.

“We’re looking for commercial opportunities where we have concentrations of storage assets,” said Sunrun’s Norbeck.

Sunrun works with Eversource’s ConnectedSolutions program, fulfilling the utility’s requests to discharge power to reduce peak load. In late 2020, Sunrun signed a deal with Southern California Edison (SCE) to deploy thousands of home solar-plus-battery storage systems that can be bundled as a 5-megawatt “virtual power plant” for grid services. In addition to using the virtual power plant to address high-demand periods and other grid events observed today, Sunrun and SCE are investigating how the plant could be used to mitigate other grid scenarios that SCE expects to see in the future, such as the threat of rolling blackouts during summer heat waves.

In 2019, Sunrun won a bid in ISO-New England’s wholesale energy market to provide 20 megawatts of aggregated solar-plus-storage systems. The bid is an example of where an aggregator could potentially become a competitor to utilities and other power companies that also bid to sell electricity and related products on wholesale markets.

In partnership with Autogrid, an energy management software company, Sunrun is investigating ways to optimize how different batteries in a large portfolio respond to a request from a grid operator. Norbeck offers an example. “Let’s say the utility wants one megawatt of energy for four hours outside of peak demand, and we have a portfolio of 1,000 batteries,” he said. “We may be able to fulfill the request using just 750 of them, so which 750 should we use? We can consider factors like the state of charge of the batteries, which retail electricity tariffs participating customers may be on, and which customers indicated a preference that their batteries only be discharged during peak periods when they receive financial incentives.”

What can help utilities and aggregators effectively collaborate on efforts to support the grid with the use of customer-sited storage? “It’s important to provide enough compensation to encourage more storage deployment, which can in turn make storage more valuable to the grid,” said Norbeck. “Also helpful are clear, consistent, and achievable performance requirements and a range of opportunities for storage to support the grid.”

EPRI Research: Field Demonstrations, Product Testing, Modeling, and More

When it comes to tapping the value of customer-sited storage systems, a big knowledge gap is standardizing how they connect to the grid and communicate with utilities. Standard, secure communications among utility, aggregator, and customer-sited systems is key to extracting value from storage, yet communication protocols are still governed by several different standards. EPRI is developing best practices intended to safely interconnect storage systems in a standard way so that they respond reliably to utility signals. Plus, EPRI researchers plan to develop open-source, standard communication protocols.

“In addition to deployments by big national integrators, mom-and-pop shops install a significant number of solar-plus-storage systems, many of which are connected to the grid and communicating in non-standard ways,” said Tumilowicz. “National and regional integrators are deploying a heterogeneous fleet of storage systems with various makes and models, posing a challenge for utilities to execute standardized, cost-effective programs to use these assets. Six different batteries may speak six different languages.”

EPRI is supporting utility demonstrations to test various storage applications in the field. For example, EPRI worked with SCE and Meritage Homes to design a residential neighborhood of 20 zero-net-energy houses in Fontana, California. They investigated several uses for the batteries deployed in 9 of the houses. For example, they configured the battery storage systems to absorb excess solar power in the early afternoon and power the houses during peak demand in the late afternoon and early evening to minimize use of grid electricity during that period.

“As with our other battery field demonstrations, our objective in Fontana was to optimize the batteries for the customers’ benefit first, then looks for ways to benefit the grid, and finally examine how to maximize benefits for both customers and the grid,” said Tumilowicz.

EPRI has provided design guidance and data analysis for Georgia Power’s Altus at the Quarter, a neighborhood of townhomes equipped with rooftop solar, battery energy storage, and energy-efficient building components and appliances such as heat pump water heaters. Grid-interactive control systems manage and optimize all these devices. Georgia Power, EPRI, and other project partners are examining how all these devices work in concert to provide value to customers and the grid.

Other EPRI research on customer-sited storage includes:

• Markets and deployment: Reporting on storage technologies and tracking deployment of storage regionally and globally
• Business models: Evaluating new utility programs that aim to use storage for grid services
• Technology and product testing: Field-testing the capabilities and performance of storage products when grid-connected and aggregated and in different weather conditions
• Economic valuation: Developing tools and conducting economic modeling studies to assess the value of storage to customers and the grid based on factors such as location, capabilities, and electric rates

“More utility customers want resilience and backup power, and third-party companies are serving that demand by installing batteries at homes and businesses at an accelerating pace,” said Tumilowicz. “Utilities have a chance to get ahead of this emerging trend and develop the programs, procedures, incentives, and systems so that what is deployed provides the most value to their customers and grid operations.”